# Understanding Metrics: Key to Performance Tracking and Analysis

## What Are Metrics?

Metrics are critical tools for [quantitative assessment](https://www.investopedia.com/articles/investing/041114/simple-overview-quantitative-analysis.asp) used across accounting, operations, and performance analysis. Executives, analysts, and managers rely on a well-structured set of metrics to create dashboards that help maintain performance assessments and inform business strategies. By utilizing a diverse range of industry standards and proprietary models, metrics facilitate strategic decisions in corporate finance, project management, and investment analysis.

### Key Takeaways

*   Metrics are essential tools for measuring and assessing performance in various areas, including finance and project management.
*   Executives and analysts use metrics to guide corporate finance decisions and investment strategies.
*   Selecting appropriate metrics involves identifying relevant goals and establishing key performance indicators (KPIs).
*   Metrics are widely used in financial analysis to evaluate company performance and investment portfolios.
*   Developing comprehensive metric dashboards involves leveraging industry standards and decision analysis methods.

![Metrics: Measures of quantitative assessment commonly used for assessing, comparing, and tracking performance or production.](https://www.investopedia.com/thmb/3x0sL27fLZ1TrSyEjDdkDAkwL-I=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/metrics.aspfinal-40312c5e32ab4aadbb522fa7566ebe40.jpg)

*— Investopedia / Candra Huff*

## Exploring the Role of Metrics in Business and Finance

Metrics have long been used in accounting, operations, and performance analysis. Executives use them to analyze corporate finance and operational strategies. Analysts use them to form opinions and investment recommendations. Portfolio managers use metrics to guide their investing portfolios. Furthermore, project managers also find them essential in leading and managing strategic projects of all kinds.

> **Important**
>
> Metrics come in a wide range of varieties with industry standards and proprietary models often governing their use.

Overall, metrics refer to a [wide variety](https://www.investopedia.com/terms/w/wide-variety.asp) of data points generated from a multitude of methods. Best practices across industries have created a common set of comprehensive metrics used in ongoing evaluations. However, individual cases and scenarios typically guide the choice of metrics used.

## Selecting the Right Metrics for Business Success

Every business executive, analyst, portfolio manager, and the project manager has a range of data sources available to them for building and structuring their own metric analysis. This makes choosing the best metrics for assessments and evaluations challenging. Managers typically build a dashboard of [key performance indicators](https://www.investopedia.com/terms/k/kpi.asp) (KPIs).

To establish a useful metric, a manager must first assess their goals. From there, it is important to find the best outputs that measure the activities related to these goals. A final step is also setting goals and targets for KPI metrics that are integrated with business decisions.

Academics and corporate researchers have defined many industry metrics and methods that can help shape the building of KPIs and other metric dashboards. An entire decision analysis method called applied information economics was developed by Douglas Hubbard for analyzing metrics in a variety of business applications. Other popular decision analysis methods include [cost-benefit analysis](https://www.investopedia.com/terms/c/cost-benefitanalysis.asp), forecasting, and [Monte Carlo simulation](https://www.investopedia.com/terms/m/montecarlosimulation.asp).

Several businesses have also popularized certain methods that have become industry standards in many sectors. DuPont began using metrics to better their own business and in the process came up with the popular [DuPont analysis](https://www.investopedia.com/terms/d/dupontanalysis.asp) which closely isolates variables involved in the return on equity (ROE) metric. GE has also commissioned a set of metrics known as [Six Sigma](https://www.investopedia.com/terms/s/six-sigma.asp) that are commonly used today, with metrics tracked in [six key areas](https://www.ge.com/): critical to quality; defects; process capability; variation; stable operations; and, design for Six Sigma.

## Common Metrics and Their Applications

While there are a wide range of metrics, below are some commonly used tools:

**Economic Metrics**

*   [Gross domestic product (GDP)](https://www.investopedia.com/terms/g/gdp.asp)
*   Inflation
*   Unemployment rate

**Operational Company Metrics**

From a comprehensive perspective, executives, industry analysts, and individual investors often look at key operational performance measures of a company, all from different perspectives. Some top-level operational metrics include measures derived from the analysis of a company’s financial statements. Key financial statement metrics include sales, [earnings before interest and tax (EBIT)](https://www.investopedia.com/terms/e/ebit.asp), net income, earnings per share, margins, efficiency ratios, [liquidity ratios](https://www.investopedia.com/terms/l/liquidityratios.asp), leverage ratios, and rates of return. Each of these metrics provides a different insight into the operational efficiency of a company.

Executives use these operational metrics to make corporate decisions involving costs, labor, financing, and investing. Executives and analysts also build complex financial models to identify future growth and value prospects, integrating both economic and operational metric forecasts.

There are several metrics that are key to comparing the financial position of companies against their competitors or the market overall. Two of these key comparable metrics, which are based on market value, include [price-to-earnings ratio](https://www.investopedia.com/terms/p/price-earningsratio.asp) and [price-to-book ratio](https://www.investopedia.com/terms/p/price-to-bookratio.asp).

**Portfolio Management**

Portfolio managers use metrics to identify investing allocations in a portfolio. All types of metrics are also used for analyzing and investing in securities that fit a specific portfolio strategy. For example, [environmental, social and governance (ESG)](https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp) criteria are a set of standards for a company's operations that socially conscious investors use to screen potential investments.

**Project Management Metrics**

In project management, metrics are essential in measuring project progression, output targets, and overall project success. Some of the areas where metric analysis is often needed include resources, cost, time, scope, quality, safety, and actions. Project managers have the responsibility to choose metrics that provide the best analysis and directional insight for a project. Metrics are followed in order to measure the overall progression, production, and performance.

## The Bottom Line

Metrics are essential tools for quantitative assessment, used to evaluate performance, compare metrics, and track production across various industries. They provide valuable insights in fields like corporate finance, project management, and portfolio management.  

Selecting the right metrics involves defining clear goals and utilizing industry standards or proprietary models. A well-structured dashboard of key performance indicators can guide informed business decisions and strategic planning. Regardless of the context, using metrics effectively requires an understanding of their diverse applications and implications.  

> **Article Sources**
>
> 1.  Hubbard Decision Research. "[Applied Information Economics (AIE)](https://hubbardresearch.com/about/applied-information-economics/)."