Organizational reporting clutter

To often an organization's reporting initiative consists of an analyst who prepares countless number of reports that nobody uses.  This happens when ad hoc report requests turns into a regularly scheduled report that the end user does not need but that the analyst sends regardless.  Or the report is scheduled to run automatically.  Over time the excessive amount of reports accumulates to a point where nobody knows what reports are for or if they are needed.  If these reports are scheduled to run automatically a good strategy is to stop the automatic job and see what happens.  If nobody asks for the report then it is a safe bet that the report is not needed at all.  Another good strategy is to consult directly with the end user to see if they need to report or not.  This strategy can have multiple benefits.  Regularly consulting the end user can improve the quality of the report and open up discussion for further data needs within the organization.  It could be a missing metric, calculation or missing field that could add value to the business need. Reporting and data needs are not improved by increasing the volume of reports but by simplifying, eliminating or improving existing reports.  Report clutter is very common but with simple house keeping and communication this can be eliminated.    

Regression Analysis

Regression analysis is most commonly used in forecasting.  When running a regression analysis it helps to understand what you are trying to predict.  As an example when you want to predict the price of a comodity for the next 2 years.  Understanding the type of variables that correlate to what you are trying to forecast will help in the regression.  As an example if you want to generate a simple regression analysis to predict the copper price for the next 2 years.  Some variables that will correlate directly to copper price are gold, dow, gdp, Niikai Index, silver price.  Highly correlated variables such as these can be used to put together a mathematical formual to predict cooper price.  A regression starts with data so once you understand the variables that correlate to copper price you can pull forecasted numbers for those variables and use that to run a regression for copper price.  Tools like Excel can be used for forecasting and will make life a lot easier than trying to calculate it by hand.  One thing to remember is that forecasts are always wrong.  Expecially in a economy such as this one with constant unpredictability and market shifts and shorter forecasts are more accurate than longer forecasts.  Meaning that a 6 month forecast will be more accurate than a 10 year forecast.  In this economy creating a shorter forecast makes more sense.   Expecially for technology or commodity prices. 

What is Profit?

One of the most important measurements in business is the bottom line.  But what does "The Bottom Line" mean?  This term is sometimes used for many things but technically it comes from a financial statement known as the income statement. The bottom line on the income statement is Net Income or Profit.

Now we still have not answered the question “What is Profit"?

From a basic perspective profit is revenue minus costs.  What people have to be careful about is calculating the costs.  The two types of costs are direct and indirect.  Direct costs can be directly linked to the product and indirect cost is everything else.  Examples of costs that are allocated directly are raw materials because we can directly trace the amount of raw materials used to the products that are made.  While an example of costs that are allocated indirectly are rent, utilities and maintenance. 

Other lines on the income statement to consider include taxes and depreciation.  Companies have to pay tax on the income they report so net income is after tax.  Depreciation is calculated in differet ways but generally it means the allocation of a value loss for equipment.   

Basic Calculation for Profit:

Net Income: Revenue - Costs-Taxes-Depreciation-Preferred Dividends

How companies use Profit:

-           Reinvest for expansion

-           Pay out to yourself

-           Save it

-           Pay Dividends

To capture net income firms use the income statement sometimes referred to as the profit and loss statement.  Investors will refer to the income statement to analyze the firms’ net income. The income statement is universal to all firms and incorporates multiple calculations. The income statement captures a firm’s performance across a period of time and is prepared monthly, quarterly and annually.


Ratios can be used as a way to analyze the profitability of a firm.  The health of a company can be determined by making these calculations.  Different industries have different ratio standards.  For example the grocery business is going to have a lower profit margin then the services industry.  So when looking at ratios one has to compare them to others in the same industry.

