Playing the Critical Number Game

Posted by bechtom

May 22, 2008

In a large number of organizations, employees (and even then not all of them) get to see their company financials once at year, typically at an annual review meeting. It’s usually a “heavy” setting, with all of the senior management present, and the CFO reels off some obscure figures which most people don’t understand. Not surprisingly, in everybody’s mind, the numbers automatically become the financial department’s property. Bizarre, isn’t it, when in reality the bean counters have far less influence on company results than a lot of the other staff?

If your business is among those where numbers are not being put to good use, it’s time for a quick change in game plan. Numbers are a barometer of company-wide performance, so there’s no way that they can be considered the exclusive preserve of the finance department. Everyone needs to understand them, work towards them and most importantly, take ownership of them.

So, how do you go about making company financials more user-friendly?

First: Deconstruct them. What’s the point of using terms that no one understands? Leave heavy weather stuff like Operating Ratio and IRR to the guys that really care about them. Critical numbers must be broken down into easy to understand bits that everyone can identify with. If you’re talking to the guys on the shop floor, discuss yield and productivity and how improvements in those areas can increase profits (that’s a number everyone understands!). On the other hand, ask the sales team to focus on cost-of-sales, outstanding payments of large customers, or profit per product line.

Next: Make them known. Earmark a space where the critical numbers for each department can be put up. It can be pinned up as a notice on the board, go as an IOM or be flashed on the intranet.

Then: Ensure people see them. That’s the most important point of this exercise. Once the numbers are made available, you need a system to make sure that people monitor them on a regular basis. Else how will they take ownership?

One way of doing this is to review the math at a department level on a regular basis, and invite suggestions on how critical numbers can be improved. If they can come up with some decent solutions, you know they have both read and understood!

Now: Use them. Let’s say you’ve got your staff all fired up about their critical numbers. Involve them further by inviting projections for the next quarter. Encourage inter-departmental rivalry, with a reward for the team that achieves critical numbers it has forecast.

Finally: Close the loop by getting the individual departments to present their respective critical numbers at large meetings. Once they talk about them in public, they’re automatically assuming ownership.

Numbers speak louder than words, and are what really count at the end of the day. By encouraging your staff to focus on achieving them, you can lay the foundation for a fundamentally strong and performance driven business.
Author: Akhil Shahani

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