Metrics Development

 

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Types Of Metrics

Metrics can be classified into Leading Indicators (Predictive) and Lagging Indicators (Historical). Leading Indicators are often referred to as KPIs and are predictive in nature. Lagging Indicators are historical in nature and are often referred to as Business Metrics. A leading indicator is a performance measurement that occurs BEFORE a process begins to follow a particular trend. A lagging indicator is the OPPOSITE. It is a measurement that indicates results AFTER the process is complete.

LEADING INDICATORS are more relevant in today’s newly invented business digital models where competition is based on Volume, Velocity, Variety, Variability, Veracity, Value and Visualization of data.

JTSI has experience in assisting clients develop both leading and lagging indicators.

  • LAGGING INDICATORS – In other words known simply as Business Metrics are quantifiable measures businesses use to track, monitor and assess how things are going at the operational level (business process). Lagging indicators are backward-focused or trailing and they measure performance data already captured. They help you determine if the company’s goals were achieved. The main goal of these metrics are twofold:
    • COST DRIVERS – lower costs
    • REVENUE ENABLERS – Increase revenue

The overall goal is to communicate a company’s progress toward certain long-term and short-term objectives. This will require input from key stakeholders to select metrics that matters to them most. Business metrics are more valuable when used in context of the company’s benchmarks, practices and objectives. There are various types of metrics such as Sales Revenue, Churn Rate, Gross Margins, Quarterly Profit/Loss, Inventory size etc.

  • LEADING INDICATORS are predictive in nature. Predictive metrics can
    • Mitigate risks – such as impact of disruptive events on company’s performance
    • Seize a transient business opportunity based on dynamic and current events that requires an unprecedented business velocity and agility. Situational awareness and rapid response based on volume, velocity, variety of information such as a terror threat through social media etc.
    • Research has indicated that use of Predictive Performance metrics will increase corporate profitability by 20%.

JTSi’s approach:

We recognize the fact that there is prescriptive way of defining indicators. There is no one-size fits all approach. It is unique by business and situations.

We adopt the practice of “Dimensional Analysis” in our approach towards assisting our clients in establishing indicators

Dimensional Analysis – highlights

  • Puts seemingly complex quantities down into fundamental quantities
  • Allows derived quantities to be related to and expressed through others
  • Establishes proportionality rather than just trend of variation of one quantity with others
  • Zeroes on quantities most important for establishing facts
  • Narrows down business metrics
  • Reduces burden of data analysis
  • Provides higher accuracy of analysis
  • Provides more accurate predictions

How we adopt Dimensional Analysis?

  • Have the business definition ready
  • Find the quantities for which client need the trends (let’s call them Ts)
  • Analysis composition of each T in terms of presence of simpler quantities (call them Ss).
  • Establish level of influence of the Ss on Ts.
  • Establish Dimensions of Ts in terms of Ss
  • Iterate if necessary to establish dimensionality more accurately
  • Work with combinations of the Ss those will themselves make measurable quantities (call them Ms) and will together work out to establish Ts
  • With data warehouse / data-mart, locate these Ms in the data available
  • Devise technique of measuring Ms to establish / check the trend
  • Analysis Ms and extrapolate to establish trends in Ts

We will study your strategic goals and understand your vision, understand what is being measured currently (both leading and lagging) and help you determine if these measures still provide value and relevancy. For example, are your backward measures effectively measuring your business output (performance)?. Any surprises in the business output for the quarter that falls under/over stated goals should be spotlighted and their measures examined further (for changes or finer adjustments). We will help you create Performance Indicator surveys to insure your indicators are appropriate and relevant.

We can also bring you an outside perspective to help you recognize the key leading and lagging indicators for your market. What and how is your competitive landscape measuring? We can do this with our extensive partnership and networks in the industry – key ERP vendors such as SAP, ORACLE, business community leaders, industry experts etc., to share with you national and industrial benchmarks. We then further customize these benchmarks to your unique business situation.

We will help you choose the leading indicators carefully. The leading indicators should be unique to your business environment and derived from corporate strategic goals