leading indicators: what's so key about your kpis
DESCRIPTION
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-BoardTRANSCRIPT
© 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
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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......?
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Agenda
KPIs and Shared Services
The trouble with traditional KPIs
Leading & Lagging Indicators
Driving Behaviour with Indicators
Engaging the customer
Communicating Progress
Recommendations
Questions
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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
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© 2013 Consider Solutions All rights reserved.
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KPIs and Shared Services
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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
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© 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
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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
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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
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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
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© 2013 Consider Solutions All rights reserved.
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The trouble with traditional KPIs
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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
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The trouble with traditional KPIs
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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
. . . .
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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
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The KPI Challenge
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Question 3 - KPI characteristics
What is the strongest characteristic of your current KPIs?
‐ Quantifiable & Comparable
‐ Timely
‐ Accessible
‐ Actionable
‐ None of the Above
Select TWO
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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
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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
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© 2013 Consider Solutions All rights reserved.
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Leading & Lagging Indicators
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Leading Indicators : Early monitoring predicts trouble
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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
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A Balanced Perspective
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Lagging Indicators
• Efficiency, Cost, Purchase Savings
Leading Indicators
• Error rates, skills, data quality, multiple revisions, duplicates
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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
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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
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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
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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)
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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
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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
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Driving Behaviour with Indicators
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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 . . .
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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 . .
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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
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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
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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
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Engaging the customer
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Customer Satisfaction(another KPI minefield)
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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?
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Communicating Progress
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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
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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
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Analysis-Insight-Decision
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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
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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
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Recommendations
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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
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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
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The pessimist complains about the wind. The optimist expects it to change. The
leader adjusts the sails.” 50
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Thank you – Questions?
Questions, Comments
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/
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© 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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