leading indicators: what's so key about your kpis

© 2013 Consider Solutions All rights reserved.

solutions for world class finance

What’s so KEY about YOUR KPIs?

“Are your performance measures

fit for purpose?”

14 November 2013

Dan French CEO, Consider Solutions


Today’s Discussion

Dan French

CEO

Consider Solutions

www.consider.biz

World Class Finance

• Finance Process Optimisation

• Risk Management

• Financial Control & Compliance

2 © 2013 Consider Solutions All rights reserved

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Something worth discussing?

There are known knowns; there are things we know that we know.

There are known unknowns; that is to say, there are things that we

now know we don't know.

But there are also unknown unknowns – there are things we do not

know we don’t know.

There are both problems and opportunities!

We have some of the answers!

We will never know all the questions!

Insights to share......?


Agenda

KPIs and Shared Services

The trouble with traditional KPIs

Leading & Lagging Indicators

Driving Behaviour with Indicators

Engaging the customer

Communicating Progress

Recommendations

Questions



1 – A Question for YOU!

What is your biggest challenge in driving performance with KPIs in your organisation?

‐ Too many KPIs

‐ Choosing the right KPIs

‐ Measuring the KPIs

‐ Communicating performance progress

‐ Identifying what actions are needed to improve performance

Select ONE




KPIs and Shared Services


Key Performance Indicator

A measure used to evaluate the success of an important activity and can be used to enable;

‐ Progress reporting

‐ Comparison

‐ Target setting

‐ Incentives

‐ Improvement



© 2013 Consider Solutions All rights reserved

KPIs and the Finance Operations Journey

Transaction Processing

Control

& Specialist

Financial Services

Decision

Support

Transaction Processing

Control

& Specialist

Financial Services

Decision

Support

Shared

Services

Retained Finance

CFO

Decision

Support

Decision

Support

Decision

Support

Laggards

1.9% of revenue

Median

1% of revenue

Leaders

0.5% of revenue

26%

25%

49% 33%

28%

39%

Effectiveness: Control Information on Demand Business Partnering

Efficiency: ERP Shared Services Standardisation/Simplification

8


Purchase to Pay /Accounts Payable

1. Invoices processed per FTE

2. Cost per invoice

3. Process/cycle time

4. Number of payment errors

5. Discounts captured

6. Days Paid Outstanding

7. Percentage of touchless invoices

8. First time match rate

9. Spend under purchase order rate

10. Payment on time

11. Number of suppliers per 1,000 invoices

12. Percentage of invoices in query



Order to Cash / Accounts Receivable

1. Total process cost as revenue %

2. Days sales outstanding (DSO)

3. Order-to-fulfillment cycle time

4. Order-to-bill cycle time

5. Customer invoices per FTE

6. % of invoices requiring manual intervention

7. % of invoices queried

8. Percentage of customers on standard terms

9. Percentage of customer receipts received electronically

10.Bad-debt expense as revenue %

11.Credits per 1000 invoices



Record to Report / Closing

1. Total close time in days

2. Average number of days per month to reconcile/close the intercompany accounts

3. Average number of intercompany accounts that are out of balance at month end

4. Planning, analysis, and management cost as a percentage of total finance cost

5. Total record-to-report process cost per record-to-report full-time equivalent (FTE)

6. % of manual Journal Entries



Question 2 – Rate your current KPIs

How good are the KPIs in your organisation for what they are intended to achieve?

‐ Perfect

‐ Good

‐ Mediocre

‐ Bad

‐ Awful

Select ONE





Indicators that drive (intelligent) action?

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Law of Un-intended Consequences

Revenue per FTE

Number of calls handled per day

% of spend by vendor

Revenue per customer

Vendor payment performance

Invoice - Collection period

US Investigations Services – Clearance Processing

. . . .




KPIs and Benchmarking

KPIs Best-in-

Class Average Laggards

1 Invoice cycle time from receipt-to- approve (P)

5 days 21 days 45 days

2 First time match rate (H) 85% 70% 65%

3 Invoices per FTE (H) 32 830 11 364 6 767

4 Payment on time Best–in–Class pay 20 % faster than laggards

5 % of electronic invoices (H) 67% 25% 7%

6 Discounts captured (A) 90% 47% 18%

7 Spend under discounts (H) 0.133% 0.018% 0%

8 Days payable outstanding (REL)

36 33 30

9 Number of enabled suppliers (AN)

3000 400 20

10 Percentage of invoices with exceptions (A)

12% 17% 30%

(P) PayStream Advisors, (H) The Hackett Group, (A) Aberdeen, (REL) The Hackett Group/REL,

(AN) The Ariba Network



The KPI Challenge


Question 3 - KPI characteristics

What is the strongest characteristic of your current KPIs?

