Performance metrics come in two broad categories:
1) Activity metrics that capture how well a company is performing on a day-to-day basis.
These normally come in two forms:
- Operational metrics, that capture productivity of physical resources (people, equipment and facilities) as well as customer service.
- Financial metrics that capture costs, revenues, operating margins and stock performance.
2) Risk metrics that capture the impact of unexpected events.
We again divide these between:
- Operational risk, which captures major disruptions to the flow of goods and services (entire books are written on this topic).
- Financial risk, which captures sudden changes in the flows of costs, revenues, operating margin, and financial markets.
Operational metrics: In trucking, operational metrics might be empty miles as a percent of total, loaded miles per driver per week, on-time pickup and delivery performance, driver revenue per week, getting drivers home on time, driver turnover, and equipment productivity. Supply chains might often focus on inventory turns, lead times, stockouts (that might disrupt a manufacturing facility or produce lost demands), the productivity of people, equipment and facilities.
Financial metrics start with stock prices (for public companies), operating profit/margin, and run down through a host of metrics that capture the costs and revenues of different activities. A trucking company might measure operating cost per mile, as well as revenue per loaded and total mile.
Companies may have hundreds of metrics, capturing different dimensions of their operations. A challenge is learning how to set targets and identifying the metrics that have the biggest impact on corporate profitability.
Every company is familiar with activity metrics. The challenge is identifying the metrics where you feel could be improved.
The next post will deal with risk metrics.
Read Part 1: Thinking About Complex Problems.
