‘Best Practice Board &Management Reporting:

Developing YourKRA – KPI – KPM Hierarchy

John Petty, FCPA, FCA

Previously Australia’s Representative on International Federation of Accountants (IFAC),

Professional Accountants in Business Committee john@pettypresentations.com.au

0417 367 951

New Governance Model for Reporting to Boards

"Often directors are reluctant to agree to receive less

information. They feel they need to know.

I think it's a mistake, because ultimately boards will be

footed with liability for those smoking guns that might be

buried in the bottom of a 50-page report that no director

has enough time to absorb in the time available and

review critically.

We've worked hard to reduce the amount of material and

keep it focused on the strategic, important issues."

New Governance Model for Reporting to Boards

“Far too much in too many papers, and far too much of it not focused on board-level policy land strategy".

"There was a great tendency to feed up to the board far too much detail for want of knowing what the right balance was between the role of board, management and the risks involved.

In the last year I've worked with the executives to refine and reduce the amount of material. Literally we were being swamped with paper."

Graham Bradley, Chairman, Stocklands, HSBC (Aust), Director, Singtel and Queensland Investment Corp

A leading company director say some Australian boards are now limiting the amount of information they allow to "filter up" from management and the committee processes on corporate governance issues, leaving more time for the directors to concentrate on what really matters - strategy.

GO FOR IT!!!

New Governance Model for Reporting to Boards

My Message Today:

NEW DAYS

NEW WAYS

NEW MEASURES

NEW REPORTS

EY ‘MEASURES THAT MATTER’“In today’s volatile markets, a company’s non-financial performance, namely its ability to identify, demonstrate and communicate value in its intangibles, future growth platforms and strategic options, is a key differentiator for investors, almost irrespective of short-term cashflows and tangible assets. And the greater the uncertainty, the greater the significance of non-financials to investors’ decision-making as leading indicators of future financial performance.”

EY ‘MEASURES THAT MATTER’The Top Ten MTM: (in order)1. Execution of Corporate Strategy2. Quality of Corporate Strategy3. Market Position4. Management Credibility5. Innovativeness6. Management Experience7. Research Leadership8. Quality of Major Business Processes9. Global Capability10. Ability to Attract & Retain Talented People

Where is ‘FINANCIAL’ Result??

• STRATEGY• MARKET

POSITION

• MANAGEMENT• INNOVATION/

RESEARCH

• PROCESS

• PEOPLE

CIMASix BPM Dimensions Model

Competitive Performance - against competitors / other councils

Financial Performance - traditional measures, profits, cash

Quality of Service - to satisfy the residents, customers

Flexibility - ability to adapt / switch / improve

Resource Utilisation - productive use of resources

Innovation – ability to change / grow / develop

Exceptionally well accepted model

D i m e n s i o n s o f P e r f o r m a n c e

T y p e o f M e a s u r e

C o m p e t i t i v e n e s s R e l a t i v e m a r k e t s h a r e a n d p o s i t i o nS a l e s G r o w t hM e a s u r e o f C u s t o m e r b a s e

F i n a n c i a l P e r f o r m a n c e P r o f i t a b i l i t yL i q u i d i t yC a p i t a l S t r u c t u r eM a r k e t r a t i o

Q u a l i t y o f S e r v i c e R e l i a b i l i t y R e s p o n s i v e n e s s

A e s t h e t i c s / a p p e a r a n c eC l e a n l i n e s s / T i d i n e s sC o m f o r tF r i e n d l i n e s sC o m m u n i c a t i o nC o u r t e s yA c c e s sA v a i l a b i l i t yS e c u r i t y

F l e x i b i l i t y V o l u m e F l e x i b i l i t y D e l i v e r y S p e e d f l e x i b i l i t y

S p e c i a l i s a t i o n f l e x i b i l i t y

R e s o u r c e U t i l i s a t i o n P r o d u c t i v i t yE f f i c i e n c y

I n n o v a t i o n P e r f o r m a n c e o f t h e i n n o v a t i o n p r o c e s sP e r f o r m a n c e o f i n d i v i d u a l i n n o v a t i o n s

