Why do we need information within our business?

information, decision making, choicesInformation is very important because it helps us make better decisions. Better operational decisions lead to better financial performance

Why?

Here is a basic example assuming demand is greater than current capacity:

Product A Product B Product C
 Price  £150 £250 £300
 Current Volumes / mth  35,000  22,500  15,000
 Current capacity / mth  60,000  40,000 30,000

Which product do you invest in first to increase profitability? Give the above information, this is a really hard decision. In fact, it is a guess. You do not have information about profitability so how can you chose easily?

There are large numbers of businesses that are making decisions like the above, day in day out. Businesses either have no information in certain areas, or very limited information. In some cases inaccurate information is driving unprofitable decisions

To get better information requires investment. Sometimes better information requires knowledge, time and creativity. Often it requires cash investments as well as knowledge, time and creativity.

Back to our example:

Product A Product B Product C
 Product profitability  (1)  40% 20% 25%
 Cash generation          (2)  £55 or 37% £50 or 20% £30 or 10%

 

With the above information, the choices become a lot easier, quicker and more profitable

If you just had the production information the choice would be to invest in Product A, then C and finally B

If you had both pieces of information, then you might reviews the priorities: invest in Product A, then B and finally C

The cash generation difference from choosing to invest in Product A first rather than C would be £925,000 per month. This is a considerable sume. The investment to get profitability and cash generation information for each product is likely to be a fraction of this

 

Speed of decision making increases

We have found that when you have good quality information relevant to the decision at hand, the amount of management time spent in the decision making process decreases. Good information eliminates several options quickly (think about the above example), leaving a smaller number of choices

This allows more time considering the key options driving better quality of decision outcomes

 

Investment Decisions

Every time you make an investment in your business you should be looking to gather data to determine when the investment is generating profit or loss for your business

 

 

If you don’t track the value you get from your investment / spend, then how do you know if it is a successful investment. This should influence where you undertake the activity again or make a similar investment in the future

Once you understand which investments really drive increased performance within your business, you are then in position to drive medium / long term performance and growth

 

Having made the decision to invest in getting quality information, where do you start?

This is harder question to answer as it depends on:

  • What you already have
  • What inputs you currently capture
  • What other inputs you need to put in place
  • What outputs / reporting you need and which are nice to haves
  • the ability / knowledge of your current staff

Your investment in being able to gather enough information and understand it is liklely to require:

  • Individuals with the right skills to design and set up the information flows (the hardest part) and then understand / interpret the information
  • Collection of input data. This covers a vast range of possibilities from a single invoice or simple timesheets through to “big data” requirements with thousands or millions of inputs
  • Process or systems to capture, channel and collate information in a meaningful way to enable understanding

The more data your business handles, the larger the likely investment in the various stages of capturing and managing the data

 

What to do with the information

Understand what the information is telling the manager about the business / area is critical. How we use the information to improve our decisions is a key task for the leaders in a business

Make sure that you have the appropriate skills in the business to manage this step well. It is vital. This is a very important part of the investment in information

Interpretations should be as factual as possible so all managers understand the reality of the situation. Sugar coating or softening the results or exaggeration of results do not help improve the quality of decision making and therefore long terms results

Managers should insist on as clear a picture of reality as possible

 

Business Growth

As your business grows it is likely to get more complex. More products, services, more staff, increasing numbers of clients, locations and so on drive complexity in managing the business

You should periodically review what information you have, how you are producing and managing it and what you are getting out of it. It is very important that the

  • Breadth
  • Quality
  • Speed
  • Efficiency

of information and how it is captured keeps track with your growing business

Why?

If you don’t, you are likely to end up with a lack of information to make critical decisions that have a large impact on your financial health

Do you think your business can afford not to have enough information to make good business decision?

 

 

If you do not have the skills within your business to evaluate and design appropriate levels of reporting for you business decision needs, contact us

Designing and implementing new reporting and the information flows that support the reporting is the hardest part. Engaging with external expertise can be very cost effective for this stage

Managing the information after everything is set up is significantly easier and cheaper

 

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