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DSO....setting a target

Cathy  Dustin's Profile

DSO Goals, Targets & BenchmarksHi - I know how to calculate DSO (or rather how my controller wants me to) but I'm trying to set/suggest targets. The company has four main groups with 4-6 regions in each of the groups. The overall company target is 50 days. Is there a way to 'roll up' the targets the regions/groups want to ensure that if they met their targets it will also meet/beat the company target? thanks, cathy

Answers

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

Cathy
I think the answer depends on the way you calculate DSO. e.g. you may get misleading results if you aggregate region DSOs the wrong way:
1. what DSO do you get if you calculate DSO at the region level, then simply average the region DSOs to get to Group DSO,and again simply average the Group DSOs to get to corporate OR
2. what DSO do you get if you aggregate all the sales and AR balances and calculate DSO at (a) the group level and (b) at the corporate level?

Model it and compare results
Len

PS - search this website for earlier threads on DSO-many people provided some great answers.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Also note that DSO/DPO/DIO are trend numbers, as such, there are different factors that may move the number higher and lower that don't necessarily mean the number is getting better or worse, just different.

Cathy Dustin
Title: Sr Finance Analyst
Company: Granite Construction
(Sr Finance Analyst, Granite Construction) |

Thanks Len... yes for reporting actuals we calculate at each level - region, group, total ops (all 4 groups) and then total company. the average of regions is significantly higher than the groups. at the same time the average for all groups is close to the total company (give or take 1-3 days for any given month).

I was leaning towards averaging as a suggested target, but thought it would be good to reach out to others that are far smarter than I.

Wayne - yes I do understand that it is just a trend and that many underlying variables can dramatically change the number - espeically in the construction business. in my search for an answer to my original question I came across many interesting articles (here and other sites) that offer (IMHO) better alternatives that I'm also taking to the controller.

appreciate the help/quick response

Mark Matheny
Title: VP - FInancial Planning and Analysis
Company: Novolex (formerly Hilex Poly)
(VP - FInancial Planning and Analysis, Novolex (formerly Hilex Poly)) |

If you average, it needs to be a weighted average based on relative size of the region/group.

Gurunathan Sv
Title: Consultant
Company: pvt
(Consultant, pvt) |

If regions/Divisions have different business ,then regional DSO is preferred.Many times there is a conflict between finance& Sales on DSO ,its calculation,fixing and resposibility

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