Management By The Numbers: Operations & Opportunities (Part 6)

The Operations and Opportunities series will posted on Tuesdays Wednesdays, and Thursdays through the month of August 2011. A number of operational issues will be addressed in the blog. For more detail, depth or individual information and answers, please contact Soltys, Inc. Comments and questions are welcome. We will post answers and responses.

What would you think if:
  • Your doctor ordered surgery without information from tests?
  • Your accountant gave you an amount to pay the IRS without any calculations?
  • Your attorney created petitions for your case without any information?
Many real estate companies are managed with limited information and a heavy dependence on “gut feeling.” While intuition is important to companies powerful insight that guides intuition comes from the numbers that drive business and should drive decisions.

When a doctor gives you a physical your pulse and blood pressure are measured and other tests are done to determine the performance of the body. KPI’s (Key Performance Indicators) are the significant numbers that management must track in a company. When monitored closely, the company can make key adjustments that will aid growth and positioning with few surprises.

KPI’s are a set of measurements that paint a picture of a company’s health. These are inter-related ratios, measuring key activities and results. KPI’s that are tracked monthly with comparative data are a favorite tool for evaluating the health and potential of companies.

Just like the rhythms of the body, the KPI’s of a company cannot be isolated to form a diagnosis. Unlike financial reports that measure only what has occurred once reportable as dollars and cents, the KPI reports also include activities, performance, market and financial data with defined relationships that allow projections, indicate changes, and can be used to model the impact of the changes.

Measurements taken should compare both monthly and year-to-date performance with ratios created against goals set and the marketplace. The ratios become a quick benchmark that can indicate well being or specific actions needed. Few companies will take the time or effort track the information or evaluate the data.

The areas of measurement for real estate companies should include the following basics:
  • Staffing - Recruiting, agent population (active and total), business at risk, employees and management.
  • Business Pipeline – Leads, repeat business, related business, transaction time line, impact factors, and sources.
  • Production – Presentations, listings, contracts written, opened business, closings, cancellations, and pendings.
  • Financial – income, expense, commissions paid, profit, reserves, and investments.
  • Market Share – agents, offices, companies, listings, pendings, closings, transaction timelines and source of business.

Each of these basic areas can be broken down into greater detail by profit center, market, or even groupings within the office. The data once accumulated and compared begins to not only tell a story but, additionally, paint a path of action.

Examples of KPI’s at Work:
  • Pendings - The number and size of deals in the” drawer” can indicate the timing factors of a market. If the ratio between the number of sides pending against the total closed for the previous year is between 35 – 40 % consistently and you are running a 60 to 90 day closing time period, your business should close stronger than the previous year. If the time period extends or shortens, it will impact the ratio needed to be healthy. Additionally, if the number falls below 20%, and the time period has not shortened to a 30 – 35 day closing period, the business may be headed for financial problems. Other measurements will also impact the analysis, including cancellations, size of transactions and distribution of business.
  • Business at Risk – The production of the top two producers in each of your offices is one of the areas that we consistently measure, called “Business At Risk.” It is not at all unusual for the effects of one’s production or lack thereof to influence the other. It is also not unusual that if one leaves the company, so does the other. Hence if 20% of the production of the office is from these two individuals, the impact of any change will be felt immediately by the company and the impact will also effect almost every other KPI in the company. Healthy companies set business objective for the production and producers needed in the company to all no more than a 10 – 12 % impact by business at risk.

It does not take long to see how a good set of KPI’s can strongly influence decisions and actions. If you are not using technology to track and calculate, start with a smaller set of KPI’s. Even a limited group of areas measured will bring insight and lead to results.

Creating a great company is a lot like keeping a body in good shape with hard work and by watching the numbers.

Soltys, Inc. offers a consulting program called Business Health Partners to help companies grow, develop and use KPI tools effectively.

Tomorrow's blog will be about the Power of KPI's and Friday we'll be introducing our new downloads section.