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FP&A - Managing by metrics

November 30, 2023
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So many FP&A managers build out some rocking KPI dashboards and management is excited to be able to report on all those metrics.However, many businesses manage using metrics all wrong. Managing using data is not inherently incorrect, but doing it wrong can add risk. Goodhart’s Law of “When a measure becomes a target, it ceases to be a good measure” is a danger to anyone measuring metrics in their business.There are countless examples where a measure becomes a target, gets manipulated, and ultimately no longer measures what you wanted to measure in the first place.My favorite example is surveys. They are merely meant to give you a measure of performance.But all too often, people want to solicit responses and worse, solicit a specific response.The grossest example is car dealership service centers where the service advisor tells you, “If you can’t give me a 10, let me know how I can fix it.” Worse, when they add: “I am compensated and docked if I don’t get a 10.”Their company wanted to measure the service level, but what they are getting is a completely manipulated response that no longer measures the service. Instead it measures how good the advisor was at avoiding a bad score.If you look at what you are measuring you will find all sorts of similar metrics that had a good reason to measure but then turned into a target, and now are subject to manipulation.

  • Marketing - driving leads of no value.
  • Sales - closing any/all deals regardless of fit.
  • Manufacturing - building as many parts regardless of quality.
  • Customer Service - purposely dropping calls to lower average handle time.

Metrics that were meant to monitor how you are doing turn into useless vanity metrics because the employees know they are getting monitored, and thus they end up manipulated. They are no longer useful and could be damaging your business.There is a place to use data to make decisions. But make sure that you are keeping the entire picture in mind and not propping up a pretty vanity metric that isn’t doing what you intended for it to do, or worse, hurting the company.[/av_textblock]

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