Metrics

A system of measurement or related measures that facilitate the quantification of a specific characteristic

What are Metrics?

Metrics are a system of measurement or related measures that facilitate the quantification of a specific characteristic. It is a decimal measurement system that is internationally accepted.

 

Metrics

 

Summary

  • A metric is a system of measurement, or related measures, that facilitates the quantification of a specific characteristic. There are different types of metrics for different disciplines.
  • Metrics communicate information, which is of interest to business stakeholders.
  • Metrics are also known as performance metrics that measure the different aspects of performance for an organization or a project.

 

Business Uses of Metrics

There are different types of metrics for different disciplines, which include business, science, mathematics, physics, and engineering.

Metrics communicate information that is of interest to business stakeholders, such as directors, senior and middle managers, supervisors, customers, shareholders, prospective investors, suppliers, banks, and analysts.

Businesses with obligations for public disclosure – such as companies listed on stock exchanges – usually share the metrics through the publication of financial results.

Some metrics are more internal and are shared among middle to lower-level employees only and some are departmental or based solely on the performance of a specific unit in an organization.

 

Metrics in Practice

When managing a business, it is crucial to continuously evaluate its performance to ensure a growing and sustainable business. By monitoring specific performance metrics, management pays attention to deviations from company objectives, measures progress made, and helps in cost containment.

The use of metrics is an invaluable tool for a business operating in a competitive market. Strategies for growth and survival of the business are crafted around the performance of the metrics.

It is necessary to compare metrics to business targets for a time period or compare them to established industry benchmarks. In such a way, it is easier to make sense of the related performance metrics and make appropriate interpretations and recommendations.

For example, when looking at the net profit margin of a company in isolation, it doesn’t make sense because it is only a number. However, when compared to a company’s target net profit margin or industry benchmark margin, it is appropriately interpreted. Comparison adds valuable context to performance metrics.

Metrics used to specifically measure performance are often called Key Performance Indicators (KPIs). Business metrics ultimately measure performance and they encompass KPIs, which measure a specific critical area of performance.

Organizations must focus on performance metrics and KPIs that bring the most value to the whole organization or unit and ignore others to get a clear and uncluttered picture of organizational performance.

 

More Resources

CFI is the official provider of the global Certified Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful:

  • Economies of Scale
  • Economic Indicators
  • Market Dynamics
  • Theories of Growth

Financial Analyst Certification

Become a certified Financial Modeling and Valuation Analyst (FMVA)® by completing CFI’s online financial modeling classes!