KPIs for the Accounting Department & Finance Department

scott graves's Profile

KPIs For Accounting And Finance Department

We are in the process of implementing Performance Boards in the Finance / Accounting department to document, track and drive performance.  Initially, we discussed tracking on a daily basis: # invoices processed (payables), # errors (payables), $ receivables collected, # of collection calls (credit & collections), # of correcting journal entries made (accounting), and attainment of month-end close calendar (entire department).  What other KPI for accounting department (and finance) and do other company's track to drive continuous improvement within their finance / accounting departments?

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Scott,
I have struggled with the same issue - what KPI for Accounting department make sense? A KPI should do two things -- (1) inform management and employees about the efficient operation of the company/department and (2) ensure employee behavior is aligned with the company goals.
If your department is having issues with the work flow for AP or AR then your choice of metrics may make sense. However, you want to make sure that tracking the KPIs is going to lead to an improved operation. Selecting the target for the KPI is critical as well. If it is too easy or too much of a stretch it loses its value.
We opted for measuring results only through AP and AR aging -- setting the acceptable levels and then managing to them. We stayed away from the targeting of the number of AJEs, since many of the adjustments are caused by errors in other parts of the organization that Accounting needs to fix. I would not want to have an accountant pass on an AJE if they were afraid it would hurt their KPI. We did track days to close and the completion the closing calendar on time.

The overarching concern of a KPI should be to balance the measure against the benefits of having the measure in place. Keep the KPI target/goal realistic. And, be careful of unintended negative consequences.

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Member's Profile

Scott, you might want to take a look at these two free white papers and a recorded webinar here on Proformative.

This white paper has lots of info on options that should give you greater visibility into department efficiencies.

"Quick Guide To Cloud Accounting."

http://www.proformative.com/whitepapers/quick-guide-cloud-accounting

"Confession of a CFO: 6 Challenges Keeping CFOs Awake at Night"
http://www.proformative.com/whitepapers/confession-cfo-6-challenges-keeping-cfos-awake-night

"Get Smart about Financial Intelligence and Reporting"
http://www.proformative.com/events/get-smart-about-financial-intelligence-reporting

I hope that all helps!

Best... Sarah

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Proformative Advisor
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It is a tough issue. Measuring workflow is difficult because depending on the business the natural cycle may be one of ebbs and flows; and we all know that month-end is always a crunch time. On the A/R side, you can measure days sales outstanding or average receivables aging. A/P can also lend itself to an average aging measurement, but it the business cash flow is not steady, then that measurement can be influenced by factors beyond the control of the department.

In the end, the most important KPIs for the Accounting department are: accurate financials and time-to-close.

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Proformative Advisor
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An overriding concern I have with many KPI's is the high tech vs. high touch nature in which they are used.

So person A does 10 invoices an hr and person B does 75, whose more efficient? Maybe person A who has complex, multi-line item invoices vs. person B who has single line invoices.

KPI's need to be made relational information, not just data points.

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Since most of the activities our finance group is tied to efficiency we use things like transactions processed per hour, manual entries per close period (love driving this down). Since we close in two days, we push to get entries in on the last day of the period.

When I took over an administrative processing center in the '90's we measured our backlog of orders, which was a big issue. We put in KPI charts which measured problem transactions processed by person and posted the results. The winner each week got a free dinner out. I have never seen backlogged processing get done so quickly. I digressed a bit, but I would use the KPI's to get to a specific goal rather than just having a "general goal."

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Patrick:
I love the idea of charts and weekly incentives to the team. Would you be willing to share samples of your KPI charts? I'd love to have my accounting team implement these. Thanks for the great information! Brenda

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Just received the scorecard for my finance department (we are a small affiliate to overall scorecard is received from HQ Finance) and some of the main topics are:

Process optimization:
- Bring down ICP plugs
- Sharing of best practices
- Faster invoicing

Faster close:
- Average reporting (to HQ) day
- Number of corrections after closing

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While I am not discounting the importance of tracking DSO as a KPI, in my experience it is frequently beyond the control of an A/R clerk to be able to significantly impact this figure (assuming collections is already doing a decent job). Does your collections staff set all customer payment terms and control the swings in monthly sales revenue? What I believe holds the Collections Department more accountable is % A/R Past Due. It is easily tracked, trends can be acted on immediately, and results can be seem in the next reporting cycle.

