What is a metric?
Performance and production are essential elements that help a company continue or grow. Hence, it is crucial to assess, compare, and track them. There are quantitative assessment measures that we call “metrics” to help in this matter. Analysts and management commonly use metrics to build dashboards to keep up performance assessments, business strategies, and opinions.
Who commonly uses metrics?
There are many types of metrics. The ones that govern their use are industry standards and propriety models. They have always been known to be helpful in accounting, performance analysis, and operations. Here are the people who commonly use metrics:
- Executives. One of the most common people who use metrics is the executives when they analyze strategies related to financing and operations, thus justifying what we said earlier.
- Analysts. They use metrics whenever they make comments and investment recommendations.
- Portfolio managers. They use it as a guide for their investment portfolios.
- Project managers. They find it helpful when they lead and manage all types of strategic projects.
Tell me more about metrics.
When we say metrics, we talk about a broad area of data points that we get from various methods. Different industries have their own practices, and the best ones made a standard set of comprehensive metrics. They use these when they have evaluations at the moment. But there are individual cases and situations that commonly serve as guidance when choosing what metrics to choose.
How to choose metrics
We named the different entities that usually use the metrics: executives, analysts, portfolio managers, and project managers. They all have their own metric analysis and have their data source to build and structure them. So, it might be challenging to know which one is the best to use for essential assessments and evaluations.
Building a great metric
Among the pool of entities that we mentioned, the portfolio managers usually need to build KPIs or Key performance indicators. KPIs are also known as dashboards. Entities who want to makes a good metric must know their goals. Next, they need to find the best results that gauge the activities relative to these goals. Finally, we should establish goals for the KPI metrics that are incorporated with the business decisions.
There are people like academics and business researchers that made industry metrics definition. They are helpful, especially when it comes to creating KPIs and metric dashboards. Applied information economics is an entire decision analysis method created by Douglas Hubbard. It can be used to analyze metrics in different business applications. Aside from this, we also have cost-benefit analysis, Monte Carlo simulation, and forecasting.
Let us end with examples.
We mentioned that there are many metrics. Let us name some of the most common and popular tools used by entities. Under economic metrics, we have the gross domestic product, inflation, and unemployment rate. Under operational company metrics, we have price-to-earnings and price-to-book ratios. A metric relative to portfolio management include environmental, social, and governance or ESG. These are only a few examples of metrics. However, they prove to be helpful in different industries.
