Early-Warning-Systems for small businesses

Stephan Szugat Article Title: Early-Warning-Systems for small businesses
Author: Stephan Szugat
Word Count: 1,487
Article URL: http://www.abenetis.com/encyclopedia.html
Format: 65 Characters per Line

------------------ ARTICLE START ------------------
Early-Warning-Systems for small businesses

Most of you would say, that this might not be the most important
problem small businesses have to solve during their business
operation. Well, that might be true, but on the other hand, if
your business has an early-warning-system, than it could assist
you in operating your business and keeps you focused on solving
the bottlenecks you are actually facing.

But first of all, in case of Early-Warning-Systems it is
necessary to define what a small business is. A small business is
usually a business operated by 1 or a few people, but could also
be a company with as much as 500 employees. This article
concentrates on small businesses with 1 to 50 employees. As this
is the definition of small business, than we have to define what
an Early-Warning-System should look like.

While running a small business, the people involved usually have
not the time dealing with Early-Warning-Systems a lot. Because of
the lack of time, there has to be a lean solution, which takes
care of the following things:

* easy to use solution
* not time consuming
* showing recommendations for possible actions on early warnings
* giving priorities which bottlenecks have to be solved first
* having a short reporting cycle
* a reasonable price, every small business could afford.

Lets go to the list one by one:

Easy to use solution

What does that mean? On my opinion, easy usage is, when something
is easy and fast to understand. Something I do not need to read a
huge book with hundreds of pages or where I have to attend a
training, which keeps you occupied by several hours or days, just
to know the basic features.

Having a system with huge databases and many features and
reporting alternatives, is not only time consuming, it is also
annoying, because you ever feel you need to perform a lot more
reports. And you always feel that you may missed something.

Furthermore a good Early-Warning-System solution should work with
only few input. But that's another point.

Not time consuming

When you have to input a lot of data that is one possible time
consuming task. On the other hand, you do not know, if a huge
database will make your Early-Warning-System better. So it is
better to focus on a few important data, than having a huge
database, which you probably never use.

When concentrating on important data, you are not able to use
every data from your business operation directly. Some data have
to be calculated to business ratios, which are a better basis for
analysis. But this brings to mind to select the right business
ratios. There are so many to find.

Well, there are a few which could be used for all kinds of
businesses, such as

* Customer Contacts
* Complaints
* Orders in Process
* Customer Loyalty
* Usage of capacity
* Order Processing Time

to show just a few. Would be an analysis, which uses only 30
business ratios or business numbers a time consuming solution? I
guess you say no. But, what would be if you have to fill in these
numbers every day? Well, that's not necessary. One time a week
should be enough.

However, even if 30 or 60 values for business ratios per week
does not sound much work, but there is a little more work to do
upfront, before you could use these values for analysis. You have
to find the values in your company, you have to calculate the
business ratio values and so on. This I believe sounds to be a
lot more work as you thought.

When you install the right procedure to get the necessary data
for analysis, you may have only a bigger one-time work. It's
all in the procedure you choose. Make it as easy as possible and
it won't be a time consuming task.

Recommend actions/measures

Early-Warnings are signs, which a system should generate, when a
point is reached, where you said it should inform you that a
situation is going to be worse. There are many systems out there
providing early-warnings, but the question is always, on which
basis this warning has been calculated and to what will it lead
you.

To understand an early warning signal it should be as easy to
understand as a traffic light signal. Green says that everything
is all right, yellow shows you that caution has to be taken and
red should bring the alarm clock ringing at you.

Well, providing recommendations for actions/measures is not a
very important feature, but if you are not familiar with business
operations or just starting a business it is of help to get
recommendations for actions/measures to keep your business
running.

But even if you have lot of experience running a business, it is
sometimes very helpful to get new ideas on how to act.
Actions/Measures could only be a recommendation here, because
industry sectors are different, and it wouldn't be possible to
cover all types of businesses.

Showing priorities to solve bottlenecks

Remember the paragraph above about early warning signals, they
could be used to find priorities to solve bottlenecks in business
operation. First of all the warning signals must follow some
rules. That means that the business ratios supplying the signal
have to be in a consecutive timely manner to each other. For
example, when you have 5 ratios depending on each other in a
consecutive manner, than you have automatically a priority to
follow when actions are needed.

In case your ratio number 3 has a yellow signal and number 4 a
red signal, than you know that you first have to solve the
problem ratio 4 is showing, because you got the red flag and it
has influence to ratio 5, which was green. This small example
shows how important it is to use the right business ratios and
how important it is to concentrate on the traffic light
systematic when taking actions.

Short Reporting Cycle

A short reporting cycle may be a month for some business
operators, but when waiting for Early-Warning-System analysis for
about 4 weeks, you are only able to take action on erroneous
trends once per month. And in some cases this could be already to
late.

Really short is a reporting cycle, which uses a week as its basic
period. Why using reporting cycles of one week? Just because you
can see erroneous trends earlier and being able to take actions,
while others are still waiting their reports to come. On a weekly
reporting cycle you could act at least 3 to 4 weeks earlier as on
monthly reporting cycles.

I don't think you are driving your car blind for more than a
small part of a second. Just imagine what happens, when driving
your car blind for a month, just like the usual reporting cycle
for business reporting? You are right, just a few seconds after
start driving you have the first accident. Even if you are an
airline pilot and having an autopilot system, you steadily have
to control the system, to be sure that you are heading in the
right direction.

Reasonable Price

Reasonable is a price, which nearly all small businesses could
afford. Even if the price is paid in instalments or as rent for
the licence to use a system. An Early-Warning-System, as the lean
version described here, doesn't has to be very expensive.

However, the decision is yours, if you like to pay more or less
on an Early-Warning-System, but you should carefully check the
features and benefits a solution offers.

Conclusion

Early-Warning-Systems for small businesses is a very important
and often overlooked issue, which could assist to establish a
more focused business operation, but only when the Early-Warning-
System shows actual bottlenecks and is able to provide priorities
for actions/measures.

However, most small business owners or operators are not aware of
the problems Early-Warning-Systems could bring them before there
eyes. Furthermore, the possibility of finding new target markets,
new solutions or ideas to improve existing products, is just a
benefit an Early-Warning-Systems solution may offer as well.

If you think the described solution is not an Early-Warning-
System, because an Early-Warning-System has to be something where
you have to handle lots of data and documents, well, that might
be another definition for it, but starting with a small solution
is always better than doing nothing. There is no reason to use a
big system to provide early-warnings, and for small businesses
big systems don't make sense at all.
------------------ ARTICLE END ------------------

About the Author

About the Author:
Stephan Szugat is founder of abenetis a web-based service about Business Management Solutions focusing on the core needs of business management. He has approx. 15 years experience in the Finance and Accounting Area from companies of different size and from various industries. http://www.abenetis.com