In a previous blog on Managing Mergers and Acquisitions KPIs we discussed what exactly Key Performance Indicators are:
“KPIs are generally defined as quantifiable measures used to evaluate the success of an organization, employee or process in meeting the objectives for performance. In other words, you can only really know if you did well if you know how success is measured.”
Such measures provide a company with the information needed to benchmark with another company, compare performance with industry standards and averages, and track any progress in performance improvement over time. By using performance measures, managers and workers understand the outcome of their efforts and how those efforts affect the rest of the organization.
To be meaningful, performance measures must be quantified: an act of measurement is required, one that can be performed reliably and consistently with a basis in fact, not opinion. "Good" and "fast" are not adequate performance measures. "Number of defects" and "time for order processing" are acceptable measures, if they are controllable — that is, if the people performing the work can affect the outcome. In addition to being quantifiable and controllable, performance measures, to be truly effective, must also be:
- Aligned with company objectives.
- Supportive of continuous improvement.
- Reported consistently and promptly.
Measures can be cost-based, quality-based or time-based. Focusing attention simultaneously on cost, quality and time can optimize performance for an entire process and ultimately, an entire organization.
PERFORMANCE MEASURES EXAMPLES
Cost
- Total cost of financial budgeting and planning as percentage of revenue.
- Number of full-time equivalent (FTE) staff, as percentage of total staff, devoted to budgeting.
- Number of budgets produced annually.
- Number of "ad hoc" budgets created each year.
Quality
- Variance of budgeted-to-actual items as a percentage of budgeted. There are other measures of quality that companies may want to develop.
- Gap between targeted and actual performance on key measures.
- Ratio of expected-to-actual return on capital proposals.
- Ratio of failed-to-successful capital proposals.
- Percentage of discretionary spending occurring in the last fiscal quarter.
Time
- Length of budget cycle.
- Average length of time to approve capital budget.
To explore each of the examples above in more detail, see the full document on KnowledgeLeader. You can also find more benchmarking and other great tools on KnowledgeLeader, such as the following:
Developing Budgets Key Performance Indicators: Sample 2
External Financial Information Performance Measures Questionnaire
Manage Capital Planning - Performance Measurement Questionnaire
Process Accounts Receivable, Credit and Collections Key Performance Indicators (KPIs)
