What Gets Measured, by Whom, and When

A model nobody looks at is a drawing. The third layer of the floor is the operating plan, and it exists for one reason: to make sure the business model and the financial model get held against what actually happened, every month, by a named person, on a fixed date. Without it, the first two layers decay within a quarter, because the owner gets busy, the numbers drift, and the model becomes a record of what someone once believed.

The operating plan is short. It is a list of what gets measured, who measures it, and when. For most owner-led businesses the list has fewer than ten items. Revenue against the model, by line. Margin against the model. Cash against the model, with the low point tracked. Pipeline, in whatever form the business has one: proposals out, conversations booked, renewals due. The two or three things that drive the revenue, such as the number of enquiries, the conversion rate, the average sale. And the owner's own hours, because they are a cost and because they are the thing that quietly grows to fill whatever the business is not organised to do.

Who measures it matters more than people expect. If it is the owner, it will be done in the first month and skipped in the third, because the owner's attention is the scarcest thing in the business and the roof will always have a claim on it. The operating plan works when the measuring is given to someone else, a bookkeeper, an assistant, a member of the team, whose job is simply to produce the numbers on the agreed date. The owner's job is to look at them, not to compile them.

When is the simplest part and the one most often got wrong. Monthly, on a fixed date, early enough in the month that the previous month's numbers are complete and the current month can still be changed. The fifth working day is common. The point is that the date is fixed and the meeting happens whether or not the numbers are good, because the months when the numbers are bad are precisely the months when the meeting gets cancelled.

The response is to write the plan this week, and the discipline is to keep it shorter than you want to.

Start with the model. Every row in the financial model that you would want to know about if it went wrong is a candidate for the operating plan. Then cut the list to what fits on one page, because a long list of measures gets ignored as reliably as no list at all. The test for each item is simple: if this number were off by twenty percent, would I change a decision? If not, it does not belong on the page.

Then assign each item a name. Not a role, a person. The bookkeeper produces revenue, margin and cash on the third working day. The person who runs the inbox produces the pipeline count on the same day. The owner produces her own hours, from the diary rather than from memory, because memory flatters. The plan says who, and the who knows it is their job.

Then fix the date and protect it. Put the monthly review in the diary for the whole of next year now, and treat it as the one meeting that does not move. Forty-five minutes is enough. Numbers against the model, the three biggest variances, what we do about each, and the decision we are carrying into next month. That is the whole agenda, and a business that holds that meeting twelve times a year is run differently from one that does not, whatever else happens.

If you are the only person in the business, the plan still applies, and the review still happens. You produce the numbers on the third working day and you review them on the fifth, and the gap between the two is deliberate, because compiling and judging are different kinds of attention and doing both at once means doing neither well.

The floor is now three layers deep. Tomorrow I want to add the thing that holds it together, which is not a layer at all but the plumbing: the tools and the data the numbers come from, and why fewer of them is nearly always better.

Continue reading: The Plumbing →

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