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The responses have been great. To address a few comments that came up, let me clarify further: my goals for implementing KPI boards for finance are two-fold:
(1) -Drive improvement in the key metrics that are important to the business (e.g. DSO, past due receivables, missed early pay discounts, days to close, etc. and
(2) -Identify process issues that need to be fixed (number of adjusting journal entries, number of credit memos issued, days late to close, etc.). By addressing these issues by finding and correcting root cause, which is often outside of the finance department, we improve the overall efficiency of the department and the business.
That's why I am searching for other metrics that are important to capture to drive business results and process improvements.

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Has anyone has experience implementing KPIs for a not-for-profit organization? where we do not have sales or receivables?

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Whichever measures you choose, make sure the data are easily collected without a lot of manual effort. As a non-profit CFO, I was asked to track a number of measures that our MAS90 accounting software did not readily provide and felt trapped by the competing needs of driving continuous improvement (critical) and frequently reporting on various metrics (time intensive non-value-added activity).

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We are currently in the middle of a F&A Transformation project where a consultant provided us KPIs we should track. Some we have started on, but others are still a work in progress. The KPIs include: 1) GL Close time, 2) number of entries processed by the Finance team (vs Accounting), 3) number of reclass/correcting entries, 4) number of automatic entries vs. manual, 5) number of account reconciliations to be performed manually (vs a reconciliation tool).
They are others on our list, but some may just pertain to our company so I did not list them.

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Your KPI'ls should be aligned to what is important and to what is seen as valuable to your organization. For instance, you might want to track data quality by number of reclass entries per month. You might want to track timeliness of data to accounting by number of accruals. When we put in KPI's for clients, we recommend that you pick two or three per process and ones that allow everyone to see the efficiency, effectiveness and value of your team.
Email me if you have more questions.

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We began formally tracking metrics in our Accounting teams this past year and provide our CFO a monthly report on how we're doing including commentary on highlights and issues and how we're addressing them. We're a relatively young company and are always looking for ways to improve our current processes. By tracking certain areas, we definitely shed light on some areas that needed attention and crafted our annual goals around these areas so we've found this to be a very valuable process. We're also exploring how to best communicate some of the issues to other teams (e.g. invoice revisions due to errors from sales or operations teams). We look at the following:

Accounting:
Time to close the books
Time to issue management reports
Prior period adjustments
One-off items
How DSO and DPO are trending against each other
Personnel costs of AR and AP as % of net revenue (since these teams are part of the sales cycle)

Receivables:
DSO
% balance over 90 days (by AR person and sales region)
# of invoices + credit memos processed
# of revised invoices processed by reason
% of invoices produced and sent on time (by person)

Payables:
% of balance over 90 days
% of unbilled payables
% of unapplied payables
# of manual adjustments applied
# of tickets received and closed (vendor inquiries)

Select a few that you find would be meaningful to your teams and company and then add to or revise them once you have a feeling for what the data is telling you and what areas you need to explore further. Good luck!
-Carrie

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I have tracked the first three on the Payables list. It was necessary to track A/P aging and unbilled payables as it identified how we did in resolving vendor invoices and requesting vendor credit/rebills.

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How about the following in addition to above to measure efficiency:
* Budgeted time on projects vs actual
* Dollars saved from employee suggestions
* Accounting system downtime (during normal biz hours)
* Billing accuracy
* Managers time accessing general ledger
* Manual transactions vs automated transactions
* Number of customer calls in a test week (3rd week of each month)

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Proformative Advisor
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Obviously, this topic has struck a nerve--which is good.

In addition to some of the KPI's mentioned above which went into my various teams' balanced scorecard, we collected:

the collection efficiency ratio (% collected versus available),
net losses on AR (P/(L)) measure versus target, adjusted annually for new accounts and economic conditions,
close stats (on time, measured intra day),
bank reconciliations with a goal to have nothing in suspense--applies to all GL accounts,
process improvements measured in hours (yes, periodically, I had my teams write time; those coming from big 4 are used to this practice).

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Key Performance Indicators flow from departmental objectives. Since no department can take the time to measure (and spend management time monitoring) everything that they do, it's important to know what's most important for YOUR accounting department and spend your limited time measuring and monitoring those things. The fact that other people can identify statistics that could be useful is not the point; you must decide on the issues that will be useful in your specific circumstances.

So, if you haven't already, have an open discussion with your boss about what (s)he thinks is important. My experience is that some surprises typically surface from such a discussion. Once you have agreement about your top objectives, the statistics that you will choose to monitor will flow easily from that discussion.

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