Turning data into chocolate cake!

Written on the 11 April 2013 by Cathy Morato

I recently attended a wonderful seminar which featured presentations from some very talented scientists from JCU who are working on solutions to some of our biggest challenges.  One of the presenters was a computer engineer who gave us an insight into the challenges of data management.  Apparently, more data is generated each year than there is capacity to store it.  He used the phrase “data deluge”.  (I could identify with this on a personal level – as I write I have around 700 emails in my Inbox!) 

Business owners face a similar challenge.  These days we have technology that can produce masses of data.  Its value however is in what we make from this “data deluge”. Generating data is easy – putting it to good use is another story.  If I gathered together in my kitchen some flour, a few eggs, some butter and some cocoa and put them in a pile on the bench would that mean I had a chocolate cake?  Of course not – I need to do something with those ingredients to turn them into a cake. 

The same is true with raw data.  In itself it is not much use but it can be turned into really useful information.  In the current business environment, where businesses are facing rising costs, falling revenues and shrinking margins, having useful information at hand is more critical than ever.  

For example, the simplest measure is to look at sales, gross profit margin, expenses as a percentage of sales and net profit margin.  What is happening?    If you look at these results across several periods – months, quarters, years – trends will emerge.  Are these measures increasing or decreasing?   Let’s look at gross profit margin as an example.  This is a critical measure.  If yours is shrinking, you need to understand why.  There could be a number of reasons, including higher stock or raw material costs, higher transport or packaging costs or greater shrinkage.  It could be due to the mix of products you are selling.  Some products have higher margins than others.   Do you know if all your products or product lines are profitable? 

Every industry has a range of key indicators – financial and non-financial – that signal the health or otherwise of the business.  All business owners need to know what they are and know how to measure them.   All the data that you need to measure and manage your business is available.  You just need to know how to extract it and put it together, just like finding the right recipe for turning a pile of uninteresting ingredients into a chocolate cake. 

It isn’t enough to look at a profit and loss report once a year six months after the year has ended when signing your tax return.  You need information now.  So:
• Make sure your raw data is accurate.  Remember the old saying, Garbage In, Garbage Out.  It still holds true. 
• Talk to an expert and have them develop a process for you to turn your raw data into “business intelligence”, ie. useful information that tells you exactly how your business is performing.
• Make time to understand what your information is telling to and to plan ahead. 
• Remember that data is just data – information and knowledge are quite different.

Copyright Zoom in Business 2013

Author:Cathy Morato