As businesspeople, we have a fiduciary responsibility to ourselves and to our companies to measure the investments we make.
Investments include acquisitions, funding new expansion initiatives, inventory, office space, equipment, even employees. Too often, we don’t have benchmarks in place to really measure the return on these investments.
Jack Welch, the former CEO of General Electric, loved measurements, and is well-known for culling the bottom 10 percent of performers and emphasizing that businesses need to measure key areas to get things done. He had an excellent track record as a result. Not every company is GE, but the principle applies to any business, particularly when it comes to investments that require a lot of cash.
By not measuring the success or failure of the ideas we implement, we put ourselves in a vulnerable position. If too many investments are made at once, cash flow can quickly dry up if they don’t pay off. People and resources will be diverted to unproductive projects, while money-making ventures sit idle or never become as lucrative as they should.
With no tangible measurements, it becomes easy to spread our resources, especially capital, too thin while working on too many projects at once.
Here are several suggestions to help you avoid this mistake.
1. Set goals and establish a timeline for a return on each investment. Be realistic, because some things take time to mature. Make sure the company is financially sound and can handle the downside of any investment you make. In other words, don’t bet the farm on a deal.
Be prepared for the worst-case scenario. You’ll be able to manage better knowing that your company is prepared, allowing you to focus on creating success rather than avoiding failure. One deal shouldn’t put your company at risk.
2. Put it in writing and share it with the right people. Give employees the information they need to do their jobs, and let them know how you want them to measure progress.
Employees need to understand your goals. If they are not clear about the goals, you risk them pushing the idea in the wrong direction.
3. Make yourself and your employees accountable through key performance measures reported on a periodic basis to assess your progress. This helps keep key people informed on how the company is progressing toward achieving its goals. Keep regular tabs on why projects are or are not working as predicted, and make the necessary adjustments.
4. If you are not receiving a return on an investment, weigh your options. If the return is there, continue funding. If it is not, don’t delay in making the difficult decisions. There are many reasons something looked good to start with, then soured. Economic conditions change, key employees leave, new competitors enter the field.
5. Make decisions that are in the best interest of the companies well being. Leadership falls on you. Reassess why things aren’t working and pull the plug, if necessary, then refocus that capital on more promising projects.
As your company grows, the need to establish benchmarks to measure progress grows with it. Benchmarks provide vital information on which to base your business decisions and give you quantifiable data as to which projects are worth pursuing.
With a tightening economy, it’s more important than ever to carefully manage every dollar. Take the time to establish benchmarks now, so you can continually evaluate performance.
If push comes to shove, you’ll know exactly what needs pushing and what needs shoving.