How Leaders Use Benchmarks and Best Practices to Transform Finance

1© 2013
How Leaders Use
Benchmarks and Best
Practices to Transform
Finance

2© 2013
Process Improvement in Finance:
Transformation for Delivering
Higher Value to the Business
Mary Driscoll, APQC
Senior Research Fellow
©2012 APQC. ALL RIGHTS RESERVED.

3© 2013
Welcome and Introductions
…this is where you get to participate.

4© 2013
Who is APQC…
…and why you should care.

5© 2013
Who We Are
APQC is a member-based, 501(c)3 nonprofit
specializing in benchmarking, knowledge management,
measurement, and process improvement.
Our mission is to work with organizations around the
world to improve productivity and quality by:
discovering effective methods of improvement,
broadly disseminating findings, and
connecting individuals with one another and with the
knowledge they need to improve.

6© 2013
APQC’s Core Competencies
Frameworks and maturity models
Benchmarking and best practices
Knowledge Management
Process improvement and measurement
Metrics and measures

7© 2013
Getting Started…
Why benchmark finance? What is involved?

8© 2013
Where Did the Word “Benchmark”
Come From?
First used by cobblers to measure people's feet for
shoes.
They would place someone's foot on a "bench" and mark
it out to make the pattern for the shoes.
You can see how this term has evolved to be used
in business today.
Source: Wikipedia

9© 2013
Benchmarks and Benchmarking
How much to
improve
Standards and/or
measures
Benchmark
How to improve
Best practices
and/or what works
Benchmarking

10© 2013
Informal Definition
Benchmarking is the practice of being humble
enough to admit that others are better at something
and being wise enough to learn how to match, and
even surpass, them at it.

11© 2013
Best Practice/Practice
Methods and techniques that have consistently shown
results superior than those achieved with other means
Used as benchmarks to strive for, however:
There is no practice that is best for everyone or in every
situation
No best practice remains best for very long as people keep on
finding better ways of doing things

12© 2013
Typical Benchmarking Life Cycle
“I want to see how I compare.”
“I don’t believe it, let’s compare again.”
Wash, rinse, repeat. (for the really stubborn)
“OK, I give up, how are they able to perform that
way!?!?!?!”
Practices
Metrics

13© 2013
Discussion Point
Who has documented any, most, or all of their key
finance or accounting processes?
Who uses an external process or business
frameworks?

14© 2013
Process Classification Framework
APQC’s Process Classification FrameworkSM (PCF) is a taxonomy
of business processes that allows organizations to objectively
track and compare their performance internally and externally with
organizations from any industry.
Built and regularly updated through collaboration with
experts, practitioners, consultants, and academicians.
Most downloaded document.
Developed in the early 1990s
Used for many purposes
Benchmarking
Standardization and measurement
Governance and accountability
Managing key functions and entire
organizations

15© 2013
Easy Access: www.apqc.org

16© 2013
PCF Details

17© 2013
APER Example
What is the value
in this type
of inventory?

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Value Shows When You Make It Yours
REALLY VALUABLE!

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Selecting Measures…
… Quantifying process productivity

20© 2013
Cost Effectiveness
Provides information concerning how well operating cost
are managed. Key performance indicators usually
include:
Cost per unit (e.g., invoice, check, and square foot)
Cost as a percentage of revenue
Cost as a percentage of total budget (e.g., accounts payable
cost as a percentage of total F&A cost)
Actual cost versus budgeted cost
Supporting indicators usually include cost components
as a percentage of total.

21© 2013
Staff Productivity
Provides insights into how much output each full-time
equivalent (FTE) employee has produced. Key
performance indicators usually include:
Units of output (e.g., invoices and purchase orders) per FTE
Workload (e.g., customers and general ledger accounts) per
FTE
Supporting indicators usually focus on factors that
influence staff productivity such as hours of training per
FTE and employee tenure.

22© 2013
Process Efficiency
Provides insights into how well procedures and systems
support operations. Key performance indicators usually
include:
Error rate (i.e., rework rate)
Forecast accuracy rate (e.g., actual vs. forecast and non-cost
measures)
influence process efficiency such as system downtime
rate and the degree of process automation.

23© 2013
Cycle Time
Indicates the duration to complete a task. These
Key performance indicators are measured in units
of time (e.g., hours, days, and months) and usually
include:
Processing time
Time to resolve customer inquiry
influence cycle time such as the frequency of
system breakdowns.