Below are ratios associated with the measurement of Profitability: 

Common Profitability Ratios:

Profit Margin: Net Income/Revenue

Basic Earnings Power: Earnings before interest and taxes/Assets

Return on Assets: Net income/Assets

Return on Equity: Net income/Equity

Inventory Control Metrics

Proper inventory management can mean cost savings for a supply chain department but if no control measures exist then it's hard to determine if those cost savings are being realized.  Holding inventory is costly but it could mean the difference between a sale and no sale.  Many companies would rather hold inventory then loose a sale without realizing how much money they are loosing in the process. 

Companies like Wal-Mart have mastered the art of inventory control and spend millions of dollars per year to perfect this art.  Most companies don't have the same resources as Wal-Mart to manage their inventory.  Simple inventory control metrics exist that can be implemented to make the process of measuring inventory easy.

These are inventory related metrics that all supply chain managers should look at:

-  Average Inventory:  Average amount of inventory carried.  This can be tracked on a simple Excel spreadsheet.

-  Products with High Levels of inventory:  Identifies which products are carrying high levels of inventory.

-  Average Replenishment Batch:  Controls the replenishment batch measured by stock keeping unit.

-  Average Safety Inventory:  Measures the average amount of inventory on hand when a replenishment order arrives.

-  Seasonal Inventory:  Measures the amount of both cycle and safety inventory purchased due to seasonal changes.

-  Fill Rate:  Measures the orders that were met on time over a specified number of units.

-  Fraction of time out of stock:  Measures the time that a particular product had zero inventory.

These measurements can be easily tracked by a supply chain analyst in an Excel spreadsheet.  Keeping historical data of the metrics can be used for trending and other managerial purposes.
 

Financial Score Cards

Shrinking budgets and corporate efficiency initiatives are making the scorecard a popular mechanism for measurement in the banking industry. A branch scorecard is nothing more than a monthly or weekly report showing metrics particular to each financial unit. To allow for consistency the metrics have to be standard for all business units measured. In addition the scorecard has to show trending so with each update the previous month's numbers have to be listed as well. A popular platform for displaying a scorecard is the intranet. With the intranet a large number of people can consistently view the scorecard. Executives can use a scorecard to hold managers accountable for their branch operations. With this tool an executive can identify the areas of concern for each branch. For example when looking at the number of transactions per FTE the two variables that can be used are 1.The number Tellers 2. Number of teller transactions. Using the number of employees as the Numerator and Number of Teller Transactions as the Denominator one can create a ratio. This ratio will be used to see if the branch unit is operating over capacity or has too many tellers compared to other branches. One has to take into consideration the demographics of a particular branch when evaluating the scorecard metrics. If one branch is located close to a university the number of new accounts will be significantly higher compared to a branch with no demand for new accounts. This can skew the scorecard and create swings in demand from branch to branch. Open communication with the branch manager of that branch can explain differences in rations.

Marketing ROI tips

Before taking on the challenge of creating an ROI analysis for a company’s marketing campaign there are several things a person has to remember.  The most important being the validity of the data.  Nobody will believe your results if they don't know where your data is coming from so make sure you understand every aspect of your analysis, down to the most minute detail. The second thing is to make the analysis simple.  Don't crown your analysis with unnecessary numbers and graphs.  Focus on one particular metric and work on explaining the details behind that metric.  As an example if you use the ROI measurement you want to start by saying "The ROI for this campaign was 150%" and this is where the numbers came from.  Do a deductive analysis by starting with the general and work your way down to the specific.  This way you will be less likely to lose people and drown them with too much data.  The third thing is to keep your analysis consistent from one campaign to the next.  Don't keep changing your numbers and metrics every time you present your findings.  It usually takes several presentations before everyone is on board.  People hate surprises and will tune you out if they are confused.  If you do decide to change a metric make sure you explain what you did first.  The last thing and most important thing is to have accurate numbers.  As an analyst the worst thing you can do is have inaccurate data. If you lose trust in your numbers especially from executives you will have a hard time recovering.  It's better to have a few simple "ACCURATE" metrics then a dozen obscure shady metrics. Keep these points in mind and you will succeed with your ROI measurements in the future.