‐ Quantifiable & Comparable

‐ Timely

‐ Accessible

‐ Actionable

‐ None of the Above

Select TWO



Alternative Approaches

Effectiveness KPIs:

‐ Master Data: % changes processed accurately

‐ Collection: % overdue receivables

‐ Reporting: % reports issued on time

Control KPIs:

‐ Capture: % master data errors

‐ Authorize: % duplicate invoices processed

‐ Payment: % payments without 3 way match

Value KPIs:

‐ Credit: % bad-debt write-off

‐ Collection: Days Sales Outstanding (DSO)

‐ Payments: % payments 45 days or more



There are a lot of things we can measure!

Input Quality

Input Timeliness

Process Quality

Process Timeliness

Output Quality

Output Timeliness

Process Improvement Quality

Process Improvement Timeliness

Customer and Vendor Satisfaction

Employee Satisfaction and Development

Do our indicators help achieve our objectives?


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Indicators should . .

Make performance visible

Focus attention on what is important

Provide objectivity

Improve execution and decision making

Promote consistency

Provide clear feedback

Identify what needs to change

Motivate for improvement




Leading & Lagging Indicators


Leading Indicators : Early monitoring predicts trouble

© 2013 Consider Solutions All rights reserved 23


Leading Indicators

Kaplan & Norton

Leading vs Lagging

Cause & Effect

Lagging Indicator

‐ A measure of results, outputs and outcomes, provides an accurate snap-shot in time

Leading Indicator

‐ An in-process measure that impacts outcomes, is predictive

Its not easy . . .

‐ Every leading indicator is a lagging indicator of something else – chicken & egg



A Balanced Perspective


Lagging Indicators

• Efficiency, Cost, Purchase Savings

Leading Indicators

• Error rates, skills, data quality, multiple revisions, duplicates



Processes, Leading & Lagging Indicators

Process Taxonomy/Language

Performance Measures / KPIs

Leading Exception Indicators

Exceptions in Planned Performance

√ √

X

The unintended consequences

of Performance Measures !

Root Causes ?

? Remedial Action

Man

agemen

t Pro

cess

X

Learning & good practice




Process Performance Measures




of Performance Measures

DSO –

Receivables collected within 30 days

“Late dated invoice”

•Invoices raised after delivery

•Customer credit limit exceeded

•Non Standard payment terms

•Delivery quantity & quality



Process Performance Measures




of Performance Measures

Spend Under PO & 3 Way Match

PO lags physical delivery

POs created same day as GR/IR

Rationale

• Define what ‘good looks like’ in sufficient detail to manage out defects

• Enable effective management action



Exceptions are Leading Indicators

What actually does happen

= Processes are ignored or

circumvented

Policies cannot be cost-effectively

enforced

Fraud &

Waste

Sub-optimal Cash

Mgmt

Ineffective

Process

Delays and

Rework

Audit/Compliance

Costs

Unnecessary

Risk

- - - - - - - - - - - - Performance Impact - - - - - - - - - - - - - >

What should happen

Key Exception Indicators (KEIs)



Leading indicators

To complement lagging KPIs

Enablers

‐ Resourcing, skills, knowledge

‐ Process awareness

‐ Common systems

In-process diagnostics (KEIs)

‐ Number of retrospectively raised purchase orders

‐ % multi-touch invoices processed

‐ Number of duplicate invoices/payments

‐ % of duplicate/erroneous master data

‐ % manual payments



© 2013 Consider Solutions All rights reserved

Question 4 – KPI Balance

What kind of indicators is your organisation using?

‐ Just Lagging

‐ Just Leading

‐ Some Lagging, some Leading

‐ Complementary sets of Leading and Lagging

‐ No idea

Select ONE

31



Driving Behaviour with Indicators


Driving Whose Behaviour? Maturity model

1. Stakeholder Engagement ***

2. End to End Process View

3. Shared Services Outcomes

4. Shared Services Behaviours

5. Service Management

6. Relationship Management

7. Customer Behaviours

8. End to End Process Optimisation

Make it important enough, find the trigger . . .



Leading Indicators & Process Improvement

Look at the processes, controls and performance measures

Define ‘what can go wrong’ (KEIs)

Monitor process execution for exceptions from standard

Diagnose root causes

Manage & fix root causes

Continuously improve process

Asymmetric impact on effort and efficiency . .

Non-disruptive performance improvement . .



Alignment - Indicators & Action

Operating Standard

Target

What good looks like for us?

Current

Process performance, process exceptions, KEIs

Tools

KPIs, process mapping, best practices..

Process Community

Assess Gaps & Opportunities

Actions & Initiatives

Action performed by

Change Results

Imp

acts

Benchmark



Performance

Its not just about ‘Performance Measurement’

‐ Collecting and reporting information to assess and compare efficiency

‐ This is a good thing

Its about ‘Performance Management’

‐ Using information to drive decisions and action to improve

‐ This is a better thing



Question 5 – Managing Performance

What is the biggest improvement you could implement in making indicators work for you?

