The first “habit” in Steven Covey's book The Seven Habits of Highly Effective People is “Begin with the end in mind.” The end, for most company owners, is healthy net profits. Predictable and recurring net profits result from good management of each of a company's three vital “departments” — marketing and sales, production, and administration. Make a New Year's resolution now to measure and grade performance in each of these departments.
The first step is to establish annual goals for company performance in each of the three areas. Because backlog represents the ability of the sales department to maintain a sufficient amount of work in the pipeline to meet future production goals, you can use months of backlog as the goal of the sales department.
For production, we'll use slippage — the difference between the amount of gross profit estimated and the amount earned — because it represents the ability to actually deliver the job as it was sold.
And for administration, use overhead (as a percentage of total sales) because it represents the ability of both owner and administrative employees to maintain control over the indirect (non-job-related) expenses.
SCORE THE GOALS
Second, determine a “good” goal for each quarter for each of the three departments. Remember the 1% solution (Benchmark, April 2006), which states that incremental changes made over time produce the desired results more effectively than sweeping changes made in the short term.
Also develop a quarterly “stretch” goal, one that is slightly higher than the “good” goal. Studies show that stretch goals encourage even greater focus on achievement and often result in outputs beyond those originally targeted.
Make it simple to keep score. The spreadsheet below uses only four grades: “A” for meeting or exceeding the good goal; “B” for exceeding last year's actual performance; “C” for no change from last year; and “F” for falling backward. You can always add a subjective element — for example, making a “C” into a “B-” because of personal information evident to you as owner or manager.
CELEBRATE Publish the results, and provide small incentives, both monetary and non-monetary, for meeting the goals. When the end of March rolls around, establish a “Benchmark Ritual” to review the score card, and to celebrate and reward your successes.
Don't forget to parcel out extra praise whenever “stretch” goals are met or exceeded. If you don't meet some “good” goals, establish the same goal for the next quarter and focus again on solutions and greater efficiencies. Either way, the act of setting goals and measuring performance will help keep you on track. —Judith Miller is a Seattle–based construction business consultant and trainer specializing in accounting, finance, and computerization.