FP&A teams are placed into a pressure cooker when determining their companies' KPIs; being responsible for presenting an overview of the company's current and future financial performance to the scrutiny of stakeholders from every department and level, is a monumental task for anyone. Then, based on performance estimations, FP&A teams need to set, balance and evaluate the best strategies and KPIs that guide the company to its most profitable outcome. This effort requires precision and accuracy, so it is important to have reliable measures and processes in place, with traditional spreadsheet planning methods, this is no easy feat.
FP&A teams accustomed to traditional spreadsheet planning processes, often end up re-using the same performance metrics. Such processes can end up drowning FP&A teams with headaches and ineffective data to review. It is no wonder that many companies simply do not understand the difference between performance Indicators and key performance Indicators.
So what do businesses need, to move to a mature process of performance management? Collaboration and active participation between finance leaders and business system users in the analysis and planning processes. This creates business understanding and up-to-date sets of performance Indicators (key or otherwise), efficient tracking of business metrics, along with the utilisation of dashboards and trusted data-based reports to gain rapid insights. As a result, the business gains more effective business plans and decision-making.
If you are worried your team may have discounted vital KPIs, ask yourself the following questions:
Who is this for?
There is no one universal set of KPIs that can be applied to all companies or even industries. Instead, KPIs are identified and monitored based on the unique business environment of individual companies. A company board of directors may want to monitor the underlying drivers of profit by quarter. Similarly, HR managers may need breakdowns of individual staff members performance, or FP&A teams want to seek the detailed differences in revenue forecasts by location. Different audiences have different priorities of 'relevant' data; to create and share meaningful performance indicators, you have to understand the audience at hand and what they prioritise.
The hotel trade is an excellent example of creating 'meaningful' performance indicators. Seasonality and location are established factors that is pertinent to the hotel trade, with variables such as tourism and weather affecting several drivers of demand. Tourist demand for vacations is fickle, and hotels must cater to the seasons, trends and circumstances, where their destination is popular. For example, hotels in Japan would likely experience increased popularity in spring, due to tourist demand in viewing the cherry blossoms bloom. A standardised set of performance indicators would not be able to provide a detailed level of insight that hotel managers need to consider when creating strategies, especially in a fickle market. A solution that helps marketing teams is detailed cloud-based dashboards, that analyse how specific hotel-related drivers affect revenue by season and location. Alongside these drivers, they may also wish to monitor key metrics, such as tourist trends, weather averages and neighbourhood popularity.
What is the strategy of choice?
Strategies in a company are implemented based on the position that they are in, and their performance as monitored by historical records of indicators. An example of strategy-setting can be seen with Lewis Road Creamery. They had been experiencing exponential sales growth with the introduction of their Whittakers chocolate milk collaboration, and now faced a tracking issue; how to maintain sales momentum, while measuring the success of their marketing. Therefore, Lewis Road Creamery had to track their new performance indicators; how many people within their target market were they capturing? Did they capture customers outside their target market? What are the key factors in the campaign that made it successful? Performance indicators, such as these, are vital for internal stakeholders who need to adjust plans and strategies as necessary. They must also account for future needs involving raw materials, production expectations and distribution channels.
It is impossible to select effective performance indicators that reinforce your business strategy, without thoroughly understanding the strategy itself. What are your objectives this quarter? What resources can you mobilise? What trends can you utilise? What are the obstacles in your way? Once you have figured out a thorough strategy, then your finance team can decide the best metrics that support it.
How do you create comparisons?
Performance indicators by themselves do not offer much insight, they need to be examined contextually with peer and industry averages, alongside the past performance and future objectives of your company. To do this effectively, modern software must be implemented to avoid traditional, static planning. Using Corporate Performance software, such as MODLR, allows businesses to create clear and effective visualisations in tracking KPIs involving employees, technology, locations, financials and activities.
A long list of performance indicators may be seen as beneficial for comparisons, but the reality is adopting too many key performance indicators will dilute their effectiveness and decrease business agility whereas focusing on a select few truly key indicators reinforces a corporate strategy and vision for the marketplace. MODLR's platform enables efficient analysis of past performance to present data to extrapolate out future performance. This identifies the most relevant factors affecting growth, such as distribution issues or specific successful promotions. MODLR allows your business to consistently set and achieve optimal KPIs most suited to your business strategy.
Find out more about the MODLR cloud here.