measuring performance: linking money to mission

Measuring Performance: Linking Money to Mission Rebeka Mazzone, CPA

Accounting Management Solutions, Inc. www.amsolutions.net

June 23, 2010

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Measuring Performance: Linking Money to Mission Rebeka Mazzone

Accounting Management Solutions, Inc. June 30, 2010

About Us

•  For more than a decade, Accounting Management Solutions, (AMS) has provided accounting support and financial management leadership at the consulting CFO, controller and accounting manager level to dynamic companies throughout the Northeast.

Objectives

• Discuss why scorecards are important

•  Learn how scorecards are used as a form of measure

• Understand the differences between scorecards, KPIs, dashboards, benchmarks

• Getting started

Characteristics of Effective Financial Reporting

• No surprises for management – paralyzed by indecision

•  Link to strategic plan •  Plan linked to budget

• Measures: Key Performance Indicators (KPI) based on strategy

•  Easy to understand

• Meaningful information

What do reports tell us?

•  Strategic plan – Where do we want to go?

•  Budget – How do we plan to get there?

•  Statement of Activity – How did we do?

•  Statement of Position – Where are we now?

•  Statement of Cash Flow – How did we use our money?

•  Cash Flow Projection – Do we have enough to get us there?

Understanding the Financial Condition

•  Reports should be designed for the audience.

•  There are 4 levels of reporting:

1.  Transaction Detail – Finance Department/Department Managers

2.  Detailed Financial – Finance Department/Department Managers

3.  Management Financial Summary – Exec. Director/Finance Committee

4.  Board Financial Summary – Full Board

Too much detail prevents users from focusing on the risks and opportunities.

Benefits of Scorecards

•  Power to capture relationship between financial and non-financial data

•  Ability to predict and manage future outcomes •  Effectively present financial data to non-financial

people

• Drive strategic objectives throughout organization down to individuals

•  Align business activities

Example: Revenue and Expense

Example: Revenue and Expense Per Student

Example: Revenue and Expense Per Student

Example: Revenue and Expense Per Student

EXAMPLE: Organizational Scorecard

Key Performance Measures: Non Programs

Going to School on Performance

• Balanced Scorecards = Grade Point Average

• Dashboards = Report card

• KPIs = Class grade

• Benchmarks = Class rank

Inputs & Outcomes

GETTING STARTED

Getting Started

Create a Cross-functional Team

•  Project Champion •  Clear leadership to drive vision

• Core Leadership Group •  Assess core processes

and programs

•  Limit team size

•  Team orientation

• Requires long term commitment

Understand Your Audience

• Who will be using the scorecards?

• What impact do scorecards have on resource allocation and program decisions?

• What is the key information they need to understand to make strategic decisions?

Achieving strategic goals is the priority

Create Buy-in and Ownership

•  Top leadership support

• Cross functional / representative teams

•  Keep an open dialogue during planning stage

•  Keep the process transparent

Enterprise Performance Management System (EPMS)

Board & Executive Director

Executive Director & Departments

Departments & Individuals

360 Review

Departmental Scorecards

VISION / MISSION

Organizational Scorecard

Starting Point

1.  Examine mission and strategic plan

2.  Set goals tied to your mission

•  Short-term

•  Long-term

3.  Remember: Change takes time

What is the Goal?

• Organization-wide scorecard •  Used to drive strategic plan objectives

• Departmental scorecards •  Informed by Organization-wide scorecard

•  Is generally division-specific (e.g. responsibilities and measures are unique to each department)

•  Individual Performance Reviews •  Align individual performance to organizational goals

“Measures start with a top down approach, but ultimately some will rise up from individual plans”

Strategic Goals & Objectives

Deciding What to Measure

• Mission and program effectiveness

•  Anticipated growth •  Benchmarking / peer

comparison

• Major financial statement line items and ratios

• Consider the relationship between money and people

Deciding What to Measure: External Drivers

•  Legal & compliance

•  Public perception •  Going green/sustainability

•  Safety

•  IT

•  Competition

•  Facilities •  Remaining life •  Capacity

•  Square foot per student

•  Consumer satisfaction •  Cost per square foot

(maintenance, utilities)

Deciding What to Measure: Four Pillars

•  Financial measures – create value

•  Profitability by program •  Ability to meet obligations •  Budget success

•  Human Capital •  Staff/Consumer Ratio •  Staff cost per individual

served •  Quality of programs/

education •  Diversity ratios

•  Operational Capacity •  % time building /

classrooms occupied

•  Consumer satisfaction (Individuals/donors/ grantors)

•  Retention

•  Completion Rates •  Cost of success rates (link

$ to outcomes)

List and Prioritize – Critical

LOW HIGH

HIGH

Value to Institution & Mission

Value to Customers

No Value to Mission or Customers

Strategic Objectives: Example

Mission:

To assist low-income adults in realizing their full potential through literacy, employment, advocacy and community involvement.

Strategic Objectives: •  Enhance the delivery of services by building on

the diversity of student strengths. •  Expand the scope and array of our

educational services.

•  Expand the base of our advocacy in the state and community for adult basic education.

Strategic Drivers: Example

•  Increase service area by 10% over the next 3 years

•  Enhance the Organization's admissions and marketing efforts

•  Expand the “family service” continuum to better support parents.

•  Establish operating reserves

•  Determine the effectiveness of our programs and services through evaluations and outcomes studies.

Organizational Scorecard

Key Performance Measures: Programs

Individual Programs

Quantity

Quality

Organizational Scorecard

Key Performance Measures: Non Programs

Four Pillars

Goals: linked to budget

Operating Income (loss) by department

Change in Revenue per Student

Change in Expense per Student

Avg. # Students per FTE

360 Leadership Assessment

360 Performance Review

What should measures look like?

Key Performance Indicators (KPIs)

Scorecard Example

Exceed Goal

Goal

Moderate

Risk

Key Performance Indicators

•  KPIs can be both quantitative and qualitative

• Cannot simply be the money

•  Programmatic outcomes are the mission

•  Finance is the backbone

• Need to trend over time

Key Performance Indicators (cont’d)

•  KPI Review Cycle •  Annual scorecard

•  Quarterly scorecard

•  K.I.S.S. •  Simple to operate

•  Simple to understand

•  Simple call to action

Review Data For…

•  Reliability

•  Accessibility / availability

•  Accuracy

•  Timeliness – past is used to set future goals

•  Communicability – Does your audience understand it?

Challenges

•  Year One: •  Benchmark year

•  Lots of information not available

•  Goal – prioritize and focus

•  Year Two: •  Measurement tools in place

•  Review measures

• Ongoing: Reassessment

Some measures might not be available each year

Keys to Success

•  A strategic plan and leadership support

• Clearly defined goals & organizational priorities

•  Transparency across the organization

Do You See Any Benefits?

•  Easier to understand – 1 hour Board meeting •  People outside of finance can now understand •  Ties money to outcomes to measure effectiveness •  Ability to monitor outcomes over time • Monitor opportunities for

improvement •  Better ability to

communicate value

Benefits

Cautions!

• Visions must be aligned •  Independent of any one

department • Sustained effort • Start small • Project manager vs. project

champion • Consistent measures/valid

data

Next Steps

• Measure key executive performance

•  Each department/division to implement

•  Share this with staff; help drive goals and measures

• Data warehouse – move from Excel to database

For More Information

•  Rebeka J. Mazzone CPA, Director Rhode Island Region Accounting Management Solutions, Inc. rmazzone@amsolutions.net

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