Even more captivating than the freedom of choice at a young age was the thrill of the possible outcomes. Believing that one was better than the other made it a bit of a challenge, especially for those of us who like to win. I did exhaustive research of the previous pages to look for clues I could use to help in the decision-making process. This resulted in some rather unorthodox reading habits, as it fed my obsessive-compulsive tendencies about making the correct decisions.

Fast forward a few decades, and I see the methods to my madness come in handy every day in the business world. Small business is nothing short of an adventure; one where hundreds of daily decisions have real-life implications as they affect the lives of clients, customers, employees, families, and more. With so much at stake, I am constantly amazed at how some owners and managers make decisions routinely, with little to no useful information in hand, especially today when so much of it is available.

The modern-day term for this is Business Intelligence (BI), which combines strategies and technologies used by organizations to provide decision makers with historic, current, and predictive information about business operations. The theory is simple: the more information that is available, the better the decisions that can be made. Traditionally, this is accomplished by monitoring a series of Key Performance Indicators (KPIs) and comparing them to a set of acceptable historic or industry-wide benchmarks. Decisions are then made based on the corrective action necessary to get the metrics within the established parameters.

While the thought process is sound, there is one big issue, and it is the same as with a Choose Your Own Adventure book: we don’t know how the story ends or even IF there is more than one ending that should guide our decisions. For example, if you knew ahead of time that a big project was going to go sideways and take six months to get paid, you may not have committed so many resources to it or even taken the job in the first place. But this is generally not the case. We only force decisions reactively when we see job costing on the project. Or when we choose to continue working despite not receiving the required progressive payments under the misconception that the customer will be able to move money faster as we near completion.

Fear not, my fellow wallowers of wisdom! There is a better way. It involves the use of different applications of BI and utilizing the most effective ones to give you a reasonable prediction of what the outcomes might be in any given scenario. This situational strategy combines the best of what we are good at as small business owners and managers (firefighting) with proven analytical models used by statistics geeks. They call this actuarial science.

The first of these applications—measurement—is one that we are most familiar with. We know that activities and processes in a business can and should be measured, tracked, and compared to a benchmark to indicate a certain level of performance, good or bad. These KPIs would include traditional leading and lagging indicators known to influence decision-making in most levels of the business. As with any form of quantitative tracking, timeliness and accuracy of the data are extremely important. The integrity of the information measured should be the foundation for any BI work.

Reporting is also a primary application, because even the most timely and accurate information is useless to a business if it isn’t reported. Consistency is the key to reporting. Managers should be looking at the same reports over the same established intervals on a regular basis. This makes the information relative to their functional areas of the business and allows them to gain perspective for the values reported and make identification of outliers fast and easy.

Most businesses that apply both measurement and reporting as a matter of ongoing operations already have a plethora of useful information at their fingertips. Figuring out what it all means is where some fall short. While most of us still need to reference our children’s math books for a reminder of the difference between mean, median, and mode, fortunately, the analytics involved with business processes are only slightly more complicated.

The analytical tools most useful to business managers are trends and correlations in the data. Trending is simply a general direction of the values over time, either up or down. Correlation is the relationship between activities and results, whether the values move in the same or opposite directions. These two tools do not require a great deal of sophistication in everyday use. They simply require the measurement and reporting to be sound.  

Understanding the cause-and-effect relationship between activities and results is one of the main objectives with any analysis method. Once a basis is established, managers can then use the information to predict future results. With logic as a foundation, a series of simple “if/then” scenarios is developed with any situation for which they have historic data, after which the correct course of action for moving forward can be chosen.

This may sound complicated, but it is pretty simple in practical application. Here’s an example of how it plays out routinely in an HVACR company.

If, through historic analysis, we observe that Accounts Receivable (A/R) lags project invoicing by 45 days, while Accounts Payable (A/P) only lags project invoicing by 15 days, we can logically conclude that most projects are going to be underfunded by at least 30 days. If A/R is trending downward and A/P is trending upward, we can predict a cash shortage in the business at least 30 days into the future. This might be an indication of an increase in new work or slow invoicing. Either way, it will influence a manager’s decision to commit to new projects, pay vendors, or even make capital purchases in the short term. We know IF they overcommit cash in the next 30 days, THEN it will put the business in a compromising position.

Taking it a step further, management might also observe that the timing of project starts has a direct correlation to project completions, and consequently, invoicing, A/R, and cash flow. Similar to a kitchen staff getting backed up in a restaurant when the maître d seats guests in the dining room all at the same time, adjustments can then be made to scheduling. IF the project starts are staggered, THEN the completions will be as well. Regular and timely invoicing will lead to more consistent cash flow, thereby avoiding scenarios as described above.

Collaboration and BI management should be the resulting best practices of the applications outlined in this article. After all, it would be a shame to have this useful information and not share it with the rest of the organization. Over time, ongoing collaboration should make the BI richer and more beneficial. This can lead to more proactive management strategies, such as alert functionality within the reporting side and the establishment of actionable indicators to serve as triggers for certain activities to happen when KPIs exceed predefined thresholds.

Along with an appetite for knowledge comes research and education. Of course, most of what we learn is through experience. Drawing on this experience and measuring the results of our actions is a critical piece in the learning process. Without it, we wouldn’t be where we are today. The future of your business is not yet written, but that doesn’t mean the outcomes are completely unpredictable. You can still Choose Your Own Adventure. Just look at the data and let it be your guide to making better decisions for your business.