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Posts Tagged ‘kpi’

San Diego FP&A Summit Follow-Up….

February 25th, 2010 Comments off

     In my prelude post yesterday, I gave a brief overview of my intended presentation for the San Diego FP&A Summit hosted by the IE Group ( www.theiegroup.com ), who is a global summit organizer. As expected, I had some great conversations with both attendees and presenters, as well has having the opportunity to meet up with colleagues I hadn’t seen in a while. Unfortunately I didn’t have the opportunity to stay for the entire event, but they clearly had a strong line-up of speakers, which also included Oakley, AMD, Juniper Networks, Disney, HSBC, and a host of others. Below is the full presentation I delivered today at the summit.

KPI Presenation – San Diego FP&A Summit

Thanks for reading . . . .

Jeffrey Ishmael

San Diego FP&A Summit – A Prelude….

February 24th, 2010 Comments off

            Tomorrow I’m being given the opportunity to speak at the San Diego FP&A Summit, which is sponsored by the IE Group ( www.theiegroup.com ). I was a bit hesitant in the beginning, but once I spoke with Richard Bracchi and realized the line-up he was putting together there was no way I could decline. We also started talking about what subject I might be tasked to speak on. It didn’t take long with I saw the topic of KPIs on the list. A subject that is near and dear to my professional heart! Besides, how in the heck do you drive improved performance without have metrics in place to measure all the triggers you need to pull?

            After the presentation tomorrow I’ll post my full presentation, but I had a great time assembling what I hope will be a valuable presentation for those in attendance. I get a sincere kick out of discussing this topic with my peers….

Ask most Finance professionals how they measure their business and they’ll cite our typical tools….

      Income Statement

      Cash Flow Statement

      Balance Sheet

       These are merely reporting mechanisms for the true tools that we use to measure our respective businesses.

 

       What are the KPIs that help you make your business decisions?

       How do you create value for the Company in the absence of such critical reporting?

       How do you price a Service Offering when you don’t know your costs?

       How do you formulate staffing decisions when you don’t know how hours are consumed?

       How do you drive improvements when you don’t even know where the waste is?

These are only some of the questions we’ll be addressing tomorrow….

Thanks for reading . . . .

Jeffrey Ishmael

Financial Ratios ARE NOT your KPI’s . . . .

July 14th, 2009 Comments off

            As a follow-up to yesterday’s post, I wanted to expand on the area of having effective measurements and the ability to quantify what is happening with the organization. There’s no discounting the value of all the standard financial ratios, working capital measurements, and HR-related figures that tie back to revenues & other financial figures. However, these measurements are standard through any organization, are easily studied in any business school textbook, and really don’t provide the necessary insight to increase operational productivity. These are merely barometers to give you an additional confirmation that your efforts are paying off and your key measurement tools are providing the appropriate data for decision-making.

 

            Well that’s a great point of view, but what are the key measurement tools and what about a practical example that can bring that full-circle?  Let’s take the example of an apparel company that is selling to smaller retail customers. For years, that small company continues to grow, is building a great brand, and the strong growth is unknowingly masking the growing inefficiencies of the company. In further support of the company’s growth it acquires one or two very high profile customers that have hundreds of stores.  As growth starts too slow, or perhaps stalls, what are the measurements that you have in place to identify what your areas of weakness are and give you the necessary insights to focus your efforts and get back on a path of growth?

 

·         What is your revenue distribution among your customer base? Do you have too strong a concentration with any one customer?

·         Are you driving your revenue growth with lower quality sales that do not carry the margins upon which you built the business?

·         With the growth that you have been able to drive through a few new customers, do you have reporting in place that indicates the health of your core account base? What are the average revenues per door for your core accounts? Stable or increasing?

·         Are you having to commit an unusually high amount of resources to support newer significant customers and is this factored into your net customer margin calculations?

·         As a wholesale supplier, do you have effective reporting on your sales personnel and their productivity? What are their metrics versus last year, on a per-door basis, etc?

·         Are you tracking discount and markdown activity by customer? With these two factors in mind, do you have the ability to report net contribution margin by customer?

 

            There’s clearly a distinct difference between the standard financial ratios and those that you need to drive strategic decision making. If you’re coming to an organization where these measurements are absent then you quickly need to get up to speed with the company to develop a set of indicators that will support the rest of the team in their decision making. Changes in a consolidated gross margin figure or revenue per employee are not going to drive strategic initiatives.

