Leading Indicators: What's so KEY about your KPIs
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Leading Indicators: What's so KEY about your KPIs

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Watch this fascinating webinar and explore the challenges of KPIs as lagging indicators and how, by switching mainly to leading indicators, you can genuinely transform focus and performance.

Watch this fascinating webinar and explore the challenges of KPIs as lagging indicators and how, by switching mainly to leading indicators, you can genuinely transform focus and performance.

KPIs in shared services are the most commonly broken instrument in use by management in today’s business environment. In a desire to drive increased efficiency and better outcomes for customers, and with the mantra ‘what you can’t measure you can’t manage’ ringing in our ears, management are collecting data that relates to performance but typically does not DRIVE performance.

We are seeing KPIs that are:

- detrimental to the overall success of the business and;
- encouraging the ‘gaming’ of KPIs for achievement of personal or departmental objectives

The core issues is that lagging indicators, today’s typical KPI set, measure only outputs. We need LEADING indicators to measure and drive the insight and decision making that produces improved performance. We will also be looking at the role of leading indicators, including the Key Exception Indicators and examples of best practices. We will share the Top KPIs in use today, challenge them and share a more balanced approach for driving winning behaviour.

In particular we are examining:

- Leading and lagging Indicators across shared services processes
- The challenge of traditional lagging KPIs
- The most common KPIs for shared services
- How to use indicators to drive behaviour
- How to engage the customer
- Developing an AID-Board

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Leading Indicators: What's so KEY about your KPIs Leading Indicators: What's so KEY about your KPIs Presentation Transcript

  • © 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
  • solutions for world class finance 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
  • solutions for world class finance 3 © 2013 Consider Solutions All rights reserved 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......? View slide
  • solutions for world class finance Agenda KPIs and Shared Services The trouble with traditional KPIs Leading & Lagging Indicators Driving Behaviour with Indicators Engaging the customer Communicating Progress Recommendations Questions 4 © 2013 Consider Solutions All rights reserved View slide
  • solutions for world class finance 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 5 © 2013 Consider Solutions All rights reserved
  • © 2013 Consider Solutions All rights reserved. solutions for world class finance KPIs and Shared Services
  • solutions for world class finance 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 7 © 2013 Consider Solutions All rights reserved
  • solutions for world class finance © 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
  • solutions for world class finance 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 9 © 2013 Consider Solutions All rights reserved
  • solutions for world class finance 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 10 © 2013 Consider Solutions All rights reserved
  • solutions for world class finance 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 11 © 2013 Consider Solutions All rights reserved
  • © 2013 Consider Solutions All rights reserved. solutions for world class finance The trouble with traditional KPIs
  • solutions for world class finance 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 13 © 2013 Consider Solutions All rights reserved
  • solutions for world class finance The trouble with traditional KPIs 14 © 2013 Consider Solutions All rights reserved Indicators that drive (intelligent) action?
  • solutions for world class finance 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 . . . . 15 © 2013 Consider Solutions All rights reserved
  • solutions for world class finance 16 © 2013 Consider Solutions All rights reserved 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
  • solutions for world class finance 17 © 2013 Consider Solutions All rights reserved The KPI Challenge
  • solutions for world class finance Question 3 - KPI characteristics What is the strongest characteristic of your current KPIs? ‐ Quantifiable & Comparable ‐ Timely ‐ Accessible ‐ Actionable ‐ None of the Above Select TWO 18 © 2013 Consider Solutions All rights reserved
  • solutions for world class finance 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 19 © 2013 Consider Solutions All rights reserved
  • solutions for world class finance 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? 20 © 2013 Consider Solutions All rights reserved
  • solutions for world class finance 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 21 © 2013 Consider Solutions All rights reserved
  • © 2013 Consider Solutions All rights reserved. solutions for world class finance Leading & Lagging Indicators
  • solutions for world class finance Leading Indicators : Early monitoring predicts trouble © 2013 Consider Solutions All rights reserved23
  • solutions for world class finance 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 24 © 2013 Consider Solutions All rights reserved
  • solutions for world class finance A Balanced Perspective 25 © 2013 Consider Solutions All rights reserved Lagging Indicators • Efficiency, Cost, Purchase Savings Leading Indicators • Error rates, skills, data quality, multiple revisions, duplicates
  • solutions for world class finance 26 © 2013 Consider Solutions All rights reserved 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 ManagementProcess X Learning & good practice
  • solutions for world class finance 27 © 2013 Consider Solutions All rights reserved Processes, Leading & Lagging Indicators Process Performance Measures Leading Exception Indicators Exceptions in Planned Performance The unintended consequences 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
  • solutions for world class finance Processes, Leading & Lagging Indicators Process Performance Measures Leading Exception Indicators Exceptions in Planned Performance The unintended consequences 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 © 2013 Consider Solutions All rights reserved28
  • solutions for world class finance 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) © 2013 Consider Solutions All rights reserved29
  • solutions for world class finance 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 30 © 2013 Consider Solutions All rights reserved
  • solutions for world class finance © 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
  • © 2013 Consider Solutions All rights reserved. solutions for world class finance Driving Behaviour with Indicators
  • solutions for world class finance 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 . . . 33 © 2013 Consider Solutions All rights reserved
  • solutions for world class finance 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 . . 34 © 2013 Consider Solutions All rights reserved
  • solutions for world class finance 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 Impacts Benchmark © 2013 Consider Solutions All rights reserved35
  • solutions for world class finance 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 36 © 2013 Consider Solutions All rights reserved
  • solutions for world class finance 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 © 2013 Consider Solutions All rights reserved37
  • © 2013 Consider Solutions All rights reserved. solutions for world class finance Engaging the customer
  • solutions for world class finance Customer Satisfaction(another KPI minefield) 39 © 2013 Consider Solutions All rights reserved
  • solutions for world class finance 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? 40 © 2013 Consider Solutions All rights reserved
  • © 2013 Consider Solutions All rights reserved. solutions for world class finance Communicating Progress
  • solutions for world class finance Dashboards & Misplaced Confidence 42 © 2013 Consider Solutions All rights reserved
  • solutions for world class finance 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 43 © 2013 Consider Solutions All rights reserved
  • solutions for world class finance 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 44 © 2013 Consider Solutions All rights reserved
  • solutions for world class finance Analysis-Insight-Decision © 2013 Consider Solutions All rights reserved45 ANALYSIS Insight Decision Lagging - KPI Norm Sta tus Leading - KEI Norm Sta tus 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 Sta tus Leading - KEI Norm Sta tus 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
  • solutions for world class finance 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 © 2013 Consider Solutions All rights reserved46
  • © 2013 Consider Solutions All rights reserved. solutions for world class finance Recommendations
  • solutions for world class finance 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 48 © 2013 Consider Solutions All rights reserved
  • solutions for world class finance 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 © 2013 Consider Solutions All rights reserved49
  • solutions for world class finance The pessimist complains about the wind. The optimist expects it to change. The leader adjusts the sails.”50
  • solutions for world class finance Thank you – Questions? Questions, Comments dfrench@consider.biz 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/ 51 © 2013 Consider Solutions All rights reserved
  • © 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
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