How do you measure performance?
A footy team measures their performance by their win loss record. However, their coach might look at performance in many other different ways. From individuals to team based factors, from offensive to defence factors, and so on. The coach would use statistical analysis and feedback from participants to determine if the strategies they implement are successful.
Business is much the same. We plan, we strategise, we implement, then we measure our performance. There are numbers of ways we do this, with the main tool being our use of KPIs - Key Performance Indicators.
Other tools including trend analysis, budgeting, forecasting etc. All these tools enable us to measure performance.
And all these tools are great. But one thing we pride ourselves on is finding the right goals for the business and tailoring our business performance analysis to measure and achieve the goals.
Our farmer from our Business Compliance scenario. He had $2000 worth of savings so we decided to use those funds into our business mentoring program.
In our first meeting we identified the farmers short and long term goals. We didn't limit the goals to the business, but opened it other life factors. One major factor being that the farmer had worked the farm for so many years and was beginning to feel the affect on his body.
Traditionally we'd look for areas to cost cut so that funds will be available to maybe hire an employee to lend the farmer a hand. And whilst we floated that idea, along with raising capital through finance or property sale, we also reviewed the performance data of the farm, and identified that the farm had been operating below capacity.
So we identified three severe problematic areas, Cashflow (specifically payments from customers), Gross Profit Margin and Asset Use. We then brainstormed, looked at the farmers assets and identified that part of the farmers land could be repurposed to produce feed. As he already has part of his farm producing feed, he didn't really need any further investment.
This, coupled with new contracts for the feed, meant that we sured up our cashflow issues (which we measure through the KPI Debtor Days), due to the shift in land usage and employing low set up costs, the Gross Profit Margin corrected. And most importantly a higher percentage of farm assets (both operating and financial) were being used and through the asset usage KPIs we could identify that the choice to run farm this way was delivering a higher rate of return than if otherwised invested elsewhere.
The overall financial result was a higher profit which was reinvested into more labour support for the farmer. As there was an excess leftover to contribute to the farmers retirement plans. In all the turnaround took 2 years.