 

            With the above considerations in mind, tell me how your indicators that track revenue by employee, working capital days, consolidated gross margins, operating expenses as a % of revenue, and all the other textbook indicators are going to really help you drive aggressive increases in corporate productivity. The only way you’re going to get there is to have a full understanding of your business, be willing to roll up the sleeves, and come to the table as a financial strategist for the rest of the team. You need to be aggressive in your approach to reporting and find the hidden information gems within your business that you can polish and exploit.

 

Thanks for reading . . . .

 

Jeffrey Ishmael

Executive Dashboard – Final Summary

April 3rd, 2009 Comments off

One of the key projects I wanted to complete during Q1, which is now finalized, is the introduction of an Executive Dashboard. For my current company, there has never been any form of EIS (Executive Information System) reporting in place so this involved the intro of a brand new reporting tool. For this type of situation there are countless pros and cons. On the one hand, there’s the open arms welcome of something that will help with key decision-making and provide new perspectives on the business. On the other hand, when everyone starts getting involved in “what they need” you run the risk of having what should be an overview turning into a data dump of so much info that it becomes more of a burden than useful tool.

As with every company, there are a multitude of approaches as it relates to measuring the business, and defining the necessary approach regarding the reporting of financials. More specifically, there will be a completely difference approach for the reporting of a Retailer versus the reporting for a company that might have an intensive R&D effort. Both will have a completely separate, and unique, set of needs for their reporting.  For the sake of this summary, I will keep those needs aligned with that of an Apparel or Footwear manufacturer.

                With respect to the creation of an Executive Dashboard, there are numerous off-the-shelf capabilities that can be integrated with your current reporting platform. For this company, which is using an older & customized form of MAS, I’ve chosen to take the more simplistic approach and build an Excel-based template that can be easily updated and will provide the snapshot that the greater management team will find of value. Especially since this type of tool has never been implemented.  Further considerations include the different segments or metrics that you believe need to be reported on.  In most cases, you’ll find a summarized reporting of Orders, Revenues, Balance Sheet, and Customer-centric items.

                But even then, with respect to each segment, do you really need to report on every item within each segment? For Revenue, I chose to report only to the level of Domestic and International for the segments of Footwear and Other, respectively. While we have additional segments such as Clothing, Accessories, etc., Footwear is still the core category that we need to watch the closest. I also chose to break this out at both a dollar and pair level. If any one of the team needs data on other softgoods then we can certainly pull that data but I don’t want to see a summary view turn into a data dump that can’t be synthesized in a matter of minutes. That’s really what the goal of the dashboard should be….a snapshot of the company that can be digested in a matter of minutes and provide a brief insight into the key areas that are critical to the success of the business. If any of these areas fall outside of the Company’s “comfort zone”, then it certainly warrants additional review and the pulling of details that are easily available.

                With respect to our Company, there were 5 key areas that I chose to focus on. However, it should be noted that your approach to any level of EIS reporting should not be static and should be open to change to accommodate the reporting needs of the company. But in planning such a tool, the areas chosen should be at a high enough level that there will be only subtle changes for long-term reporting purposes. For our first generation of reporting, I chose the following areas:

  • Orders / Revenues
  • Operating Expenses
  • Balance Sheet
  • Finance / Working Capital metrics
  • Dealer / E-Commerce metrics

                With respect to each of the sub-areas listed above, it’s important to note the need for brevity in each of these areas. As an example, in Section A above, the intent is not to do a data dump of every area that the company records revenue under.  In our situation, we record revenues at both the International, Domestic, and E-Commerce levels, along with further delineation by Footwear, Apparel, Clothing, Accessories, and Other. For the sake of an EIS platform, the best approach is to take the 80/20 approach where you can get a consistent snapshot of what is happening, if you will, the “temperature” of the Company. Should something be sub-par, it would be apparent within the EIS and there can then be a follow-up with more detailed reporting.  For myself, out of the 30 potential combinations above (Orders + Revenue), I chose to follow only 10. However, the 30 above would represent just the financial portion. The 10 I have included also include metrics on Pair performance. While only a fraction of the total permutations, it will give me an immediate indication if there are potentially greater issues to deal with respective to our corporate performance.

