By Dagmar Recklies
Early indicators are very popular in the business world. People normally like them because they see a lot of advantages, such as
Thus early indicators may have their value for management. However, I am reluctant to rely on early indicators too much. There are some problems that are not easily solved:
Hence, I am not a fan of the ‘One-and-only-Indicator-Approach’. I think that such an approach is not even necessary in most cases. If managers ask for an early indicator, they actually require some sort of consistent data which helps them with their business decisions. Most managers really don’t need something as simple as ‘If A happens, B follows and we have to do C’. The managers I met know their industry’s mechanisms and drivers perfectly well.
Currently I am developing an information system based on external indicators (still looking for a better name) for my company. I plan to have four groups of indicators – general economic data, our industries data, our costumers’ industries data, and competitor data – and select three to five relevant indicators for each group. These indicators should ideally be available on a monthly basis, at least quarterly. For each of them I will offer a short data history (one year back maximum), a forecast (if available) and a brief comment (as appropriate). My plan is to provide most of this information on one single page so that users can get a comprehensive view without scrolling of flipping pages. There will probably be the possibility for a little drill down to more information. This is where I would add the comments and, of course, the historical data will be available as a graph there.
As for the forecast, I see two options: For many external indicators there are good forecasts available. There are many forecasts for economical indicators such as GDP growth or inflation. If you come down to a particular industry, things might become more difficult. You may be lucky if you find some general assessment such as ‘growing’, ‘constant’ or ‘falling’. I don’t like the idea of having two types of forecasts (figures and trends) in one system. Taken into account the fact that we already develop our own trend assessments for many of the relevant indicators on a regular basis, I am inclined to provide just such trend statements. They are easy to visualise with little arrows going up or down. On top, you avoid the discussion if something will go up by 2.5% or 2.7% - which is of no relevance at all in many cases.
Basically, that’s it. I am sure that every good manager who knows his business will be able to make sense of this limited set of data and its development over time.
The idea behind this is not to have one or two early indicators which directly influence business decisions, but to constantly monitor the development those drivers that are most relevant for our business – provided they are measurable.
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Status: 01. Juli 2015