Performance Management for Best Practice John Swete Kelly November 2013
Crowe Horwath A Vast Resource Pool Crowe Horwath Australasia is the largest provider of practical accounting, audit, tax, business and financial advice to individuals and small and medium businesses from a comprehensive network of over 100 offices. Formerly known as WHK in regional Australia, our team includes more than 3,000 principals, professionals and support staff located in Australia and New Zealand. Crowe Horwath International is ranked amongst the top 10 global accounting networks, and is known for delivering quality audit, tax and advisory services in more than 100 countries. 2
Performance Management for Best Practice An integrated model for evaluating Performance Understanding & Managing Activity Building an integrated suite of Scorecards Benchmarking performance Lead, Lag and Trends 3
An Integrated Performance Model Income Cost = Profit Capital Charge OPERATING ASSETS Working Capital Non-current LIABILITIES Debt Equity FINANCIAL KEY PERFORMANCE INDICATORS OPERATIONAL Quality differentiation Lower costs Improved activity Competitive advantage Strategic analysis Strategic evaluation Resource allocation STRATEGIC 4
Why do we need KPI s? We need to understand what is driving the value of our business! We need business intelligence to deliver planned business outcomes! 5
Wealth Creators & Wealth Destroyers 6
Performance measurement What is critical for our current and future success? Lag How do we tell staff what to do and measure their execution in a meaningful way? How do we substantially increase performance? Lead Finance 1. Key Result Indicators KRI s 2. Performance Indicators PI s Lag Customer 55 1 A++ Your eis Scorecard Target 2 Innovation 3. Key Performance Indicators KPI s Lead Our People 4 3 Internal Processes 7
Business Flows Organisation INPUTS Business Processes OUTPUTS Support Processes Expectations Customers Stakeholders Community Employees Partners Lead Indicators Measure Input Probable success of the process Lag Indicators Measure Outcome Indicators of Efficiency or Effectiveness 8
ABM doesn t replace the accounting system An ABC/ABM system does not replace the accounting system. It restates the same data and adds operating relationships to more effectively support decision making. Data Data+ Information A blizzard of transactions General Ledger (expense account balances) A B C / A B M Executive (Strategy) Management (Operations) Decision makers Accumulator Optical Lens (Reassigns Costs) 9
ABM uses drivers to trace costs to Key Business Outputs what we use in what we do in what we deliver Develop products Serve customers Manage the business Resource Drivers Activity Drivers 10
Lead & Lag Indicators Lead Indicators Lag Indicators What is Measured? Causes Effects Timeliness of Measure? Early Warning Historical Units of Measurement? Mainly non-financial Mainly Financial Main Use? Directional Problem Solving Scorecard 11
Benchmarking Metrics Productivity / Efficiency (Ratio or Percentage) BENCHMARK Cash Conversion Efficiency LTI Frequency Rate Labour hrs/output unit Machine Utilisation Orders filled/employee Labour efficiency Labour efficiency Training days/total days Conversion rate quotes to orders Dynamic Investment Overtime Revenue Cost Profit Revenue/employee ROI ROS Admin costs/revenue Value added per employee Revenue vs budget Value of quotations submitted Achievement to Plan Cost-Time Profile Vendor Delivery Performance Adherence to schedule/plan Routine maintenance done Project overrun Achievement of quality plan Material orders placed to schedule Training undertaken vs budget QMS audit performance CI Matrix Open Organisation Profile Organisation Performance Profile Stage of Concern Image Customer Satisfaction (int) Customer Satisfaction (ext) Cycle Time Time Contact time with customers Delivery lead time Idle time On-time delivery Time to solve industrial problems Promptness Time from receipt of order to start of task Time to change over machines Time to fix customer problem No. backorders No. complaints No. people No. successful CI teams No. suggestions submitted No. claim forms processed per day Product output per week Attendance at key meetings No. key skills acquired No. high impact defects No. customer contacts per month BUSINESS OUTCOMES Financial ($ or %) Survey / Questionnaire Index Number / Quantity / Activity 12
The KPI Scorecard The Lead Indicators of Success 13
Financial Scorecard 14
Assess Key Performance Indicators 15
Assess Trend and Benchmark 16
Rank By KPI, Category and Keyword 17
Rate Relative to Targets 18
Rate Relative to Peers 19
Rate Best Practice 20
Rate Opportunities for Improvement 21
Correlation analysis. 22
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The Trend is my Friend Lead & Lag 24
Wise Words About Measurement You can t manage what you don t measure What gets measured gets done When you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind. - Lord Kelvin 25
Best Practice Process Use a Lead and Lag framework (Map the relationships with ABC Correlate KPI s to outcomes Embed the system in a scorecard & Comparative Analysis Trend financial and non-financial Communication monthly (Scorecards and Benchmark Results) Measure Trend Correlation Weighting Lead Scorecard Lag Scorecard 26
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John Swete Kelly Principal Business Advisory Brisbane Tel +61 7 3233 3548 Mobile 0438 225 513 John.swetekelly@crowehorwath.com.au 28