Business performance: indicators, analysis

Many modern economists and entrepreneurs often ask questions about the concept of business efficiency. The topic is quite complicated in connection with its specifics. It is very important to define the very notion of effectiveness. If to put it in plain language, then it will be a qualitative or positive result in the process of any activity. In part this is true.

However, such questions require more in-depth research on the topic, since the evaluation of business performance must include not only a verbal description of the activity, but also various generally accepted economic and mathematical formulas. Still try to understand.

Efficiency

The economic meaning of this term is characterized as the ratio of spent funds to the result achieved. In other words, this is the result divided by the costs.

Let's try to give an example: the enterprise is engaged in processing of metal products. 100 parts were processed. The final cost of one part is 2 rubles. The cost of one part, taking into account the processing process, is 1 ruble. It turns out that the efficiency of this production will be equal to 1.

This is the most trivial example. The fact is that in today's business, efficiency is not only not always understood as indicators.

This can be the number of sales, and profitability, and even the number of products released. Such an assessment requires a rather narrow approach.

Each industry can have its own indicators of business performance , which practically does not allow us to give a concrete definition of this concept.

If you go back to the examples and take an IT company, its effectiveness can be judged by audience coverage or by the number of users. If we consider the marketing agency, there may be several indicators, for example, the coverage of the audience, the effectiveness of the events.

There is an opinion that the effectiveness of the business is its stable and smooth functioning without any problems.

Evaluation

When evaluating a business, a huge amount of qualitative and quantitative indicators is used. You can evaluate the enterprise as a separate production and property complex, not including in its cost the business processes themselves. In other words, the property is considered in the literal sense. Other methods of business valuation suggest including in the enterprise value working capital, revenue, net profit, development potential and many other aspects that are often ignored.

More fully evaluate the effectiveness of the business can professional consultants, for example, companies such as KPMG or Deloitte. They are able to analyze even the most exotic indicator and help the business owner make the right decision.

Ways to improve efficiency

Any enterprise has its own life cycle, and it is very important to determine in a timely manner the stage at which the firm is located. If we take into account the classification of business life cycles by Adizes (nursing, adolescence, active activity, stability, aging, bureaucracy and eventually death), it is very important to determine in time the stage at which the enterprise is located. Further ways to increase efficiency will depend on the coordinated action of staff and manager. It is very important to overcome the crisis in time or to prevent its occurrence.

Other classic ways to increase business efficiency will include fairly simple things like cheaper products, working on product quality, optimizing costs.

Great attention should be paid to your partners and suppliers. In addition, the introduction of logistics structures in business will also have a positive effect on its effectiveness.

Analysis

Usually this section includes a description of the company's activities in its industry. Analysis of business performance requires a lot of attention to such data as the volume of the market and the share of products in it. In addition, the level of demand for goods produced by the enterprise is often analyzed. Here you can include the number of employees, equipment and other production factors.

If the activity is related to the provision of services, then similar enterprises, availability, price factors are compared.

In addition, the evaluation of business performance may include audit of accounting and management accounting and other indicators.

Simple methods for small business

As for small businesses, there is no need to reinvent the wheel. Do not come up with unnecessary complexity. If you do not need a bank loan, and things are relatively good, then it's better not to waste time on various discounted rates of return and other fairly complex methods that are inappropriate to determine the effectiveness of small businesses due to its cumbersomeness and difficulty.

In such cases, it is better to use classical indicators, such as, for example, profitability or the ratio of own and current assets.

To determine how you are doing, it is better to conduct a SWOT analysis. The abbreviation conceals in itself such words: "strengths", "weaknesses", "opportunities" and "threats". It is enough to divide the board or sheet into four columns and write out three examples for each item that are somehow related to your case. Perhaps you will discover some details or learn about obvious problems that were not enough time, and new useful information and increasing business efficiency are practically synonymous.

Project Evaluation

If you touch on the economic feasibility of a project, then a large number of formulas and a feasibility study are applied to them. This approach is used when considering the effectiveness of the business plan.

For example, before you start any project, very often evaluate the economic effect. Even if this is not a commercial activity, the result should ultimately cover costs and be positive. Otherwise, such a project would be inappropriate.

The main indicator of project evaluation is the discounted value of monetary resources, that is, the future value of investments, taking into account such a factor as inflation. This formula is called NVP, it is quite difficult to perceive, so it is better to study the textbook of investment management. In addition, the effectiveness of the business project includes various payback indicators and other expert methods.

Business planning

Sometimes it is isolated in a separate area. If you decide to develop your business, you will need a document such as a business plan.

