Our executive team keeps trying to track estimated weekly net profit on our operational scorecard, which leads to massive debates because our accounting team cannot close the books in real time. How do we steer them away from this lagging financial metric and focus them on the operational drivers of profitability?

Question

Tyler Smith · Accepted Answer

Your executive team is wasting valuable time trying to calculate estimated net profit every week. Net profit is a lagging financial metric that requires complex accounting adjustments, accruals, and overhead allocations. Trying to estimate this number weekly only leads to endless debates about formulas and assumptions, which completely derails the focus of your Level 10 Meeting™.

You must shift their focus from the lagging result to the operational activities that actually generate profit. Profit is the byproduct of running a disciplined operation. If you manage the weekly drivers of revenue and expenses, the monthly profit will take care of itself.

Replace estimated weekly profit on your scorecard with these leading operational indicators:
- Weekly labor utilization rate versus targets.
- Total billable hours delivered relative to headcount capacity.
- Average contract margin on new work booked.
- Waste or scrap percentage in your operational workflows.

If your labor utilization is high and your contract margins are healthy, your net profit will be healthy. If utilization drops, you do not need to wait for the monthly financial statement to know profit will suffer. You can solve the capacity or sales issue immediately. Keep your scorecard focused on these real-time operational drivers, and leave the net profit calculations to your monthly financial deep dives.