Reporting performance measures

Transcription

1 Reporting performance measures (extract from Pareto's 8/2 Rule for the Corporate Accountant published by John Wiley & Sons Inc ISBN: ) By David Parmenter (davidparmenter.com) It appears that little mental horsepower has been directed at the best ways to report performance measures to the different audiences within an organisation. Applications designed by rocket scientists have performance measures by the1 s and are flawed by the fact that the designers have not truly understood the different types of performance measures. In some applications all measures are KPIs, Key Performance Indicators! I have described in earlier articles that performance measures fit into three types, as defined below, and now I would like to look at better practice ways of showing them. The new thinking on KPIs suggests that there are three types of performance measures: the key result indicator tells you how you have done in a perspective the performance indicators tell you what to do the KPIs tell you what to do to increase performance dramatically Reporting key result indicators in a dashboard to the Board There is a major conflict in most organisations who have boards, as to what information is appropriate for the Board. Since the Board s role is clearly one of governance and not of management it is, I believe, totally inappropriate to be providing the Board with KPIs. To me, KPIs are the very heart of management, used properly many of them are monitored 24 / 7 or at least weekly. Certainly not measures to be reported monthly or bimonthly to the Board. We need indicators of overall performance that need only be reviewed on a monthly or bimonthly basis. These measures need to tell the story as to whether the organisation is: being steered in the right direction at the right speed; whether the customers and staff are happy; acting in a responsible and environmentally friendly way. As already mentioned these measures are called, in my terminology, key result indicators (KRIs). These KRIs help the Board focus on strategic rather that management issues. waymark solutions limited Copyright 24 Page 1

2 Nov-5 Dec-5 Jan-6 Feb-6 Mar-6 May-6 Jul-6 Sep-6 Nov-6 Jan-7 Feb-7 Mar-7 Aug-5 Oct-5 Dec-5 Feb-6 Feb-7 Aug-5 Oct-5 Dec-5 Feb-6 Feb-7 $s May-6 Jul-6 Sep-6 Nov-6 Jan-7 Feb-7 Mar-7 Aug-5 Oct-5 Dec-5 Feb-6 Aug-5 Oct-5 Dec-5 Feb-6 Feb-7 Mar-6 Sep-6 Mar-7 Aug-5 Oct-5 Dec-5 Feb-6 Feb-7 Aug-5 Oct-5 Dec-5 Feb-6 Feb-7 A good dashboard with the KRIs going in the right direction, will give confidence to the Board that the management know what they are doing and the ship is being steered in the right direction. They can then concentrate on what they do best, focusing on the horizon, for icebergs in the first class lounge. Instead of parking themselves on the bridge and thus getting in the way of the captain who is trying to perform important day-to-day duties. A dashboard should be a one page display such as the two examples below. The commentary should be included on this page. Dashboard for Board - March 27 8% 7% 6% 5% 4% 3% 2% 1% Staff satisfaction 6% 5% 4% 3% 2% 1% Operating exp (excl depn, amort. and int) to Revenue ratio 14% 12% 1% 8% 6% 4% 2% Return on capital employed % % % Div 1 Div 2 Div 3 Actual Target Actual Target xxxxxxxxxxxxxxxxxx Low deposit rural loans grants allocated for housing non state social housing improved loans underwritten (mortgage insurance) additional bedrooms 35, 3, 25, 2, 15, 1, 5, Operating surplus before tax YTD YTD Actual Budget YTD Forecast Reported accidents Tenants staff Rolling 12 months 3, Rent collected vs rent in arrears 111 xxxxxxxxxxxxx 1, Waiting list 2,5 75 2, 1, , 25 5 Rents collected rent arrears -2 bedrooms 3 bedrooms 4+ bedrooms Auckland Rest of country xxxxxx x xxxxxxxx x xxxxxxxxxxxx xxxxxxxxx xxxxxxxxxxx xxxxxxxx x xxxxxxxxxxxxx x x xxxxxxxxx x x xxxxxxxxxxx xx xxxxxxxxx x xxxxxx xx xxxxxxxxx Xxxxxxxx Xxxxxxxx xxxxxxx xxxxxx x xxxxxxxx x xxxxxxxxxxxx xxxxxxxxx xxxxxxxxxxx xxxxxxxx x xxxxxxxxxxxxxxxxxxxx x x xxxxxxxxx x x xxxxxxxxxxx xx xxxxxxxxx x xxxxxx xx xxxxxxxxx Xxxxxxxx Xxxxxxxx xxxxxxx xxxxxx x xxxxxxxx x xxxxxxxxxxxx xxxxxxxxx xxxxxxxxxxx xxxxxxxx x xxxxxxxxxxxxxxxxxxxx x x xxxxxxxxx x x xxxxxxxxxxx xx xxxxxxxxx x xxxxxx xx xxxxxxxxx Xxxxxxxx Xxxxxxxx xxxxxxx xxxxxx x xxxxxxxx xx x xxxxxxxxxxx xx xxxxxxxxx x xxxxxx xx xxxxxxxxx Xxxxxxxx Xxxxxxxx xxxxxxx xxxxxx x xxxxxxxx xx waymark solutions limited Copyright 24 Page 2

