“If you can’t measure it, you can’t improve it.”
– Peter Drucker
I deal with metrics every day at work. There are metrics for how many widgets we build, how quickly we make them, how much money it costs us when mistakes are made, etc. And that is just for my little area of the factory. All the other teams and functions have their own metrics as well. Why are there so many and why are they so important? Every metric is a snapshot of each team’s performance. I won’t bore you with how metrics work at my company, but what I would like to tell you about is how we can apply metrics in our daily lives.
One area of our lives that I believe would stand to benefit from applying metrics is our finances. If you’re like most people, you probably have a basic goal of accumulating wealth. Now what happens with that wealth varies from person to person. It may be for a big purchase, a trip to Hawaii, (early) retirement, you name it. Subtract what you spend from what you earn and you’ve got the most generic metric to use: net income. If your net income is negative or only a few digits over zero, don’t worry. Look at the formula and see what can you do to improve it:
Net Income = Income – Expenses
Increasing income would be great, but it’s not something that we can affect on a weekly or even monthly basis. That leaves us with lowering expenses. The first step to improving this metric is to know what you’re spending your money on. Take a look at the pie chart below.
Let’s pretend that this represents your spending for last month. Is there a slice of the pie that’s a little too big for your taste (no pun intended)? It may not actually be the biggest slice that jumps out at you. In order to lower your spending, look at each slice and see what’s making it so big. Could it be a few large expenses or a lot of small ones? Let’s take food & dining from the chart above as an example:
Eating out at restaurants makes up half! What would you do to improve this metric? You could eat out less, choose less expensive restaurants, go for the cheaper dish, or simply pass on appetizers or dessert. This is what’s great about metrics. They’re a snapshot of what’s going well and what isn’t and for the things that aren’t going so well, there is more than one way to to get better. In the food & dining example, you can make small incremental changes or big dramatic ones.
Do you use metrics in your day to day life? What aspects do you apply them to? Comment below!
The charts above are from Mint.com. I’ll talk about other ways I use it in a later post. Stay tuned!