Know Your NumbersFirst, every company must know where profits are made and should report them by product, service, line of business, industry, or whatever categories make sense for that company. The same holds true for losses. You need to know where and why losses are incurred to take corrective action. Caution: Don't evaluate results strictly on a consolidated basis. This allows good results to offset poor results and keeps you from knowing what actions are required to maximize profitability. Second, it's critical to understand exactly what drives costs to know how to profitably grow your business. Budgets need clearly defined assumptions pertaining to cost drivers. This leads to better decisions on protecting profitability against inevitable variations in revenue, cost of goods and pricing pressures. The renowned Cleveland Clinic, touted for its ability to provide cost-efficient, stellar health care, has found tremendous success in using the efficiency model. As with other admired medical systems, the Cleveland Clinic has drawn on principles of engineering and industrial production to make sure medical care is delivered in a predictable, reproducible way. Third, before making incremental investments, know how much work your people and systems can handle. Measure productivity and, once predetermined thresholds are met, have documented plans that include time frames for investing in efficiency-improving technologies. Searching for new ways to do more with less is a never-ending process, but one of the best ways to measure productivity is time and activity reporting. Follow these simple rules to get the most from your system:
- Design the system with a minimum number of accounting categories.
- Avoid using catch-all categories like "other." This isn't specific enough to aid decision-making.
- Train everyone how to use the system.
- Enforce reporting requirements or people won't comply.