NBOP National Board of Operations Professionals

Part two. The MixLesson 8 of 15

The apples-to-apples column

Before comparing any two periods, add the column that removes what changed for other reasons.

The instrument The apples-to-apples column

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Almost every period comparison in the business is contaminated. Prices changed. The mix changed. A large one off landed. Currency moved. A merger closed. So revenue grew eleven percent is a statement about several things at once, and the operational part, whether the business actually sold more of what it sells, is buried inside it. The instrument is a single additional column: this period restated on the basis of the last one. Same prices, same mix, one offs removed. The difference between the reported number and the restated number is everything that was not operational performance. Define the adjustments before you see the result and keep them constant. Adjustments chosen afterwards, by someone who knows which way they would like the number to move, do not count as analysis.

Almost every period comparison in a business is contaminated. Prices changed. The product mix changed. A large one-off landed. A pricing model changed shape. Currency moved. An acquisition closed.

The result is that "revenue grew eleven percent" is a statement about several things at once, and the operational part, whether the business actually sold more of what it sells, is buried inside it.

The instrument is a single additional column: this period restated on last period's basis. Same prices, same mix, one-offs removed. The difference between the reported number and the restated number is everything that was not operational performance.

It takes an hour the first time and much less afterwards, and it changes conversations permanently. A team that grew eleven percent, of which seven was price and two was a one-off, has grown two percent, and everybody in the room now knows which conversation they are having.

The discipline is to define the adjustments before you see the result and to keep them constant. Adjustments chosen after seeing the number, by someone who knows which direction they would like it to move, are not an analysis.

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