Data Driven Decisions for Business Leaders

In this video, I want to talk about data-driven decisions. If you want to be successful in today’s modern business environment, this is a mental shift you need to make. I will be showing you how to use data to drive your business.

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VIDEO SUMMARY

Before computers, many business decisions were made by gut instinct or intuition. But now that so many things are electronic, you have enormous amounts of data at your fingertips. The problem is that so many businesses today still operate as if all that data does not exist. They either do not know the data exists in their accounting systems, or they do not know how to pull it out. They are still making decisions the old way. But we do not have to do that anymore. If you can figure out how to pull out that data, and then use that data to inform your decisions, you will increase business performance.

Common business questions

I want to look at two common business decisions as examples. 1) Should I increase my staff? 2) Should I purchase new equipment? These sound like simple questions, but they are actually very complex. Your goal as a business leader is to make the mental shift from answering these questions by themselves, to breaking the questions down and making data-driven decisions.

Process for data-driven decisions

I am going to give you a process for performing data-driven decisions

  1. Break questions down
  2. Find the data
  3. Track the data

Hiring Decision Process

Let us look at the first question. Should I increase my staff? You can break this question down into two smaller questions. 1) Do I have the money? 2) Do I have a need? Each of these more defined questions can be supported by data.

  1. Do I have the money? There are two data sources that can help you answer this.
    1. Cash available – you can look at your working capital and whether you have funds to start to cover an additional salary
    1. Forecast – you will want to know revenue projections and determine whether it is likely you will be able to cover increased salary costs

Ideally, you will want to put quantifiable metrics on each area. These will be different for every business, depending on the volatility of your revenue trends. But here is one potential example:

  1. Do I have the money?
    1. Cash available – hire if you have ½ of annual salary already available
    1. Forecast – hire if reliable revenue streams with 90% certainty will be able to cover annual salary expense for the first year

Let us look at the second question.

  • Do I have a need? Does your business really need another employee? Is there data that can support this?
    • Overtime – A lot of people look at overtime. Personally I don’t like using overtime metrics, because excessive overtime can easily be the result of a manager who does not know how to schedule their people, and not necessarily an indicator of business need.
    • Delays – Delays are a much better metric. Are there areas in your business that are running slow? Constantly behind? Cannot keep up with their work? Are the delays because there is not enough staff to perform the work?
    • Process numbers? – How many items are being processed? Is complexity increasing? Is business getting busier? Increased workload could indicate the need to hire.

In summary, if you are thinking of hiring more staff, there is a story happening that you need to be able to tell. Your business will be growing, you are expecting more revenue, and you need more people to perform the work. The data you are gathering should support that story. If it does not, maybe you should not be hiring right now.

Let us go back to the process. We have broken the questions down. Now we need to find the data. You can then go into the financial system and pull out the data to answer these questions.

And finally, you can track this data over time. This is not going to be the only time you hire new people. Maybe this is information you can track over time. One of the greatest things you can do as an accountant or finance professional, is find the data for your leadership to help inform their decisions.

My hope is this helps you understand the mental shift I have been talking about. We have looked at the complex question “Should I increase my staff?” and instead of making the decision using gut instinct, we break down the question and use data to guide the decision.

Capital Equipment Decision Process

Let us look at the next question. “Should I purchase new equipment?” We can use the same process.

  1. Break questions down
  2. Find the data
  3. Track the data

There are a lot of Capital Expenditure analysis spreadsheets available with different methods to calculate ROI (Return on Investment) for equipment. But the goal is the same. You want to be able to take these complex business decisions, put them into an Excel spreadsheet with your data, and let that guide your decision.

One final warning. Data is not perfect, and next week I will make a video about some common problems you will find with data, and some things you need to watch out for. So stay tuned for that.

Leave a comment down below letting me know what you think!

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Neither Zach De Gregorio or Wolves and Finance shall be liable for any damages related to information in this video. It is recommended you contact a CPA in your area for business advice.

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