By using this site, you agree to the Privacy Policy and Terms of Use.
Accept
SmartData CollectiveSmartData CollectiveSmartData Collective
  • Analytics
    AnalyticsShow More
    data-driven white label SEO
    Does Data Mining Really Help with White Label SEO?
    7 Min Read
    marketing analytics for hardware vendors
    IT Hardware Startups Turn to Data Analytics for Market Research
    9 Min Read
    big data and digital signage
    The Power of Big Data and Analytics in Digital Signage
    5 Min Read
    data analytics investing
    Data Analytics Boosts ROI of Investment Trusts
    9 Min Read
    football data collection and analytics
    Unleashing Victory: How Data Collection Is Revolutionizing Football Performance Analysis!
    4 Min Read
  • Big Data
  • BI
  • Exclusive
  • IT
  • Marketing
  • Software
Search
© 2008-23 SmartData Collective. All Rights Reserved.
Reading: Managing By the Numbers: Penny Wise, Pound Foolish?
Share
Notification Show More
Aa
SmartData CollectiveSmartData Collective
Aa
Search
  • About
  • Help
  • Privacy
Follow US
© 2008-23 SmartData Collective. All Rights Reserved.
SmartData Collective > Data Management > Best Practices > Managing By the Numbers: Penny Wise, Pound Foolish?
AnalyticsBest PracticesCommentaryCulture/LeadershipExclusivePolicy and GovernanceRisk Management

Managing By the Numbers: Penny Wise, Pound Foolish?

paulbarsch
Last updated: 2011/06/27 at 2:06 PM
paulbarsch
4 Min Read
SHARE

Every good business manager loves metrics. After all, the old adage, “You can’t manage what you don’t measure” still holds true in most management circles.  However, a singular focus on metrics and worse, concentration on wrong metrics, keeps getting executives in trouble. Can solely running a business “by the numbers” cause managers to be over-careful about trivial things and under-careful about more important factors?

Every good business manager loves metrics. After all, the old adage, “You can’t manage what you don’t measure” still holds true in most management circles.  However, a singular focus on metrics and worse, concentration on wrong metrics, keeps getting executives in trouble. Can solely running a business “by the numbers” cause managers to be over-careful about trivial things and under-careful about more important factors?

In the June 22, 2011 issue of the Financial Times, columnist John Kay laments how some companies are focused on financial measures to justify business and IT projects without looking at other factors such as opportunity costs and risk management concerns.  Kay writes; “Large companies think their investment appraisal techniques are sophisticated if they compute internal rate of return (IRR). And it is more and more common for them to highlight the rate of return on their equity (RoE) in annual reports.”

More Read

cloud based supply chain management

Cloud-Based Supply Chain Risk Management Is Key To A Company’s Future

Predictive Analytics Is Lifting The ROI Of POS Marketing
Data Scalability Raises Considerable Risk Management Concerns
How Real-Time Analytics Can Help Assess ROI Of Toll-Free Call Support
Measuring Social Media ROI: Leveraging Data To Boost Results

Editor’s note: Paul Barsch is an employee of Teradata. Teradata is a sponsor of The Smart Data Collective.

And to be sure, IRR and RoE aren’t the only metrics trumpeted as signs that a business is managed properly. There’s also intense interest for public companies to increase earnings per share (EPS) via stock buybacks, or increasing earnings while keeping shares constant.

Are these metrics indicative of first class management techniques, or they can be manipulated? In the same Financial Times column John Kay writes:

“One way of improving return on equity is to increase profits. But other methods are equally effective, and often easier. Raising the level of risk will increase expected earnings. Shrinking the equity base increases the return on capital. Neither of these latter actions adds anything to the expected wealth of shareholders. But they may add a lot to the wealth of managers, if that wealth is linked directly or indirectly to return on capital employed or earnings per share.”

Because of various metric maneuvers, focusing on 1-2 key metrics may not be the best method of evaluating a company’s performance. Even worse some entities focus on the wrong metrics altogether.

Take for instance numerous hedge and pension funds, that prior to the 2008 Financial Crisis, chased higher returns by investing in complicated and convoluted structured products sold by investment banks. Eager to prove their portfolios were strong and healthy, these funds eagerly invested in structured products that promised higher returns—but carried tons of risk. Most investors were blind to the risks of these derivatives and chose to focus only on promised returns. And when global markets crashed in 2008, many of these derivatives could only be sold for pennies on the dollar.

As we enter the age of terabytes and petabytes, and as “Management by Data” techniques become trendier, as executives let’s also be sure that we look to more holistic and possibly less quantifiable considerations in running a business such as risk and reputation management.

Focusing solely on the speedometer, tachometer, and fuel gauge on our dashboards, we may end up missing the freshly planted, “Road Closed – Bridge Out” signs ahead.

TAGGED: metrics, risk management, roi
paulbarsch June 27, 2011
Share This Article
Facebook Twitter Pinterest LinkedIn
Share

Follow us on Facebook

Latest News

sobm for ai-driven cybersecurity
Software Bill of Materials is Crucial for AI-Driven Cybersecurity
Security
IT budgeting for data-driven companies
IT Budgeting Practices for Data-Driven Companies
IT
machine,translation
Translating Artificial Intelligence: Learning to Speak Global Languages
Artificial Intelligence
data science upskilling
Upskilling for Emerging Industries Affected by Data Science
Big Data

Stay Connected

1.2k Followers Like
33.7k Followers Follow
222 Followers Pin

You Might also Like

cloud based supply chain management
Cloud Computing

Cloud-Based Supply Chain Risk Management Is Key To A Company’s Future

7 Min Read
predictive analytics and POS use
ExclusivePredictive Analytics

Predictive Analytics Is Lifting The ROI Of POS Marketing

6 Min Read
data scalability
AnalyticsBest PracticesBig DataData ManagementData QualityExclusiveRisk Management

Data Scalability Raises Considerable Risk Management Concerns

6 Min Read
call center support
AnalyticsExclusivePredictive Analytics

How Real-Time Analytics Can Help Assess ROI Of Toll-Free Call Support

8 Min Read

SmartData Collective is one of the largest & trusted community covering technical content about Big Data, BI, Cloud, Analytics, Artificial Intelligence, IoT & more.

data-driven web design
5 Great Tips for Using Data Analytics for Website UX
Big Data
AI and chatbots
Chatbots and SEO: How Can Chatbots Improve Your SEO Ranking?
Artificial Intelligence Chatbots Exclusive

Quick Link

  • About
  • Contact
  • Privacy
Follow US
© 2008-23 SmartData Collective. All Rights Reserved.
Go to mobile version
Welcome Back!

Sign in to your account

Lost your password?