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

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?

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?

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 reserved23

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
ManagementProcess
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
Impacts
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

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 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

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
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/

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Leading Indicators: What's so KEY about your KPIs

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