13-3-2018

A CFO's guide to measuring success in data driven environment

As CFO, you have decided that future operations require a major rethink of your traditional processes, and you are on the way to reshaping the financial operations within your organisation. However, staying in control of the progress and making sure that things run smoothly, should still be possible. This is important both during the process, as well as after completing the turnaround. How does the modern CFO go about this, and what are the most important indicators to watch out for?

Primary needs of the New CFO

In order to identify these indicators, we need to look at the demands of a CFO in this new environment. What key improvements are necessary, how are the changes in process being affected, and most importantly how do we measure the effect of our efforts?

As discussed in our previous blog, the key indicators of success within a financial department are shifting from transactional completeness towards operational and process optimization. In order to ensure these indicators remain on the foreground, it is important to setup relevant KPI’s to monitor your performance in these areas. Doing so will allow you to futureproof your strategy, while maintaining the drive to become more efficient and effective with the available resources.

So which KPI’s could be used to measure this?

The new key KPI’s should reflect the need to monitor the flexibility and responsiveness of the financial department. They should also give insight into what people are spending most time on. We have put forward three KPI’s targeting the following areas:

  1. Process Automation percentage - The percentage of processes, within the department itself, which have been automated. It is important to be aware that any non-standard process will result in loss of efficiency and reduction in the ability of the finance department to pick up new projects. Furthermore, with increased automation possibilities and intelligent systems, more and more tasks can and should be automated.
  2. Human Capital Performance - The tasks that department members are spending most of their time on, and what the return on investment is on this time spent. Being aware that financial departments are primarily cost centres. This might seem like an illogical KPI. However, keep in mind that the long-term goal is to automate, to free up time for department members to work on process and efficiency improvement projects. Both can have a clear ROI calculated.
  3. Exception throughput time – The amount of time it takes your team to resolve an issue related to accounting and controlling. Remember that if your team has more time available to respond to issues within the organisation, periods of outage can be reduced in length and corrective actions done more promptly. These all contribute to improving operational efficiency.

Of course, there are many other KPI’s that could be selected, but we feel that these three mentioned above, best reflect the needs of most businesses operating today. Adding KPI’s related to your specific industry or corporate setup, can of course have significant impact as they target your core business. If you want to discuss your specific needs, please reach out to us and we will discuss this in more detail.

Proposition Image
Collection of data and ensuring that all datasets are of the highest quality is your top priority, this requires standardizing and streamlining of the collection

How do you generate results for these KPI’s?

Having areas to focus on is obviously step one in the process of iterative improvement and fine-tuning. Moving on we have to ask; how to monitor these goals, and provide clear proof that the measures are panning out? The most important thing is to ensure that you are looking at consistent and up to date information at all times. Failure to have an accurate dataset will undermine your ability to have comparable results over a given period of time.

Equally important is to be able to standardize your processes to a large degree (90-95% should be the goal here). This will allow for easier validation of the results and comparison between areas, which previously operated in different manners. For example, exceptions in AR and AP will mostly happen at entirely different moments in the process. However, if the process of exception handling is standardised across these departments, the cause or trigger point of the exception is taken out of the equation, and the results become comparable.

Now let’s take the three KPI’s that we selected earlier and look at what information is needed to be able to accurately measure them:

  1. Process Automation percentage – This KPI will mostly be handled by measuring the number of transactions entered into your financial system by department members versus how many were handled by an automated process or internal throughput. The handled exceptions are excluded from the count here, as they represent issues and not day-to-day operations.
  2. Human Capital Performance – As members of staff are already required to register their working hours in most organisations. It is a simple matter to add a subdivision for improvement projects in this report. The gain in efficiency, that the improvement reflects, can then be offset against the investments in Human Capital made to achieve it. Based on this dataset, ROI can be calculated for each project individually.
  3. The tasks that department members are spending time on most and what the return on investment is on this time spent. Being aware that financial departments are primarily cost centres. This might seem like an illogical KPI. However, keep in mind that the long-term goal is to automate, to free up time for department members to work on process and efficiency improvement projects. Both can have a clear ROI calculated.
  4. Exception throughput time – If exceptions are handled via a standardised process, the throughput time can be monitored and reported on. A decrease in day-to-day operations by Finance department members should result in increased responsiveness to exceptions in day-to-day operations. This decrease can be measured, if proper reporting is in place.

Conclusion

We can conclude that collection of data and ensuring that all datasets are of the highest quality is your top priority. This requires standardizing and streamlining of the collection. The above examples clearly show that having automation in place in your environment. Will help with the administrative burden, which normally accompanies increased registration efforts within an organisation. At the same time, these actions open up the road to automation and use of advance technologies in support of these goals. The result being that the improvements, which allows you to measure success, also allow you to start actively pursuing it by providing the baseline on which to initiate the new way of working for the financial department in your organisation.

Partners van deze blog

SAP
1.5.1