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Best metrics for the finance and accounting organization itself?

Bryan Frey's Profile

I was just at a conference where the CFO speaker noted how the office of the CFO always measures other organizations, but rarely itself. This struck me as true much of the time. I'm certainly guilty, as are most of the CFOs I know. We harp on our CMOs and VPs of Sales for all sorts of measures (many of which we help them find and report on), but I had never thought that hard about my own measures and what would help me and everyone in my organization focus and improve. That had me wondering, how could I measure my F&A organization? Some things pop readily to mind, such as: 1)forecast accuracy over time and 2)days to close the books at month/quarter/year end. But beyond that, I'm curious as to what folks here use to measure their own departments?

Answers

Katherine Turner
Title: Manager, FP&A
Company: Anne Arundel Medical Center
(Manager, FP&A, Anne Arundel Medical Center) |

Bryan,
Great question and thank you for asking it. I have been thinking about this for a while. We are currently tracking the days to close the books. We've also just begun tracking self reported daily errors that occur that result in re-work. We are very new at this and are experimenting.Our goal is to find the waste in the process. I like the one you mention about forecast accuracy - that's great one. I anxious to see other ideas.

Katherine

Carrie Roesner
Title: Controller and VP
Company: Centro
(Controller and VP, Centro) |

We track a ton of metrics within our finance department and review them with the team each quarter. These change and evolve over time and as our company's goals change but include: DSO, % AR > 90 days (by region/by collector), # days to process vendor invoices, # of days it takes to pay vendor invoices, # of days to send customer invoices, days to close the books, departments costs as % of revenue or income, workload (e.g. how many items (e.g. invoices, etc.) processed per person each month), # of vendors following our payment process, # of vendors/customers taking advantage of xyz programs, prior-period adjustments.

Some of these are likely relevant to most finance departments but I would look at what your team wants to achieve and how it aligns with the company objectives and then determine how to best measure your success against it and what drives that success. For example, if you want to collect money faster, DSO is a good measure of that but perhaps getting invoices out on time is the driver of DSO as customers will pay faster if they have the invoices in hand sooner. So, measure both and you should see a trend/correlation between the two. If you don't, you need to dig deeper and find the cause and effect relationship.

Chris Shumate
Title: Accounting Manager
Company: Dominion Development Group, LLC
LinkedIn Profile
(Accounting Manager, Dominion Development Group, LLC) |

Carrie - Your answer about getting invoices out on time to customers reminded me a business leadership book I read last year. The Four Disciplines of Execution talks about having lead measures and lag measures to help with your WIG (wildly important goals). A company's lead measure could be getting invoices out 3 days sooner, with the lag measure being an decrease in DSO of 5 days on average. With the WIG being to increase cash flow by collecting customer payments sooner.

Knowing what you want to measure is sometimes the easiest part of making decisions. The hard part is determining the leading and lagging measures that a company can use to determine its success.

Topic Expert
David Hughes
Title: Executive VP of Operations
Company: On Target Performance Group
(Executive VP of Operations, On Target Performance Group) |

Good comments from Katherine and Carrie. One thing I might add is that it might be useful to split your dept activities into those that are transactional (billing and a/p) and those that are not, then determine the costs to do each. For example, if you measure the costs to process a each customer invoice and implement initiatives to drive those costs down, then your dept will become more efficient. The cost to process a customer invoice will include things like rework.

Harold D. Tamayo
Title: Vice President of Finance
Company: MHA Inc., a Roper Technologies Company
LinkedIn Profile
(Vice President of Finance, MHA Inc., a Roper Technologies Company) |

Each organization within finance would have its own operational metrics (not just the financial ratios). For example, accounting can have number of manual journal entries per FTE, defects per one thousand manual entries (bad calculation, wrong posting to a cost center, etc). Manual reconciled accounts/total accounts. AP, AR, Reporting, etc have specific operational KPIs that you can track. You can apply Lean and Six Sigma methodologies to run an effective and productive finance area and drive cost per transaction down, improve forecasting accuracy and identify gaps for improvement for specific transactional processes particularly in order-to-cash and order-to-pay.

Michael Jameson
Title: VP Finance
Company: Undisclosed
(VP Finance, Undisclosed) |

We recently started to measure financial forecast accuracy. Talk about hitting the very center of what we do in corporate finance! Scary, too. We measure forecast accuracy by quarter, looking back 1, 2, 3, and 4 quarters and at current year budget. In each case we measure accuracy in revenue, by product. by region, by business unit. Likewise we measure in operating expenses along major account lines (e.g. Marketing expense, Marketing programs and all major expense lines), and at the margin and net income lines.

In surprisingly short order it has helped us realize what matters (what drives big variances) and what does not. We have it all automated via our CPM platform. Highly recommended and keeps us focused on what matters.

Anders Liu-Lindberg
Title: Regional Finance Business Partner
Company: Maersk Line Northern Europe
LinkedIn Profile
(Regional Finance Business Partner, Maersk Line Northern Europe) |

In my previous job as finance manager we measured on days to close the books, forecast accuracy and reconciliation between accounting and reporting. To me what is much more interesting though is measuring the finance departments contribution to the bottom-line through collaboration and partnering with the business. Too often you hear the argument that the impact cant be separated and while that may be true then at least you should do some qualitative measuring on it.

Frankly speaking if you can measure the impact of your finance team's impact on the business you might as well outsource or offshore the whole lot!

Anders Liu-Lindberg
Title: Regional Finance Business Partner
Company: Maersk Line Northern Europe
LinkedIn Profile
(Regional Finance Business Partner, Maersk Line Northern Europe) |

It should have read "can't measure" as opposed to "can measure"

Katherine Turner
Title: Manager, FP&A
Company: Anne Arundel Medical Center
(Manager, FP&A, Anne Arundel Medical Center) |

Most information available deals with financial ratio improvements. I am really interested in hearing others' experience with operational measurements. I'm posting again to see if more folks will respond.

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