Trends: Challenges
Copyright © William Stong 2010
There are two major challenges facing trend reporting:
1. How much historical data is available?
2. How comparable is the available historical data?
By definition, trends consist of multiple points of comparable data. The number of points needed to make a trend report useful depends on the characteristics of the business.
● Available Historical Data
For businesses that are always the same, fewer points are needed to provide useful information. For businesses that are cyclical, the number of points needed increaases to cover at least two, preferably three such cycles.
Example of a constant business: Food
The demand for food is fairly consistent since we all need it to stay alive. Week to week we may consume roughly the same amount. Therefore, a few weeks of data may be enough to show whether or not business is doing well (e.g., growing) or not. “Cyclicality” might be limited to blips when people traditionally consume more food (e.g., Thanksgiving in the U.S.) or less (e.g., fasts).
Example of a cyclical business: Gasoline
Consumption of gasoline increases once schools are out for summer and decreases once schools are back in session.
See the Market Watch article, Road Warriors, by James Cordier and Michael Gross
● Comparability
The biggest challenge to trend reporting is the comparability of historical information. With change being a constant companion of the business world, it is frequently the case that data being reported is not comparable over the full amount of history, either in terms of content or the way certain data elements are calculated. Incomparability makes it hard to analyze data and draw accurate business conclusions.
For example, if year-over-year sales have increased for a certain Sales Officer, is it because,
● They made more sales?
● They inherited someone else’s client(s)—but no history?
● A competitor was purchased?
Common comparability issues include:
● Acquisitions and dispositions/spin-offs
● Definitional changes
e.g., determining “middle market” clients
● Expansion or reduction in data elements
e.g., adding or eliminating the number of products offered
● Increasing or decreasing the degree of granularity
e.g., having five product features vs. combining the five into only two
The normal way to handle incomparable historical information is to, well, normalize it. That is, exclude or adjust data that make the full history incomparable so that what is left is, in fact, consistent and comparable. For example,
● One-off transactions can be highlighted and explicitly excluded from analytical work
● Data related to acquisitions could be back-loaded prior to the time of acquisition to produce content-consistent data for analysis
Trend reporting is most useful when there is enough comparable data to allow analysis to feed accurate results into high-quality business decisions.
Bill
William A. Stong
Email: william.a.stong@gmail.com
Telephone: 925-202-6244
Integrated Profitability Consulting TM
Blog # 8-16-0603 © 2010
“Insight knowledge for Profit Maximization”
