What Are Metrics?

Metrics are measures of quantitative assessment commonly used for measuring, comparing, and tracking performance or production. Generally, a group of metrics will typically be used to build a dashboard that management or analysts review on a regular basis to maintain performance assessments, opinions, and business strategies. 

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Metrics

Understanding Metrics

Metrics have been used in accounting, operations, and performance analysis throughout history.

[Metrics come in a wide range of varieties with industry standards and proprietary models often governing their use.]

Executives use them to analyze corporate finance and operational strategies. Analysts use them to form opinions and investing recommendations. Portfolio managers use metrics to guide their investing portfolios. Furthermore, project managers also find them essential in leading and managing strategic projects of all kinds.

Overall, metrics refer to a wide variety of data points generated from a multitude of methods. Best practices across industries have created a common set of comprehensive metrics used in ongoing evaluations. However, individual cases and scenarios typically guide the choice of metrics used.

Choosing Metrics

Every business executive, analyst, portfolio manager, and the project manager has a multitude of data points available to them for building and structuring their own metric analysis. This can potentially make it difficult to choose the best metrics needed for important assessments and evaluations. Generally, managers seek to build a dashboard of what has come to be known as key performance indicators (KPIs).

 In order to establish key metrics, a manager must first assess its goals. From there, it is important to find the best outputs that measure the activities related to these goals. A final step is also setting goals and targets for KPI metrics that are integrated with business decisions.

Comprehensively academics and corporate researchers have defined many industry metrics and methods that can help shape the building of KPIs and other metric dashboards. An entire decision analysis method called applied information economics was developed by Douglas Hubbard for help in analyzing metrics in a variety of business applications. Other popular decision analysis methods include cost-benefit analysis, forecasting, and Monte Carlo simulation.

Several businesses have also popularized certain methods that have become industry standards in many sectors. DuPont began using metrics to better their own business and in the process came up with the popular DuPont analysis which closely isolates variables involved in the return on equity (ROE) metric. GE has also commissioned a set of metrics known as Six Sigma that are commonly used today, with metrics followed in six key areas: quality, defects, process, variation, operations, and design.

Examples of Metrics

Metrics can come in a wide range of varieties. Below are some commonly analyzed metrics.

Economic Metrics

  • Gross domestic product (GDP)
  • Inflation
  • Unemployment rate

Operational Company Metrics

From a comprehensive perspective, executives, industry analysts, and individual investors often look at key operational performance measures of a company, all with differing perspectives. Some of the most top-level operational metrics include measures derived from the analysis of a company’s financial statements. Some key financial statement metrics include sales, earnings before interest and tax, net income, earnings per share, margins, efficiency ratios, liquidity ratios, leverage ratios, and rates of return. Each of these metrics provides a different insight into the operational efficiency of a company.

Executives use these operational metrics as key drivers for making corporate decisions involving costs, labor, financing, and investing. Executives and analysts also build complex financial models to identify growth and value prospects into the future that integrate both economic and operational metric forecasts.

There are several metrics that are key to comparing the financial positioning of companies against their competitors or the market overall. Two of these key comparable metrics, which are based on market value, include price-to-earnings and price-to-book.

Portfolio Management

Portfolio managers use metrics to identify investing allocations in a portfolio. All types of metrics are also used for analyzing and investing in securities that fit a specific portfolio strategy.

Project Management Metrics

In project management, metrics are essential in measuring project progression, output targets, and overall project success. Some of the areas where metric analysis is often needed include resources, cost, time, scope, quality, safety, and actions. Project managers have the responsibility to choose metrics that provide the best analysis and directional insight for a project. Metrics are followed in order to measure the overall progression, production, and performance.

Key Takeaways

  • Metrics are measures of quantitative assessment commonly used for measuring, comparing, and tracking performance or production.
  • Metrics can be used in a variety of scenarios.
  • Metrics are heavily relied on in the financial analysis of companies by both internal managers and external stakeholders.