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How do we develop good leading indicators in Finance?

I am trying to come up with a set of leading indicators for my business (a drilling contractor), but can I do so only looking at the financial data or will that always be looking backwards? If that is the case any suggestions for what operational data you would use?

As a general question what kinds of leading indicators are you using, such as revenue per employee benchmarks?

Answers

Ivan Makarov
Title: VP of Finance
Company: SmugMug
(VP of Finance, SmugMug) |

It may help if you shared more about your business and the industry.

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

So we own and operate drilling rigs for oil companies on fixed rate terms so from a revenue perspective we know our max obtainable revenue hence we need to ensure the drilling rig is operating 100% of the time (uptime).

From there on we need to manage our costs. Some are fairly stable whereas others are cyclical and increasing with the age of the rig. Our main costs are: crew cost, standard repair and maintenance and periodic projects related to repair and maintenance.

Kelly Battles
Title: CFO
Company: Bracket
(CFO, Bracket) |

I think one of the most important characteristics of a successful finance executive is to drive a culture of fact-based decision making and to have a "Line of Business" orientation. I am a CFO of Host Analytics, the provider of the world's only cloud based full Corporate Performance Management suite (budgeting, consolidations, automated internal and external reporting etc) so as a CFO and a vendor to CFO's in this space, getting metrics management right is near and dear to my heart. In each operational finance job I have embarked upon I start with a simple exercise in which I interview key functional execs across the company and ask them 4 main related sets of questions. 1) What are the key goals of your function, what are the key drivers for success and the related metrics you track. I ask for 5-10 key metrics only. 2) How frequently is it helpful and practical to track these metrics, do you track them now and if so where does this data reside? 3) What is the right context to judge success? Trends, versus budget, versus benchmarks etc..and finally 4) how do you like to see this data - dashboards, ad hoc reports, standardized financial reports or included in a more formal report book? I then try my hardest to get all of this information in my CPM Suite and tailor its use and reporting to my stakeholders. Importantly, I don't expect perfection immediately but I work with the team to iterate over time to continue to improve its effectiveness and use with the overall goal to drive more fact based decision making across the company. Hope this helps, Kelly

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

One metric that I am now starting to look at is committed purchase orders for the current month as well as the coming 3 months. As we have several hundreds and more often thousands of them this is a rather complex task. However my hypothesis is that it will give us some visibility of the future spend and enable us to identify trends based on future committed spend rather than historic spend. It should also serve as a tool to increase the quality of our rolling forecasts.

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