Continuing with our baseball theme, today’s post is going to explore how a statistic called base runs helps professional baseball teams understand whether or not they are playing up to expectations. We are then going to explore the business equivalent of this statistic, the activity-based budget.
As I mentioned in my last post, the new wave of general managers in professional baseball (and all of sports really) are using advanced statistics and analysis to help them manage their teams smarter. This is extremely important for smaller market teams, since they do not have the budget to compete with the Yankees and Red Sox of the world in terms of signing players to large contracts.
Base runs is one of these measurements. Base runs (BsR) is a baseball statistic invented by sabermetrician (a general name for people who study these advanced statistics, it sounds better than “nerd” ) David Smyth to estimate the number of runs a team “should” have scored given their component offensive statistics, as well as the number of runs a hitter/pitcher creates/allows.
Typical Sabermetrician
What does all of that mean? Basically BsR looks at all of the little things that happen in a sample of games, all of the hits, the errors, the balls, strikes, etc. and determines how many runs a team is expected to score given all of that information. So, in a nutshell, it is a way to measure the actual results (actual runs scored) versus expected results (BsR)
So why does this matter? BsR allows these nerds (sorry, sabermetricians) to see how changing one or more players on a team would change the results over a group of games or even an entire season. It allows managers to spot inefficiencies and work to correct them. See how this might be useful to a business owner?
The equivalent to BsR for a business owner or manage is an activity-based budget. This is a report that shows what profit can be expected given lots of different variables (sales, returns, expenses, taxes, interest, etc.) An activity-based budget is a powerful tool if done right, because it will allow a business owner or manager to explore the relationship between sales, costs and profits, as well as give a benchmark against which future performance can be measured. This is what I mean by managing to expectations. By analyzing the variances between what is expected and what actually happened you can identify areas of your business that need improvement.
Notice I said “when done right”. Many managers or owners treat a budget for their business like a budget for their home and set a goal of breaking even. Trust me, no general manager of a baseball team starts the year with the goal of going 81-81. If he (or she) does, he won’t be around very long. An effective budget should be created with a specific profit number in mind, preferably an aggressive number. Set your goals high and motivate your employees to reach it!
Want to get started setting goals and measuring performance in your business? Contact us today to see how we can help!