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Predictive versus historical metrics

By JAMES COAKES Published 16th Dec 2014
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Analysing performance metrics is a hugely important part of determining how successful and profitable an organisation's performance and behaviour are. While many metrics are based on an organisation's financial performance, it's just as important to delve into indirect indicators of value, simply because those indirect indicators are collectively what determine an organisation's financial success. Metrics come in a wide range of categories, with some types relevant to a limited selection of industries, and others applicable to all organisations. In temporal terms, metrics fall into two categories: historical and predictive.

Historical metrics

Historical metrics are also known as lagging indicators. These terms refer to the fact that historical metrics involve the analysis of past performance and they're based on data that relates to everyday business operations. Client records and accounting records are examples of data that can be analysed to yield historical metrics that can give you insights into how an organisation has changed over time. Analysis of historical metrics can, for example, show you who your most profitable clients are, where your best recruits are coming from, and how your business fluctuates on a seasonal basis.

Predictive metrics

Predictive metrics, also called leading indicators, are a way of analysing trends to predict how an industry or organisation, or factors relating to it, might behave in the future.

Predictive metrics are useful for a wide range of reasons. When used correctly, they can improve long-term and day-to-day business management, and change the way recruits are located and hired. They're also what help organisations mitigate, or even prevent, the negative impact of events that might directly affect profitability, or events that might have negative downstream effects. For example, future-focused predictive metrics can predict when both problems and opportunities may arise in recruitment, allowing organisations to take advantage of opportunities and prevent problems.

Applying metrics in recruitment

According to the analyst company Gartner, organisations that use predictive metrics over historical metrics stand to boost their profitability by a full 20% by the year 2017. According to Gartner, organisations that use predictive metrics will benefit from the ability to alert workers when 'business moments' (transient opportunities that need to be acted upon immediately) are about to occur, and from the ability to guide employees on the best courses of action in a wide variety of customer-related situations.

Given that the recruitment industry is an entirely different animal from most other industry sectors, how well does this analysis apply? Should recruitment companies be focusing on predictive metrics to the partial or full exclusion of historical metrics?

Predictive metrics are enormously valuable, but historical metrics have their place too, and their value shouldn't be forgotten. Predictive metrics are valuable for what they can tell you about what's coming in the future, but historical metrics are still the best way to track performance over time and using both types of metrics in conjunction can be a hugely powerful way of predicting and preparing for an organisation's future.

The challenge is for smaller companies who might not have access to the sort of data that larger companies do, both because they are smaller and may have been running for less time. Smaller companies are often more agile and run on the instinct of their managers and many would say that this gives them an advantage. Managers in their larger, more established and perhaps more 'corporate' competitors may rely more on analysing data and that may not be a good thing. Gartner, a large corporate who specialise in research, put forward the case for research - but then perhaps it's unsurprising that they would.

The key skill is probably judgment; to have access to data when you need it and then to use it to support an instinctive decision. Wouldn't that be good?

 

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