3 Mar-6 Sep-6 Mar-7 Feb-6 Mar-6 May-6 Jul-6 Sep-6 Nov-6 Jan-7 Feb-7 Mar-7 May-6 Jul-6 Sep-6 Nov-6 Jan-7 Feb-7 Mar-7 Feb-6 Mar-6 May-6 Jul-6 Sep-6 Nov-6 Jan-7 Feb-7 Mar-7 Mar-6 Sep-6 Mar-7 Feb-6 Mar-6 May-6 Jul-6 Sep-6 Nov-6 Jan-7 Feb-7 Mar-7 Mar-6 Sep-6 Mar-7 Dashboard for Board - March 27 8% Staff satisfaction 6% Expense to Revenue ratio 8% Top 1% of customers satisfaction 7% 6% 5% 4% 3% 2% 1% % 5% 4% 3% 2% 1% % 7% 6% 5% 4% 3% 2% 1% % Div 1 Div 2 Div 3 Actual Target Customers group A Customers group B Xxxxxxxx Xxxxxxxx xxxxxxx xxxxxx x xxxxxxxx x xxxxxxxxxxxx xxxxxxxxx xxxxxxxxxxx xxxxxxxx x xxxxxxxxxxxxxxxxxxxx x x xxxxxxxxx x x xxxxxxxxxxx xx xxxxxxxxx x xxxxxx xx xxxxxxxxx Xxxxxxxx Xxxxxxxx xxxxxxx xxxxxx x xxxxxxxx x xxxxxxxxxxxx xxxxxxxxx xxxxxxxxxxx xxxxxxxx x xxxxxxxxxxxxxxxxxxxx x x xxxxxxxxx x x xxxxxxxxxxx xx xxxxxxxxx x xxxxxx xx Xxxxxxxx Xxxxxxxx xxxxxxx xxxxxx x xxxxxxxx x xxxxxxxxxxxx xxxxxxxxx xxxxxxxxxxx xxxxxxxx x xxxxxxxxxxxxxxxxxxxx x x xxxxxxxxx x x xxxxxxxxxxx xx xxxxxxxxx x xxxxxx xx xxxxxxxxx Value of new business $ms 35, 3, 25, 2, 15, 1, 5, NPBT Year to date Reported accidents New product 1 New product 2 New product 3 YTD Actual Budget YTD Forecast Div1 Div2 Rolling 12 months Examples of key result indicators for a Board dashboard Customer satisfaction: Top 1% of customers satisfaction This measure needs to be measured at worst every 3 months. By using statistical samples and focusing on your top 1-2% of customers (the ones that are generating most if not all of you bottom-line). This process does not need to be overly expensive. If you think once a year is adequate for customer satisfaction stick to running a sports club as you are not safe in the public or private sectors. 8% 7% 6% 5% 4% 3% 2% 1% % Customers group A Customers group C Customers group B waymark solutions limited Copyright 24 Page 3

