How to Identify, Track and Use Data Points
In a volatile couple of years that have seen a global pandemic, supply chain challenges, talent shortages and record inflation, the data we use to benchmark performance and guide our businesses is as vital as ever. But which metrics we use – and how we use them – has changed dramatically.
FocusCFO contributed to a recent Brainyard article, which explores how to identify, track, and use key metrics effectively in this new (and ever-changing) landscape.
As fractional CFOs, our associates often take a strategic bird’s-eye view when identifying and using key metrics. Here are four key areas that we have seen an increasing emphasis on in the past few years:
1. Inflation: Measures of inflation, particularly raw material inflation and how it compares to the selling price of finished goods, have become critical to track in today’s environment.
2. Inventory: Because of ongoing and potential supply chain issues, the days-of-inventory-on-hand metric has become more prominent. Because a just-in-time inventory strategy will likely not work well, metrics around the costs to maintain higher inventory levels, like space, insurance and shrinkage, have also increased in priority.
3. Personnel: A tight labor market means that personnel-related KPIs, like turnover, referral sources and average hourly wage versus budget, are receiving more attention.
4. Profitability: Many businesses, like restaurant groups, are now tracking profit by day of week as well as hours of operation. This allows management to make informed decisions about closing or reducing open hours on certain days.
Additionally, our brain trust of CFOs and Area Presidents noted that EBITDA has taken on a more important role due to the treatment of forgivable PPP loans, which causes distortions in net income. Cash flow from operations is also being prioritized above total cash flow.
To learn more about best practices for developing metrics that drive performance, read the full Brainyard article.