24© 2013
Examples of Top vs. Median Performance
Source: APQC.
Number of peers
providing data
Top Median

25© 2013
Data Reporting
Synthesizes analysis into
concise and relevant
findings.
Display findings using
graphs, tables, and
narration.
Measurement reporting
should be
clear, concise, and most
of all visual.

26© 2013
Benchmarking Peer Groupings

27© 2013
Applying Judgment and Experience

28© 2013
Financial Management Excellence

29© 2013
Most Important Goal for a
Major Process Improvement Initiative
72.41%
15.86%
11.03%
0.69%
Both efficiency and
effectiveness
Efficiency (improve finance
cost/productivity
profile, accelerate cycle
speed, reduce error rates)
Effectiveness (deliver more
effective analytical support
to the business)
N = 145

30© 2013
Most Popular Targets for
Finance Process Improvement
78% Plan, budget, forecast/analyze, re-plan
72% Close/consolidate/report
70% General accounting (any sub-process)
50% Accounts payable transaction management
46% Working capital management

31© 2013
Look at Correlations
Think through how performance in one area relates
to performance elsewhere
Give the information context and a gut check.

32© 2013
AP Performance Gap: Best vs. Worst
29 firms
29 firms
29 firms
29 firms
Percentage of invoice line items
matched the first time
36%
85%--99%
116 companies with > $1 billion in revenues

33© 2013
Total Cost of AP per Number of Invoices
Processed Annually
$5.43
$2.84
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
Bucket 1 Bucket 4
Median Figures
Median
Source: APQC Open Standards Benchmarking

34© 2013
Cycle Time in Days Between Completion of
Quarterly Consolidated Financial Statements
and the Release of Earnings
Cycle Time in Days between Completion of Quarterly Consolidated Financial
Statements and the Release of Earnings
Figure 12
6.0
15.0
20.6
10.0
15.0
23.5
12.0
20.0
30.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
Top Performers Median Bottom Performers
SSC
N = 25
HQ
N = 64
BU
N = 107

35© 2013
Percentage of Business Entity’s
Inter-Company Transactions Processed by
Automated Systems
65%
30%
23%
95%
50%
60%
0
10
20
30
40
50
60
70
80
90
100
SSC HQ BU
Median
Top
Source: APQC Open Standards Benchmarking

36© 2013
Total Cost of Financial Reporting
Per $1,000 in Revenue
$0.11
$0.23
$0.57
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
Top Performers Median Bottom Performers
All Industries, Revenue greater than $1 Billion
N = 148

37© 2013
The Faster Close Costs Less
$0.10
$0.22
$0.33
$0.42
$0.67
$1.06
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
The Fastest: Quarterly Cycle Time
N = 49
The Slowest: Quarterly Cycle Time
N = 42
Top Quartile Median Bottom QuartileSource: APQC

39© 2013
Qualitative Information
Tells the “how” story
Focuses on the critical success factors
What allows companies to perform in a stellar manner?
People?
Process?
Technology?
Culture/Leadership?
How companies close the
gap in performance

40© 2013
The idea is to isolate and analyze operating metrics and patterns that drive
financial outcomes. This case study explains how the CFO works with business
managers to understand and influence interactions between financial and
non-financial variables, all with the intention of generating best-possible
financial results for the enterprise.
http://www.apqc.org/knowledge-base/documents/new-cfo-turbo
charges-revenue-modeling-using-bi-tools-and-techniques-aapa-ca
CFO Turbocharges Revenue Modeling
Using BI Tools and Techniques:
AAPA Case Study

43© 2013
The Effective Finance Charter: Intel
Link finance actions to the enterprise’s goals and needs
1. Keep Intel legal worldwide and maintain the highest standard of integrity
2. Maximize and grow profits by exercising business
expertise, independence, influence and leadership
3. Provide efficient world-class services
4. Protect shareholder value through effective risk management and control
5. Develop world-class finance professionals

45© 2013
Summary: Critical Success Factors
Alignment of financial management to overarching
corporate objectives
Move to a more IT-savvy financial employee base who
can manipulate/analyze large amounts of data
Formal training regimen to embed “business influencing”
skills: analysis, negotiation, collaboration, etc.
Standardized and clearly communicated financial close
process with associated due dates and gates
Process management principles and techniques
What else? Discussion?

How Leaders Use Benchmarks and Best Practices to Transform Finance

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