Developing Your KRA – KPI – KPM Hierarchy

KRA’s: Key Result Areas

KPI’s: Key Performance Indicators

KPM’s: Key Performance Measures

PERFORMANCE MEASUREMENT HIERARCHY:RELATIONSHIP OF ORGANISATIONAL

HIERARCHY TO PERFORMANCE MEASURES• Long-term shareholder wealth• Return on investment• Market value

• Operating Profits• Return on Assets• Market Image

• Market share• Customer loyalty • Target Costs• Product design objectives

• Revenues• Unit margins• Product / process technology• Component quality

• Obtain scheduled production• Achieve target costs• Achieve target quality

• Attain scheduled production• Minimise scrap• Process quality improvement

Company

Group

Division

Business Units

Plant or Branch

Cell or Team

PERFORMANCE MEASURES

Incr

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Sp

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Sh

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on

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Per

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ance

• 40% Abandoned / Refocused Budgeting

Rolling Forecasts• 40% One Day Reporting

Virtual Close• 74% Corporate / Balanced Scorecard

= 154%

= New Budget, New Reporting Time, New Score“A major challenge for CFOs is helping to formulate and communicate strategy, internally and externally – the market is more discerning of a company’s strategy”Steve McKerihan, CFO St George Bank

THE TRIFECTA:BEING STRATEGIC & VIRTUAL

Bye Bye Budgeting… “The annual budget is dead. Long live the rolling forecast.”Annie Gurton, International Management Magazine

1 July 30 June1 Jan

NEW BUDGET FOCUS/APPROACH:

‘ROLLING FORECASTS’

6 X Quarterly Rests

6 X Quarterly Rests

6 X Quarterly Rests

2 4

The 90 day Deliverables

Report On A Page (ROAP): The ‘A4’ ReportPOSSIBLE INDICATORS:

FINANCIAL CUSTOMER INTERNAL BUSINESS INNOVATION, LEARNING HUMAN RESOURCES PERSPECTIVE PERSPECTIVE PERSPECTIVE & GROWTH PERSPECTIVE PERSPECTIVE

Sales Revenue New Customer Enquiries Plant Utilisation No. of patent applications Serious Injury FrequencyContribution Margin Cust Enquiry conversions Productivity No. of Product Launches Lost Time AccidentGross Margin Return Customers System Downtime Time to market AbsenteeismMajor Cost Dissections Customer Satisfaction Days Debtors - Punctuality ReportsEBIT Customer Complaints Days Creditors No of graduates employed Staff Sentiment/moralePBT Customer Retention Stock Turn Capital spend Retention / Resignation RatesPAT Customer Profitability R & M Spend - -Cash Flow Customer Concentration Quality Rejects, Rework Number of Suggestions made-Interest Cover Telephone response times Waste/efficiency Sales from new products -Gearing (Debt/Equity) On time Delivery in Full Environmental Incidents No. Suggestions implemented Level of TrainingTreasury Management Queue length - - Skills IndexEconomic Value Add Market Share/growth - - Teamwork index- Share Key Accounts as - - -- Preferred Supplier - - Employee Buy In Index- No Cooperative Jobs - - -- Accounts outside credit terms - -- Warranty/Credit Claims - - -- - - - -- - - - -- - - - -- - - - -

Report On A Page (ROAP): The ‘A4’ ReportPOSSIBLE INDICATORS:

ENVIRONMENTAL SOCIAL/COMMUNITY ??

Fines for Infringement Donations madeEnvironmental incidents Community involvementRecycled products No of local community projectsEnergy consumption/efficency % staff femaleOrganic Waste management % staff underpriveleged/disadvantagedNew products/ packagingReduced water usageRehabilitationTree plantingsWildlife managementEmissionsExternal complaintsExternally reportable incidents

Financial Focus

1. Total assets ($)2. Total assets/employee ($)3. Revenues/total assets (%)4. Profits/total assets ($)5. Revenues resulting from new business operations ($)6. Profits resulting from new business operations ($)7. Revenues/employee ($)8. Customer time/employee attendance (%)9. Profits/employee ($)10.Lost business revenues compared to market average (%)11.Revenues from new customers/total revenues (%)12.Market value ($)13.Return on net asset value (%)14.Return on net assets resulting from new business operations ($)15.Value added/employee ($)16.Value added/IT employee ($)17.Investments in IT ($)18.Value added/customer ($)

