Business people who come from the product, manufacturing or engineering disciplines have a natural instinct to try to exercise process control to improve efficiency and profits.
Those without such a background often aim at controlling costs.
Some take one or other of these approaches to extremes. (Think Six Sigma.)
The great advantage of the former (exercising process control) is that it involves the establishment of useful metrics and experimentation to see what makes those metrics move in the right direction.
The problem with he latter approach (exercising financial control) is that this measurement/experimentation process becomes much more difficult as the linkages between actions and financial consequences are often either too indirect or occur over too long a time. By the time the results are in, it is too late to change the parameters that have resulted in poor results.
So though financial control might be the ultimate aim, something more direct is needed to give you useful levers to pull (or push). You need some intermediate, relatively direct measures that will tell you promptly what is happening when you make changes.
Control the process properly - and the finances will take caee of themselves.
Those without such a background often aim at controlling costs.
Some take one or other of these approaches to extremes. (Think Six Sigma.)
The great advantage of the former (exercising process control) is that it involves the establishment of useful metrics and experimentation to see what makes those metrics move in the right direction.
The problem with he latter approach (exercising financial control) is that this measurement/experimentation process becomes much more difficult as the linkages between actions and financial consequences are often either too indirect or occur over too long a time. By the time the results are in, it is too late to change the parameters that have resulted in poor results.
So though financial control might be the ultimate aim, something more direct is needed to give you useful levers to pull (or push). You need some intermediate, relatively direct measures that will tell you promptly what is happening when you make changes.
Control the process properly - and the finances will take caee of themselves.
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