Management by Numbers
Management by numbers Management by numbers (MBN) refers to a management approach that heavily relies on quantitative metrics, data, and key performance indicators (KPIs) to make decisions and assess performance. In this method, managers use various numerical measures to monitor progress, evaluate success, and guide decision-making. Commonly used metrics may include financial indicators like revenue, profit margins, and return on investment, as well as operational metrics such as production output, customer satisfaction scores, or employee productivity ratios. There is often a tendency to rely on the obvious revenue, gross and nett profit margins, but this is NOT enough. Are you managing the variances? Are you looking at the ratios? Which ratios have changed? I had a client who had to liquidate his business in South Africa because he ignored these ratios. His electricity costs had quadrupled, and he had a manufacturing concern that used a lot of it. He was not paying attention to his financial metrics and it cost him his business. While management by numbers can provide valuable insights and help in setting clear objectives, it is not foolproof. For instance, over-reliance on metrics alone may overlook qualitative aspects like employee morale, customer relationships, or long-term strategic goals. Additionally, focusing solely on numerical targets might lead to unintended consequences, such as employees optimising for specific metrics at the expense of broader organisational health or innovation.
Effective management requires a balanced approach, incorporating both quantitative analysis and qualitative considerations to ensure a comprehensive understanding of performance and strategic decision-making. It must be noted however that quantitative analysis is easier to prepare, monitor and respond to on a regular timetable. Financials and related reports are often computer/system generated and lacks human influence on the interpretation of the content. They are objective.
It is quick to view numbers and identify problems. The soft issues are not as quick or simple and are often subjective and are therefore slower to respond to.
Some of the objective metrics that can be measured and reviewed daily, weekly, monthly, quarterly or what is best suitable include the following. Remember numbers are data, but data that is interpreted becomes information which can inform and guide. So convert your data into information using among other things % and other comparisons. Bear in mind that % calculations next the financial or numeric quantum make it easier to understand and interpret at time. A number of options are listed below: - Budgeted sales versus actual sales by salesperson, branch, region, country or whatever is relevant to you. - Actual sales for the month compared to the previous 3 or 6 months. - Actual sales for the month compared to the same month in the past 3 years. This can be analysed further by product, location, salesperson and using % it allows trends to be identified. Trends add enormous value to understanding data. - Track all individual expenses as a % of total expenses. Then add comparisons over time to identify trends. Also track the growth in the expense on a comparative time basis. - Ideally prepare reports to only indicate the items with significant variances, say 5% variance. With comparative reporting of this nature it is important to understand the trends. Ideally use a reporting tool, or if not available, export to a spreadsheet set up specifically to create customised reports. Do not ignore the impact of inflation on these measures, bearing in mind that while fuel inflation could be 3%, electricity inflation could be 9.
5%, so spend time getting accurate data and do not use the country average inflation rate as it is going to skew your data.