Data, Damned Data and Metrics

Insights are only as good as the metrics on which they are based. Metrics are only as good as their origins. Many firms spend good money on industry specialists who create metrics based on what they have done before and elsewhere, sometimes not even in the same industry. All firms are the same in one respect in that they are all different. Firms need to be cautious in taking metrics at face value and also the data behind that metric. Read on for some top tips.

The source of de-Nile.

Interpreting a metric you don't believe involves context and context is key. The key context questions are:

· What is the source of the data?

· Who was the author of the metric?

· What is the business purpose of the metric?

Interpret metrics with scepticism and correlate them with other decision making tools. Ask yourself if everyone is singing the same hymn from the same hymn book. There is nothing like consistency and context less metrics are nothing like it.

Tell me something rather than everything and nothing.

Business operations people need to have metrics that help them make decisions and take actions. Those decisions and actions need to align with the business. By extension therefore the metrics also need to align and they need to do so in a concise, transparent and easily understood manner which makes sense to the audience. Too often there are dashboards , dashboards, everywhere and never a stop to think.

Own the metric, own the data and balance the behaviours.

Even when the metrics, the behaviours and the data are owned by a fully engaged team, remember to appreciate that some metrics encourage competing behaviours and the key is to balance those behaviours. A classic example is the trade-off between Income, profitability and working capital management.

· Income could be measured in fees per individual,

· Profit could be expressed time spent to income ratios

· Working capital management might be geared to income lockup in debtors and work in progress.

Each of the above metrics if not aimed at a consistent audience encourages diverse behaviour.

“I’m sorry, wrong number.”

Your time is precious, don’t waste it. Extraneous metrics that just look pretty and don’t add insight that supports current and future decision making should be ignored. Understand your goals, identify the metrics that support those goals and understand the levers you can pull that cause those metrics to fluctuate and crucially share that knowledge.

There’s a me in metric but also a me in team

You will not derive the full business context to any metric on your own so work with the firm’s functional area owners and cultivate relationships. Don’t be afraid to ask the senior management for advice and support in getting the validation of your understanding of what is happening in the business.

Understand the numbers but reserve your trust in them

Some metrics are produced to support vested conclusions. Make sure you understand:

Agenda – Who built the metric, who specified the metric?

Method – Where does the data come from and how is it collated?

Scope – Is the picture complete or is this a precis or subset?

Timescales – How up to date is the data and what period does it cover?

Metrics are a symptom not the problem

In analysing any metric critical thinking is vital, taking a metric at face value occasionally leads to incorrect conclusions. Moving away from simple factual statements based on metrics to statements based around explanation is key, especially if you are not a subject matter expert in the area concerned.

Take for example the statement “Debtor days have decreased by 22 days over the last 6 months.” Good news?

How about “Debtor days have decreased by 22 days over the last 6 months, because of the loss of a major customer who had special 90 day credit terms.” Not so good news.

Caveat Metriculator