Dashboards - Do you have one to watch?

Ignorance is bliss, but not when you are running a small business. Some of the reason why so many small businesses fail is that the owner(s) aren't continually monitoring the critical health factors of the business. Examples are cash flow, payables due, receivables, inventory levels, sales forecast, etc. Running a business is a balancing act where the contributing factors must always be monitored so that adjustments can be made in good time.

Just as auto drivers and airplane pilots rely on a dashboard of important operational indicators, so should every small business owner. Yet many run their business on gut feel or with hindsight by looking at historical data - such as payables of last month.

Direction

While historical data is always the easiest to gather and assemble, a business dashboard should have as many forward looking indicators as possible. Some examples:

• Payables - what are our payment commitments over the next week, four weeks and quarter? Will we have enough cash on hand to pay them?
• Receivables - what revenues are we due to receive over the next week, four weeks? Which might be delinquent, and by how much?
• Cash flow - what is the balance of our check book right now, next week, in four weeks? How do payables balance against receivables going forward? Will our balance go negative at some point? If so, when?
• Order fill - based on current inventory levels of our product and expected sales/deliveries from our current and forecast sales, will we run short of any product? If so this will result in a back order which produces a negative affect on customer satisfaction.

Frequency

In an ideal world, these and other indicators would be updated in real time as underlying transactions occur. Some computer systems are capable of this, an example being grocery stores that use scanners at check-out. But for many small businesses, transactions are entered after-the-fact into systems that don't assemble the needed indicators for constant viewing. In such cases, it becomes labor intensive to pull the needed information together. Due to the pressing needs of a small business, this effort is made infrequently, not at all, or the owner relies on what his/her accountant sees. Remember that the accountant is always looking at historical data, and by the time an assessment is made, it is usually more than a month old.

When determining which indicators to include in a dashboard, the business owner should begin by specifying which can best warn of problems or flag opportunities in the short term. As a rule, the more critical an issue is to a small business, the smaller the update interval should be. For example, day traders need price data and trends that are nearly real time, while a buy-and-hold investor can be satisfied with weekly price and trend data.

Data Gathering

But what if the underlying data needed for an indicator is too difficult or costly to obtain? Be careful not to choose the easy indicators instead of the NEEDED indicators! When an indicator is too costly or difficult to compile at the needed interval, an initiative should be launched to improve the data capture and systems of the business to provide it. Or maybe data for an indicator doesn't even exist - like a sales forecast. Should it exist? If so, begin another initiative. So by building a dashboard, the business expands and enhances the data needed and the speed required to monitor the business properly.

The cost of building and maintaining a dashboard is not only the initiatives described above, but also the time it takes someone to gather, review, correct, derive and present the data as a dashboard indicator - at each update interval! Larger companies are willing to pay full time staff to perform these tasks. For a small business, this cost can seem to exceed the benefit, so tradeoffs may become necessary. No dashboard at all might be the most costly tradeoff.

Drilldown

When a warning light flashes on a car dashboard, the driver's first question is "Why?" A visit to a trained mechanic may be necessary to answer the question. Dashboards have the ability to drill down beneath the visible indicator also. Doing so will point to the root cause that needs to be remedied. The person who constructed the indicator will know how to find the primary cause(s) of an unfavorable reading. This becomes important if several things can affect an indicator. As indicators are repeatedly updated, it becomes important to make drilldown analysis as easy as possible.

Presentation

Probably the easiest way to comprehend an indicator is by viewing a trend chart, because with one look, a viewer can observe the past, present and partially into the future. Trends show the direction of change. Some indicators might best be viewed in another way. Finally the viewer's preference for how best to grasp each indicator should be considered. Pictured here is a simple set of trend charts done in Excel.

The various forms of presentation should form a composite presentation of information, whether on paper or on a computer screen. Companies offering dashboard software can provide very sophisticated displays, even allowing the manager to interact with the data. This may be useful to some, but in general won't change the end result. Here again, a cost-benefit tradeoff will be necessary.

What Gets Measured, Gets Done

When employees notice the business measures being regularly observed by the owner, they will react. The inherent desire to please the boss will motivate them to pay attention to the same measures. This secondary benefit of a dashboard can become quite beneficial and lead the owner to introduce new indicators from time to time.

In summary, a dashboard is a valuable business tool that can grow in use and importance over time. It does, however, require a certain level of commitment and attention to attain the promised benefit.