4 May-6 Jul-6 Sep-6 Nov-6 Jan-7 Feb-7 Mar-7 Feb-6 Mar-6 May-6 Jul-6 Sep-6 Nov-6 Jan-7 Feb-7 Mar-7 Mar-6 Sep-6 Mar-7 Employee satisfaction: No different or less important than customers. As one person said, happy staff make happy customers that make a happy bottom-line. If you believe in this connection, run a survey now! A staff satisfaction survey need not cost the earth and should never be done covering all staff, instead it should be replaced by a rolling survey. See how to seek staff opinion and not blow your budget Human Resources June 22 see. 8% 7% 6% 5% 4% 3% 2% 1% % Staff satisfaction Value of new business: All businesses in the private sector need to focus on the growth of their rising stars. It is important to monitor the pick up of this new business especially amongst the top 1-2% customers Div 1 Div 2 Div 3 Value of new business $ms Net profit before tax (NPBT): Since the Board will always have a focus on the year-end it is worthwhile showing the cumulative NPBT. This graph will include the most recent forecast which should be updated on a quarterly basis bottom-up, article Throw away your budget September 23 Management Magazine, see. 35, 3, 25, 2, 15, 1, 5, New product 1 New product 2 New product 3 NPBT Year to date YTD Actual Budget YTD Forecast waymark solutions limited Copyright 24 Page 4

5 Feb-6 Mar-6 May-6 Jul-6 Sep-6 Nov-6 Jan-7 Feb-7 Mar-7 Aug-5 Sep-5 Oct-5 Nov-5 Dec-5 Jan-6 Feb-6 Mar-6 May-6 Jul-6 Sep-6 Nov-6 Jan-7 Feb-7 Mar-7 Aug-5 Oct-5 Dec-5 Feb-6 Feb-7 Return on capital employed: The old stalwart of reporting. The difference now that it is no longer a KPI but a KRI. This graph needs to be a 12 to 15 month trend graph. 14% 12% 1% 8% 6% 4% 2% Return on capital employed % Actual Target Cashflow: Cashflow This would be projected out at least 6 months forward Operating Investing -2 Financing -3-4 Expenses as a ratio to revenue: The Board should be interested in how effective the organisation has been in utilising technology and continuous improvement to ensure cost of operations is tracking well against revenue. 6% 5% 4% 3% 2% Expense to Revenue ratio 1% % Actual Target waymark solutions limited Copyright 24 Page 5

6 Feb-6 Mar-6 May-6 Jul-6 Sep-6 Nov-6 Jan-7 Feb-7 Mar-7 Jan-3 Feb-3 Mar-3 Apr-3 May-3 Jun-3 Jul-3 Aug-3 Sep-3 Oct-3 Nov-3 Dec-3 Jan-4 Feb-4 Mar-4 Feb-6 Mar-6 May-6 Jul-6 Sep-6 Nov-6 Jan-7 Feb-7 Mar-7 Health & Safety: All Boards are interested in this area as the well-being of staff is a much higher priority these days Reported accidents Capacity: Monitoring the capacity of key machines and plant. It would go forward at least 6 to 12 months. The Board needs to be aware of capacity limitations, and such a graph will help focus them on new capital expenditure requirements. $s 1% 9% 8% 7% 6% Div1 Div2 Rolling 12 months Capacity / utilisation 5% Operational efficiency: A composite index based on a variety of statistics such as delivered in full on time, portion of idle machine time (measuring key machines only) 1% 95% 9% Mainframe Internet xxxxx Operational efficiency 85% 8% 75% Actual Target Some key points about these graphs: 1. Trend analysis is required going back at least 12 months and in some cases 15 months if you have a seasonal business. Remember business has no respect or interest in your year-end it is merely an arbitrary point in time. 2. There no room to show a flawed monthly or year to date budget line, an arbitrary apportionment of the annual planning number that was done at the last minute and was wrong from the very start. It is like setting your race plan for the Americas Cup regardless of the wind conditions on the day of racing. See the article Throw away your budget September 23 Management magazine on. 3. Key turning points on graphs should be explained by a note on the graph and comments need to highlight major issues. waymark solutions limited Copyright 24 Page 6