Skandia Navigator

Customer Focus1. Market share (%)2. Number of customers (#)3. Annual sales/customer ($)4. Customers lost (#)5. Average duration of customer relationship (#)6. Average customer size ($)7. Customer rating (%)8. Customer visits to the company (#)9. Days spent visiting customers (#)10.Customers/employees ($)11.Revenue-generating staff (#)12.Average time from customer contact to sales response (#)13.Ratio of sales contacts to sales closed (%)14.Satisfied Customer Index (%)15.IT investment/salesperson ($)16.IT investment/service and support employee ($)17.IT literacy of customers (%)18.Support expense/customer ($)19.Service expense/customer/year ($)20.Service expense/customer/contact ($)

Process Focus1. Administrative expense/total revenues (%) 2. Cost for administrative error/management revenues (%) 3. Processing time, outpayments (#)4. Contracts filed without error (#)5. Function points/employee-month (#)6. PCs and laptops/employee (#)7. Network capability/employee (#)8. Administrative expense/employee ($)9. IT expense/employee ($)10.IT expense/administrative expense (%)11.Administrative expense/gross premium (%)12.IT capacity (CPU and DASD) (#)13.Change in IT inventory ($)14.Corporate quality performance (e.g., ISO 9000) (#)15.Corporate performance/quality goal (%)16.Discontinued IT inventory/IT inventory (%)17.Orphan IT inventory/IT inventory (%)18.IT capacity/employee (#)19.IT performance/employee (#)

Renewal and Development Focus1. Competence development expense/employee ($)2. Satisfied Employee Index (#)3. Relationship investment/customer ($)4. Share of training hours (%)5. Share of development hours (%)6. Opportunity share (%)7. R&D expense/administrative expense (%)8. Training expense/employee ($)9. Training expense/administrative expense (%)10.Business development expense/ administrative expense (%)11.Share of employees under age 40 (%)12.IT development expense/IT expense (%)13.IT training expense/IT expense (%)14.R&D resources/total resources (%)15.Customer opportunity base captured (#)16.Average customer age (#); education (#); income (#).17.Average customer duration with company in months (#)18.Educational investment/customer ($)19.Direct communications to customer/year (#)20.Non-product-related expense/customer/year ($)

Renewal and Development Focus21.New market development investment ($)22.Structural capital development investment ($)23.Value of EDI system ($)24.Upgrades to EDI system ($)25.Capacity of EDI system (#)26.Ratio of new products (less than two years) to full company

product family (%) 27.R&D invested in basic research (%)28.R&D invested in product design (%)29.R&D invested in applications (%)30.Investment in new product support and training ($)31.Average age of company patents (#)32.Patents pending (#)

Human Focus

1. Leadership Index (%)2. Motivation Index (%)3. Empowerment Index (#)4. Number of employees (#)5. Employee turnover (%)6. Average years of service with company (#)7. Number of managers (#)8. Number of women managers (#)9. Average age of employees (#)10.Time in training (days/year) (#)11.IT literacy of staff (#)12.Number of full-time permanent employees (#)13.Average age of full-time, permanent employees (#)14.Average years with company of full-time, permanent employees (#)15.Annual turnover of full-time, permanent employees (#)16.Per capita annual cost of training, communication and support programs for full-

time permanent employees ($)

Human Focus (Cont’d)

17.Full-time permanent employees who spend less than 50 percent of work hours at a corporate facility; percentage of full-time permanent employees; per capita annual cost of training, communication, and support programs

18.Number of full-time temporary employees; average years with company of full-time temporary employees.

19.Per capita annual cost of training and support programs for full-time temporary employees ($)

20.Number of part-time employees and non full-time contractors (#)21.Average duration of contract (#)22.Percentage of company managers with advanced degrees in:• Business (%)• Advanced science and engineering degrees (%) • Advanced liberal arts degrees (%)

Albrecht’s Corporate Radar:Tracking the Forces that are Shaping your business

* Economic * Customer

* Competitor * Social

* Geophysical * Legal

* Technological* Political