How to Increase The Probability of Desired Outcomes…
Even with 75% of the Major League Baseball season still remaining to be played, the probability of the desired outcome (October playoff baseball) for Royals fans is not looking good. One website currently has their probability percentage of winning their division at 0.3%. At least they haven’t completely ruled them out!
In business, the probabilities of desired outcomes are monitored to help determine if a function in the business is on track or not. It helps business leaders decide when it is time to forge on or pull the plug. This is usually done with a combination of hard data from past experiences, current market demand, the future trends, and a dash of “gut instincts”.
Desired Outcomes & KPI’s…
With the number of statistics tracked in sports, it is hard to come up with a statistical question that you can’t find an answer too almost immediately. In baseball it drives pitching changes, what pitch to throw and when, where fielders position themselves, and literally 100’s of other decisions. Every decision made is meant to increase the probability of reaching the desired outcome.
Today most major professional sports including major colleges are now able to provide updated probability percentages play-by-play in real time. Can you imagine if you had that same technology in your business? Talk about having the pulse on your business.
So how do you increase your probability of desired outcomes? Put more simply, how do you know how things are going? A good place to start is deciding on a few KPI’s (Key Performance Indicators) or metrics that will provide quick snapshots of different areas of your business. But what do you track and where do you look?
Where to look…
Historical Data: Probably what most businesses think of when we start talking about KPI’s. It is the safe place to go because it is hard data and you’re dealing with facts. It is a great place to see past trends and cycles in your business. Banks love to look at historical data when making decisions for loans. But we all know the disclaimer that follows every financial advisor’s advice…”Past performance does not guarantee future results”
Current Business Climate: What is happening now? What conditions are impacting your business as you read this that you should be paying attention to? These may be seasonal adjustments you make throughout the year. The easier a business can adjust staff, inventory, and other variables to match current demand the better off they are.
Another thing to consider, natural disasters and other unplanned events can have a devastating economic impact on a business. Having emergency plans in place is a one way to improve your chances of reaching a more desired outcome.
Look to the Future: You may not have a Crystal ball to look into, but when it comes to KPI’s, looking forward is an area you should really try the hardest to come up with some things to measure. Historical information is good, but the companies that are able to look forward and set KPI’s based on future activities are the ones that can really start controlling and predicting their growth.
Why forward-looking KPI’s are usually better…
Let’s assume a company sells 1,000 widgets/month.
KPI’s based on past activities: Tracking monthly sales may be great for determining which salesperson gets a medal and who doesn’t. But as a KPI it does nothing to predict what next month’s numbers will be, other than to see a trend develop or to help set a baseline. It is relying on the probability that past results = future results. If this is all you’re doing, it’s kind of like trying to drive a car and only using the rear-view mirror to steer.
KPI’s based in future activities: Forward-looking KPI’s are not about the selling the 1,000 widgets/month it’s about tracking the activities required to sell 1,000/mo. How many new leads are in your CRM system? How many sales presentations did it require? How many formal proposals are made each month? Experience tells you that these activities lead to sales. It helps you figure out what to focus on if you want to increase sales to 1,500/mo or if you want to make sure you’re on pace for this month…!
With any business, we suggest starting small. Don’t attempt to track more than 5 KPI’s initially. Companies often want to jump in with both feet and try to track too many things. That becomes overwhelming and typically does not get you where you want to go. A simpler way to look at it, most businesses (including yours) only have 3 main areas: Operations, Sales, and Finance. A couple of great questions to ask yourself or your management team are these; if we were to track one thing in each of those 3 areas what would we track? Why is it important? Then challenge your team to create a KPI that implements a strategy based on future activities not what has already happened.
Does your company already have KPI’s they are tracking? Are they based on past, current or future activities or a healthy blend of all three? As the Royals are finding out this year (at least so far) increasing the probability of the desired outcome isn’t always easy. But we have found that keeping a close pulse on a handful of KPI’s is one way to increase the likelihood of experiencing your desired outcome.
As always, we value your thoughts in the space below.
Chris Steinlage Kansas City Business Coach