‐ Improve the indicators (what we monitor)

‐ Improve data analytics, monitoring, reporting

‐ Expose/manage actions for improvement

‐ Get/enhance stakeholder commitment

‐ Other

Select ONE




Engaging the customer


Customer Satisfaction(another KPI minefield)



Engaging the customer – maturity model

1. Customer Engagement

2. End to End Process View

3. Shared Services Outcomes

4. Shared Services Behaviours

5. Service Management

6. Relationship Management

7. Customer Behaviours

8. End to End Process Optimisation

Who is the customer’s customer?




Communicating Progress


Dashboards & Misplaced Confidence


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Analysis – Insight – Decision

Drive Performance – Leading & Lagging

‐ Analysis

‐ Insight

‐ Decision

Action focused

‐ Requires a basis for diagnosis

‐ Improvement is actioned and monitored

‐ A continuous improvement process

Thought process for engagement - not a technology

‐ Web/iPad

‐ Report

‐ Whatever works in the organisation



A-I-D Thinking

Aim

‐ Balance leading and lagging indicators

‐ Find and close performance gaps

‐ Engage Stakeholders

‐ Drive Action

Guidelines

‐ Engage the process community

‐ Focus on key indicators that make a difference

‐ Analyse, gain Insight, take Decisions

‐ Communicate

‐ Prove it



Analysis-Insight-Decision


ANALYSIS Insight Decision

Lagging - KPI

Norm

Status

Leading - KEI

Norm

Status

Root Causes

Actions Agreed

Owner

1 Cost per Invoice

$0,67 Duplicate Invoices

Zero External Audit findings discovered duplicates

-Monitoring started per 18/11

Fin/Ops

2 Discounts captured

Data Quality Supplier master data issue -Assess revenue impact Fin/OCFO

3 Days Paid Outstanding

32 days

Non Standard payment term

Zero Non standard payment term used to meet KPI

-Re-assert policy Fin/Ops

4 First Time Match Rate

>85% Late Raised PO

>1 day GR

Complaints in GR handling by key suppliers

-Start monitoring PO/GR -Assess revenue impact

Fin/OCFO

5 Spend under PO valu

<3% of PO value

Late Raised PO

>1 day

Monitor in place - Man Pur-chasing

ANALYSIS Insight Decision

Lagging - KPI

Norm

Status

Leading - KEI

Norm

Status

Root Causes

Actions Agreed

Owner

1 Cost per Invoice

$0,67 Duplicate Payments

Zero Internal Audit findings discovered 1.2m in duplicates for month 7

Rigorous Invoice Monitoring started per 18/11

Fin/Ops

2 Discounts captured

50% Vendor Master Data completeness

90% Supplier master data update timings issue

Master Data Quality initiative business case underway

Fin/OCFO

3 Days Paid Outstanding

32 days

Non Standard payment term

Zero Non standard payment term used to meet aged debtors KPI

Re-assert policy from CPO

Procurement

4 First Time Match Rate

>85% Late Raised PO

Zero Complaints in GR handling for key suppliers

Start monitoring PO/GR timings

Fin/OCFO

5 Spend under PO (Indirect)

80% Late Raised PO

Zero Policy not well embedded. Expediency wins the day

Awaiting Process Community

Process Owner

6 Process Compliance

100% Key Control Exceptions

Zero Current automated control remediation process broken

Options Workshop Remediation review in parallel

IS-SC/ Process Owner/ Compliance


Question 6 – Analysis, Insight, Decision

What would most significantly enhance your performance management regime today?

‐ Improved analysis of lagging indicators

‐ Improved analysis of leading indicators

‐ Better interpretation and insight on gaps/root causes and potential improvement actions

‐ Better focus and visibility on decisions to improve

‐ Other

Select ONE




Recommendations


Shared Services and Performance

Charter

‐ A service culture - cost, quality, flexibility, cycle time

‐ Ensuring cost competitive with alternative providers

‐ Value-added – the customer’s customer

Metrics

‐ Bound/measured by Service Level Agreements

‐ KPIs to report to customer

‐ KEIs for process optimisation

How to use indicators to drive winning behaviour

‐ Continuous Improvement program

‐ Owned by process community

‐ A-I-D to focus effort and ensure progress



What’s so KEY about your KPIs? Summary

1. Review Indicators on E2E process/Service

Reduce KPIs to KEY outcomes

Address Leading Indicators / KEIs

Stakeholder roundtable / workshop

2. Analysis, Insight, Decision

What can go wrong?

Analyse KEIs

Point in time assessment may be the catalyst

3. Focus on Behaviour and the Customer

Focus on indicators that support the right behaviour

Ensure customer engagement roles are working

Review reporting for A-I-D progress



The pessimist complains about the wind. The optimist expects it to change. The

leader adjusts the sails.” 50


Thank you – Questions?

Questions, Comments

[email protected]

White Paper -

‘Performance Improvement from measurement to action: when KPIs just aren’t enough’

Enjoy the journey!

More thoughts at http://www.consider.biz/thinking/


mailto:[email protected]

http://www.consider.biz/thinking/



What’s so KEY about YOUR KPIs?

“Are your performance measures

fit for purpose?”

14 November 2013

Dan French CEO, Consider Solutions

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