Wednesday, July 29, 2009

Business "Dashboard"

Balanced Scorecards & Operational Dashboards with Microsoft Excel

In the last discussion we discussed how financial management is not essential for business success, but it certainly helps you manage your business better. The primary problem with financial statements is that they are like looking in you rearview mirror for cues on how to drive. Financial statements are all about what just happened, not what is about to happen. Wouldn't it be nice to be able to make adjustments while you are moving similar to how you do when you are driving.

When driving on a road and you see a curve ahead you adjust your speed and direction to compensate so that you don't end up in the ditch. Now try that same curve while looking in the rearview mirror. What is behind you, may not give you any insight as to what is about to happen. Of course if you look in the rearview mirror and see that you are on the shoulder of the road you may have enough time to adjust, but then again you may not. Well managing a business comes with the same challenge. How do you manage a business while looking out the windshield?

That is where the business dash board comes into play. Continuing with the driving analogy, we see that the speedometer is telling us that we are traveling at 75 mph when the speed limit is 65 mph. We can adjust immediately before we get a ticket. The same if we see that there is a hazard ahead of us. We adjust the direction of the car to miss the hazard. Using the view out of the windshield and the gauges on the "dashboard" of the car we can make adjustments during the course of driving.

We can develop the same "dashboard" and "windshield" view for our business so that we are 80% to 90% aware of what the financials will look like when we review them at the end of the month. These tools will allow you to project how our business will perform. Here are a few examples of a business dashboard.

I once ran a outpatient imaging center and we would always look out a week in advance to see how the schedule was filling up. Similar to a fuel gauge in a car, the schedule would tell us if we were filling up or not. If we weren't at a certain capacity level by Wednesday of the week before we could put efforts in motion to fill the schedule. (i.e. call physician offices and let them know that they can get a patient in for an MRI right away if they needed) We could accelerate our efforts and slow them down as needed well before the time had past when we could have had an affect on the financial performance of the center.

With another organization we would set daily targets for foot traffic through the store. If we saw traffic on a particular day not reaching our predetermined goals we would run specials immediately to increase traffic. The ability to respond in the current period is what separates a rearward looking financial statement approach and a forward looking "dashboard" approach.

If you want to seize every opportunity of everyday then look at your business and find ways to develop a business "dashboard" that gives you the ability to be forward looking. You will reap tremendous rewards and torch your competition.

Remember, make today memorable!



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