In the absence of a rigidly fixed form, only a few recommendations will be given, because the effectiveness of the business plan depends largely on its competent filling.

In many respects it is similar to the feasibility study. As a rule, the business plan describes the essence of the planned case, its goals and objectives. Also, a certain forecast is prepared for your type of activity, be it trade, services or work. In the latter case, entry into the SRO may be required. It is such a self-regulating organization, notaries, lawyers and engineers enter it. For many construction works, membership in such an organization is the responsibility of the firm.

In addition, in your business plan should be written out the payback period, various scenarios and the prospects of the idea being developed.

Performance management

Speaking of such models, foreign methods, connected with time management and goal setting, are often implied. In addition, this area is intertwined with strategic planning. It is named as follows: an efficiency management system. In general, these are classic management techniques, such as time management, general meetings, and setting goals using SMART criteria. As you may have guessed, each letter denotes a foreign word that relates to the setting of a goal. Namely: specific - a special (useful for the organization); Measurable - measurable (in figures, for example, 5 pieces or 10 days); Achievable - (possible, physically feasible); Relevant - (actual); Time-based.

In general, the methodology of SMART-criteria manifests itself as quite useful both for employees and for companies. It is used in various educational institutions, large corporations, and sometimes in small business. Due to its simplicity, it helps to improve business performance management.

There are other methods. For example, decomposition. An incomprehensible word may scare the reader a bit, but not everything is so complicated. The essence of this process is the breakdown of various business tasks into smaller components, down to the level of ordinary workers. It turns out that the entire control system is broken, all its branches are from the top down, what is relevant to the goal is affected. Sometimes decomposition helps resolve even the most protracted problem.

Indicators

There are no universal or uniform indicators in order to accurately assess the effectiveness of the business. Enterprises create such indicators on their own. They are called KPIs. This is an abbreviation in English, which is translated and deciphered as "key performance indicators".

KPI should include all the main aspects of a particular activity, for example, it can be the number of orders completed.

Again, key performance indicators of business processes are completely individual data for each activity. The most important rule: that they are quantitatively measurable. For example, five applications or one hundred orders.

There are also classic KPIs that many giants use. These include the turnover figures, the volume of products on the market, NPV (net asset value), and the efficiency of one employee is also calculated.

There can be very many indicators.

Recommendations

The effectiveness of business is not indicators and reports. They, of course, play a crucial role in the process of the company's functioning. However, it should be remembered that first the result appears, and then the indicator and reporting. Many large corporations were defeated due to the fact that top management was chasing key performance indicators, and not engaged in real development of the firm. Any corporation is first of all people and connections, and only then - financial statements. Of course, the turnover of the company is important, because without it no company will function, but more importantly, when employees are engaged in real affairs.

It is important for start-ups to follow simple things, such as the balance sheet, tax reporting, labor legislation. It is very important to get used to the business environment before engaging in improving business performance in a formal sense of this expression. If your business is functioning, it's good. In this case, you need to develop. But in the presence of crises, it's better to wait with KPIs and solve more important tasks.

Other techniques

Increasing business efficiency is possible without any difficulties associated with various indexes and formulas. As mentioned above, simple methods such as SWOT-analysis can provide much more than the KPI production. In addition, there are no less interesting techniques, such as GAP-analysis.

From English GAP translates as a gap. The essence of this method is simple. The current situation is being taken, for example, the number of services sold and a similar plan for several months in advance. Next, we consider that time period, the count of which has gone from the moment the goal was set. Then managers should monitor the process of achieving the goal, adjust it and save the data for future similar situations.

Another, no less effective method will be PEST analysis. It shows the political, economic, social and technical aspects of the external environment. This technique is interesting in that it can open up new opportunities that have not been noticed before for the growth of your business, for example, the appearance of technology that will reduce the cost of production, or any social aspect that will affect the demand for your goods. All these techniques often reveal obvious things.

Results

Many managers often make a mistake, believing that the report on the work done is much more important than the work itself. However, enterprises produce products not at the expense of a good indicator of the net asset value, but because they fulfill the production function. Raw materials are bought, processed, packaged, logistics systems are created, and as a result the product is sold with a surcharge. After these moments it is important to talk about reporting, and not artificially overestimate these indicators of business performance. It is very important to focus on the functioning of the system, and not on its evaluation.

So, business efficiency is not only a result of minus costs, but also dozens of variants of various formulas that show how well the organization functions, its management, and what prospects it has, for example, in a competitive environment or for growth.

If you decide to do business, the key role should be given not to paperwork, but to building your own business. The choice of the type of activity, the search for suppliers, the analysis of the target audience, the selection of office space and marketing activities - that's what's important.