Hamilton Making the EXCEPTIONAL Normal - Part 6 Measuring Success
Author: Dale Furtwengler
Success is a vague term; it has a different meaning for each of us. Yet, you know that job satisfaction (yours and your employees') is directly related to the ability of your team to experience success. You also know that team success isn't possible unless everyone is targeting the same goals. How can you assure the successful completion of a unified effort? First, you have to define success.
There's an old adage that says a map is useless unless you know your destination. This concept holds true for success. If you don't know what you want to accomplish, how will you know which map to use and when you've arrived. On the surface defining success seems like a simple task, but it is fraught with pitfalls including lack of clarity, missing time frames, narrow focus and absence of measures. To avoid these hazards make sure that your definition is:
- Quantifiable, so that you can measure your success
- Balanced, so that success in one area doesn't create problems in another
- Understandable, easy to visualize
- Observable, easy to track
- Published, at least weekly, preferably daily
Let's look at the process one company used to establish a success definition.
My client wanted to improve cash flow. (Wouldn't we all?) As we explored the cash flow cycle, we noticed two significant opportunities for improving cash flow. First, my client was missing proposal deadlines. Missed deadlines result in lost revenues. It's tough to generate cash from business you don't get.
Second, it took my client 3 weeks to prepare an invoice after the project was complete. With normal industry payment schedules of 60 days, the billing delay added 38% more waiting time to an already slow collection process. By focusing on these two activities my client was able to generate so much cash that, within 60 days, they were able to pay off the line of credit and leave it untapped for 4 consecutive months. Here's how they did it.
They defined success with two measures:
- 100% on-time response to requests for proposal without sacrificing diligence in preparing the proposal
- completion of the billing in 5 working days after completion of the project while assuring the inclusion of all change orders and extras
Now let's see whether these measures incorporate all the criteria needed in an effective success definition.
Does the definition include quantifiable measures? Let's look at the first measure, 100% on time proposal response without sacrificing diligence in preparing the proposal.
My client knows:
- how many requests for proposal come in each week
- the due date of the proposal
- when the proposal was submitted
From these facts we can calculate the percentage of on-time proposals each week.
But what about the diligence component of the definition, can we measure that? Yes, we can! Poorly written proposals will produce one of two results. Either my client will see a drop in the acceptance rate of its proposals or they're going to see a drop in profit margins. Here's why. An estimator who is focusing on timely submission will use one of two approaches to "streamline" the process. He or she will build a cushion into the proposal to make sure that the company doesn't lose money on the job. This approach creates bids that are too high to be competitive. The result is lower acceptance rates on the proposals.
The other approach is to bid the job without analyzing the work required. Often this translates into overlooked costs. These jobs are bid too competitively. We would expect the acceptance rate on these jobs to be high because my client would be low bidder. Unfortunately, the profit margins would suffer as a result of the overlooked costs.
So, by monitoring the acceptance rate on proposals and the profit margins on each job (something we do anyway), my client can assure diligence in preparing the proposals.
The second measure, completion of the billing in 5 working days after completion of the project while assuring the inclusion of all change orders and extras, can be quantified. My client knows when the job was complete and when the invoice was submitted. This allows us to see how often we are successful in getting the billing out in 5 working days. Profit margins can, once again, help us assure diligence in the billing process. If a profit margin check is made prior to submission of the invoice, we can assure that change orders and extras aren't being overlooked.
As we can see the success definition is indeed quantifiable. Now let's see if it's balanced.
In the "quantifiable" section above, we see how easy it is to invite nasty results. If my client overlooks the diligence component in establishing the success definition by choosing to focus just on the timeliness of the proposal, they run the risks of losing business or suffering poor profit margins. Similarly, if they focus on just reducing billing time, they can lose money by overlooking the change orders and extras when preparing the invoice. As you create your success definition, think of all the things that could go wrong it that definition is followed precisely. This will help you add balance to your definition just as my client did.
Many of you have never had experience in the construction industry, yet I am certain that you haven't had any problems understanding the concepts outlined thus far. This is a great way to evaluate whether the measures you are employing are understandable. Find several people who are not familiar with your business. State your goals. Tell them how you intend to measure success. Give them insights into the types of problems you want to avoid. Sit back and listen to their comments and questions. Their reactions will provide all the information you need to make sure that your success definition is understandable.
Did my client use measures that are easy to track? I think so. It should be fairly simple to track the request for proposals coming in and the date the proposals go out. Similarly, tracking completion of the jobs and the billing date is easy to do. The diligence measures of proposal acceptance rates and profit margins are things that my client is already monitoring. You can see that not only are these measures observable, they require very little time to track. You will find that the better you become at selecting observable measures of success, the less time your staff will spend tracking these measures.
Of course, all this information is useless unless it gets published in a way that helps your team focus on its progress, its level of success. My client uses a standard letter size sheet of paper on which the following are listed:
Request for proposal
Prospect Date Received Due Date Date Sent Accepted/Lost/Reason
Customer Job # Completion Date Date Billed $ Billed Est. profit margin
Weekly cash projection
Beg. Cash Est. receipts Est. disbursements Est. cash balance (shortage)
This simple tool provided all the information my client's staff needed to monitor their own success and identify obstacles to achieving that success. The team reviews these results in every weekly meeting.
An interesting byproduct of publishing this information was the impact it had on credit and collections. Improving collections was not one of the original components of the success definition because it was believed that the collection person was very effective. What we found surprised us. During those weeks when the company was estimating a cash shortage, the collection person became even more creative in finding ways to get the customers to pay quickly.
She also became more conscientious in evaluating new customers' credit histories. She even found ways to structure credit terms that allows my client to profit from doing business with companies with mildly troublesome credit histories. How's that for added benefits? You can expect similar byproducts from your well-constructed success definition.
The keys to publishing are simplicity, visibility and frequency. Whatever media you choose (print, white board, electronic), make sure that results are stated in language that everyone can understand and displayed where everyone will see it. Then update the information at least weekly, preferably daily. One of the best publications I've ever seen was in a Pizza Hut delivery operation. On a white board at the counter was a sign that listed "percentage of on-time deliveries this week without an accident". It was updated daily.
Now there's a success definition that is elegant in its simplicity. It's quantifiable, balanced, understandable, observable and well-published. Another way to measure the effectiveness of the definition is to determine what you can derive from its publication. From this success definition it is obvious that Pizza Hut:
- cares about the health, welfare and safety of their employees
- cares about the safety of the general public
- is committed to customer service
- wants to keep insurance costs down – workmen's compensation as well as liability
- wants to avoid time lost by injured employees
- wants to use its safety record to attract new employees
- wants its employees to stay focused on this balanced goal
All of these benefits are contained in one simple definition of success.
These simple tools will enable you and your team to KNOW when you've been successful. Without them success is a vague, elusive term that robs you of one of life's great joys, the opportunity to celebrate. Life should be a celebration. Here is a way to build it into your everyday work. Your employees will love you for it.
Copyright © 2000, Dale Furtwengler, all rights reserved
About the Author:
Dale Furtwengler is a professional speaker, internationally-acclaimed author and a business consultant who uses counter-intuitive thinking to help his clients increase profits without adding resources. For more information on how counter-intuitive thinking can work for you visit www.furtwengler.com/theinvaluableleader/. For business leaders who would like to get higher prices for their products and services visit www.pricingforprofitbook.com/.
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