7 4. For the dashboard you may need to maintain somewhere between 8-12 graphs and report the most relevant ones to the Board. Reporting daily performance measures to Management Reporting measures to management needs to be timely. As mentioned KPIs need to be reported 24/7, daily or at the outside weekly, other performance measures can be reported less frequently monthly and quarterly. The main KPIs are reported 24/7 or daily. This is how they should be reported in the intranet. Some form of table giving the contact details, the problem and some history. Time: Flight number How late Expected arrival time Late planes over 2 hours Statistics of last stop Contact details No. of late planes over 1 hour 3 day 3 day region Current arrived time last 3 ave. of ave. of left late manager time at work mobile Home late added days last 3 last 6 name location months months BA1243 2:15 21:45 1:45 2:15 Pat :3 Carruthers 18:45 xxxxx xxxxx xxxx BA1244 2:15 21:45 1:45 2:15 :3 xxxxxxx 19:45 xxxxx xxxxx xxxx BA1245 2:15 21:45 1:45 2:15 :3 xxxxxxx 2:45 xxxxx xxxxx xxxx BA1246 2:15 21:45 1:45 2:15 :3 xxxxxxx 21:45 xxxxx xxxxx xxxx BA1247 2:15 21:45 1:45 2:15 :3 xxxxxxx 22:45 xxxxx xxxxx xxxx BA1248 2:15 21:45 1:45 2:15 :3 xxxxxxx 23:45 xxxxx xxxxx xxxx BA1249 2:15 21:45 1:45 2:15 :3 xxxxxxx :45 xxxxx xxxxx xxxx Total 7 planes Another benefit of providing senior management with daily/weekly information on the key performance areas is that the month end becomes less important. In one company I have come across who have a 9 o clock report every morning, management are able to have a sweep stake on the month end result. Talking about the monthly numbers is a small part of the meeting which happens in the first week of the following month. In other words, if organisations report their KPIs on a 24/7 or daily basis management knows intuitively whether the organisation is having a good or bad month. Reporting weekly performance measures to management Some KPIs that need only be reported weekly. Set out below is an example of how they could be presented. Note that while all the KPIs will be graphed over time, at least 15 months, only the 3 KPIs showing a decline would be graphed. The other two KPI graphs would be maintained and used when necessary. waymark solutions limited Copyright 24 Page 7

8 Oct-99 Nov-99 Dec-99 Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct-99 Nov-99 Dec-99 Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Rate (%) Oct-99 Nov-99 Dec-99 Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- No. of xxx Top five KPIs Weekly report xx xxxx 2xx Top 5 indicators Target Result Rating Xxxxxxx xxxxx xxxxx (see graph below) Xxxxxxx xxxxx xxxxx (see graph below) Xxxxxxx xxxxxxx xxxxxxx. Xxxxxxx xxxxx xxxxx (see graph below) Xxxxxxx xxxxxxx xxxxxxx Issues: Actions to be taken: 12 Month Rolling Total Target 12% Issues: 1% 8% 6% 4% Actions to be taken: 2% % 12 Month Rolling Total Target Month Actual 12% Issues: 1% 8% 6% Actions to be taken: 4% 2% % 98 Actual 97 Actual 98 Budget Hurdle Rate Reporting Monthly performance measures to management There are endless ways these can be shown. Through icons, gauges, traffic lights etc and can be found easily by searching reporting templates + balanced scorecard. This example is from who will design a pilot one for FREE. waymark solutions limited Copyright 24 Page 8

9 Reporting performance measures to staff -team balance scorecards Set out below is an example of a team scorecard using Excel. This can be a holding tool until a more robust and integrated solution is found. waymark solutions limited Copyright 24 Page 9

