- Finance teams play an integral part in setting and measuring KPIs.
- While setting KPIs, you should have a clear view of how the business will measure these, with data sources, processes and technology.
- Aim to set between three and five organisational KPIs. Then ensure that all division, team and individual KPIs directly contribute to top-level KPIs.
Most organisations set key performance indicators (KPIs) to track progress towards strategic goals. Typically, these KPIs are owned by the CEO, along with the CFO and executive team, while the task of measuring and reporting often sits with the finance team.
“KPIs represent a massive opportunity for accountants to help steer an organisation towards its strategic mission,” says Shane Cartwright FCA, a senior associate at Churchill Consulting in Perth. “When you get KPIs right, people can be inspired to achieve really amazing things together.” As a seasoned finance professional and former CFO, Cartwright has helped several organisations hone their KPIs. Here are his tips to developing good systems:
1. Look before you leap
Having access to the right data to monitor performance is essential. So, before you dive in and set your targets, Cartwright has these words of caution: “Attempting to develop all of your data sources and KPIs in one hit may be overly ambitious.
“It takes time for an organisation to establish ways to monitor and report progress on KPIs. The more diverse and disparate your data is, the harder it is to make sure that it’s accurate, complete and timely. The danger can be ‘analysis paralysis’ where you spend more time collating and reporting your data than actually using it to make decisions.”
The aim should be a centralised set of KPIs where progress can be reported quickly and seamlessly. But don’t expect that to happen overnight. Start by agreeing on the KPIs you want to achieve, then investigate how the organisation’s reporting systems need to be adjusted to measure the KPIs.
Related: Business Insight guide to KPIs
The WA Chartered Accountants in Business Panel shares more advice and practical tips in their Business Insight guide to KPIs.
2. Keep it simple
A primary reason to set KPIs is to help everyone in the organisation prioritise and focus on the activities that really matter. For this reason, Cartwright recommends setting only between three and five top-level organisational KPIs. “If you have too many KPIs, there’s a danger that executives try to do too much and monitor too much,” says Cartwright. “Set a small number of KPIs to make sure the business is sustainable, not just financially but in other ways, too. Then beneath that you can set divisional, team and individual KPIs.”
3. Show people how they fit in
The organisational KPIs should be the starting point for managers and individuals when they set their own KPIs. Every target in every team should contribute towards achieving the organisation’s strategic goals.
“What you want is for everyone to understand how their work is helping achieve the organisation’s objectives,” says Cartwright. “You’re trying to make your KPIs meaningful to people at every layer of the business. Most people are not in the executive team. They want to know what success looks like in their day-to-day job. If you link their individual targets and measures back to the strategic goals, you’re giving them meaningful KPIs.”
4. Think carefully about ‘whizz-bang solutions’
There are some incredibly sophisticated dashboard technologies on the market that can help transform KPI reporting across a business. But they also come with a hefty price tag.
“Before you invest in expensive whizz-bang solutions, you should review the existing technologies in the organisation,” says Cartwright. “Is the business able to feed all the required data into a new dashboard system? Can your ERP and HR reports link seamlessly with the new system? You need to know how data is collected and manipulated currently, and clarify how compatible that would be with any new dashboard system.”
Related: More resources for members working in business
Read a wide selection of Business Insight guides for members working in business, all written by members working in business. These practical papers tackle many of the challenges commonly faced by finance teams and finance managers.
5. Don’t let KPIs tie you in knots
KPIs can take a lot of time and negotiation before they are finalised, and afterwards that can make people reluctant to revisit and change them. However, in a world of constant technological and economic change, KPIs must evolve over time.
“Usually I wouldn’t recommend reviewing your KPIs on a daily, weekly or monthly basis,” says Cartwright. “But they do need to be revisited at the end of each main planning cycle, or if there is a sudden shift in business circumstances. When something like the global financial crisis comes along, for example, you must be prepared to take a fresh look at your KPIs.”
This article is based on information and insights from the West Australian Chartered Accountants in Business Panel. With thanks to Richard Haselgrove FCA, David Ligovich CA, Derek Oelofse FCA, Pippa van Helvoort CA, Beverley Schubert CA, and Shane Cartwright FCA.