10 Dec- Mar-1 Jun-1 Sep-1 Dec-1 MIS Team's Scorecard Customer focus Projects Status Help desk Current Target Programme visits to managers 4 6 Project 1 Service requests outstanding (faults, works requests) at month end Service requests closed in month % Fixed by Help Desk from 1st call 7% 65% Initiatives underway based on satisfaction survey None by 3/6/2 Services outages (>5 people & Current Target >1hour) Average Mainframe Response Time 1 sec <.75 sec Outage time per month / # of times Systems union accounting system None <1hr/mth Student management system 3mins / 2 <1hr/mth Servers (file and print) None <1hr/mth Servers (website) None <1hr/mth Percentage complete Done On-Track Behind Risk of Non-Completion ISSP This cycle Target Programme visits to managers 4 12 Learning & Growth Presentations of ISSP to managers 2 6 Internal capability Current Target Total training days this month 5 8 / month Delivery In-house training courses for IS staff 2 per year Disaster recovery Current Target Customer satisfaction survey 1 2 per year Backup every night 1% 1% Initiatives underway based on satisfaction survey 2 4 Months since last back-up tested at remote site 3 <4 Post project reviews performed Current Target Rolling checks on C drives 25 4 Reviews completed 4 Developing Intellectual Capital Current Target Our ability to deliver Current Target Succession plans (IT management) 2 5 % of time of developers spent on high priority / high value work 55% 65% Staff who have had 2 performance reviews in the last year Number of staff using EIS 15 5 Staff with development plans being implemented 5 1 Number of staff who have been trained in EIS Completions Current Target Projects in progress 12 <8 Reports/documents still in draft mode 15 <5 Project 2 Project 3 Project 4 Project 5 Project 6 Project 7 Project 8 Project 9 Project 1 Project 11 Project 12 % spent of this year's technology capital expenditure (YTD) 8% 1% Financial 5 4 % 2% 4% 6% 8% 1% IS Function Expenditure Profile Progress on major IS capex projects Project value $k Peoplesoft system 8 PC replacement programme 65 Research management system 45 Disk storage upgrade 3 Status Planned Cumulative Actual Cumulative Forecast Cumulative Findings: Action to be taken: waymark solutions limited Copyright 24 Page 1

11 A balanced scorecard tool supplied by You pay for the graphs you use and they help you develop them. How these graphs are interpreted, see Reporting organisational progress to staff It is a good idea to have some form of monthly icon report for staff, a report that if left on a bus would not be damaging to the organisation is it found its way to a competitor. Icon reports are ideal as they tell you what is good, what is adequate and what needs to be improve without giving away core data. waymark solutions limited Copyright 24 Page 11

12 This is a particularly good example as it show icons and reminds staff about the strategies. Writer s biography David Parmenter is the CEO of waymark solutions. David specialises in assisting organisations measure, report and improve performance. waymark helps organisations streamline their: monthend reporting and annual planning processes, implement quarterly rolling forecasts, adopt the principles of beyond budgeting, develop decision based reports, and adopt performance measures that will improve performance. He has had speaking engagements in 27 in Wellington, Auckland, Christchurch, Sydney, Melbourne, Brisbane, Canberra, Adelaide, Perth, Kuala Lumpur, Singapore, Dublin, Edinburgh, Glasgow and London. John Wiley & Sons Inc are publishing two of his books in 27 Key performance indicators developing, implementing and using winning KPIs (January 7) and Pareto's 8/2 Rule for the Corporate Accountant better practices from winning finance teams (April 7). David has an in-depth understanding of better practices of corporate accountants across all sectors. David has also worked for Ernst & Young, BP Oil Ltd, Arthur Andersen, and Price Waterhouse. David is a fellow of the Institute of Chartered Accountants of England and Wales. He has written over 3 articles for the accounting and management Journals in Australia, Malaysia, Ireland, England and New Zealand. His articles published include: quarterly rolling planning - removing the barriers to success, Throw away the annual budget, Maybe its time to look at your waymark solutions limited Copyright 24 Page 12

13 KPIs, seven time wasters, and quick month end reporting, Beware corporate mergers, Implementing a Balanced Scorecard in 16 weeks not 16 months, Convert your monthly reporting to a management tool, Smash through the performance barrier, Is your board reporting process out of control? He can be contacted at or telephone He has recently completed a series of white papers which can be purchased from his website recent thinking is accessible from waymark solutions limited Copyright 24 Page 13