                What’s important to note is that this is not just a “Finance” document; it’s a document that needs to be shared among the Management team and used to prompt discussion or decision making. The data needs to be unquestioned and easily updated. It needs to be a document that other team members are eager to receive and provides them with the necessary “temperature”. Are you achieving that with your current dashboard reporting?

                With respect to Operating Expenses, I chose to include this area since there’s always a need to keep tabs on major expense areas. I’m not interested in just a blended topline number, I’m interested in knowing what is happening in key expense areas. Out of the dozens of expenses, I chose to include only 12 that I would want to track on a constant basis. These ranged from 3rd Party Logistics, Advertising, and Bad Debt, to Professional Services and Travel. However, while the remainders of our reporting metrics will be reported on a weekly basis, these are only being updated on a monthly basis. Then why don’t we just hold this for review in our standard financial reporting? I chose to include because I want our OpEx to be a constant data source that our entire team will be conditioned into being sensitive to and not paying attention to on strictly a monthly basis.  The reporting of the 12 areas I chose, we’ll be able to have constant oversight on almost 85% of our Operating Expenses.

                Next up, I wanted to focus on Balance Sheet accounts.  Again, I wanted to focus on those areas that should be tracked on a constant basis and not lost sight of.  We’re obviously following Cash/Cash Equivalents and Inventory, but I’ve taken a slightly different approach for A/P and A/R. For our Receivables, I chose to focus only on the 90+ column. We’re routinely seeing accounts in the Current to 60-day column, but my blood pressure starts going up when they hit the 90+ column.  I want to know if this column is growing.  Similar approach on the Payables side. I want to know if our A/P group is behind in paying vendors or if we are staying current. I chose to follow the Past-Due column. Similarly, I will also be following the amount of early pay discounts that we are taking with vendors.  I want this number increasing every week. Since we have the ability to easily meet payables, I want to push the calendar a little more and start taking discounts.

                Last, but not least, were the E-Commerce/Dealer metrics and the basic financial ratios. I chose to include newly opened dealers, closed dealers, inactive dealers, as well as 5-key metrics for our E-Commerce efforts. Considering the current environment, I kept the financial ratios to the top level considerations of working capital rations, DSO, inventory turns, etc..  As mentioned in my first post, the intent of an EIS platform is not to be a data dump.

                -It’s intended to give a very top level view of what is happening with the Company.

                -It’s not intended to replace any of your financial reporting.

                -It’s intended to be an indicator of what further reporting needs to be addressed if there is a problem.

                -It’s not a static tool, but one that is dynamic to the needs of the Company.

 

Thanks for reading . . . .

Jeffrey Ishmael

Executive Dashboards – Part 2

March 16th, 2009 Comments off

                In my last post I wrote a very brief summary on the development of Executive Dashboards and some of the basic elements that can be tabled for consideration within such a tool. As with everything company, there are a multitude of approaches as it relates to measuring the business, and defining the necessary approach regarding the reporting of financials. More specifically, there will be a completely difference approach for the reporting of a Retailer versus the reporting for a company that might have an intensive R&D effort. Both will have a completely separate, and unique, set of needs for their reporting.  For the sake of this summary, I will keep those needs aligned with that of an Apparel or Footwear manufacturer.

 

            With respect to our Company, there were 5 key areas that I chose to focus on. However, it should be noted that your approach to any level of EIS reporting should not be static and should be open to change to accommodate the reporting needs of the company. But in planning such a tool, the areas chosen should be at a high enough level that there will be only subtle changes for long-term reporting purposes. For our first generation of reporting, I chose the following areas:

a.      Orders / Revenues

b.      Operating Expenses

c.       Balance Sheet

d.      Finance / Working Capital metrics

e.      Dealer / E-Commerce metrics

 

            With respect to each of the sub-areas listed above, it’s important to note the need for brevity in each of these areas. As an example, in Section A above, the intent is not to do a data dump of every area that the company records revenue under.  In our situation, we record revenues at both the International, Domestic, and E-Commerce levels, along with further delineation by Footwear, Apparel, Clothing, Accessories, and Other. For the sake of an EIS platform, the best approach is to take the 80/20 approach where you can get a consistent snapshot of what is happening, if you will, the “temperature” of the Company. Should something be sub-par, it would be apparent within the EIS and there can then be a follow-up with more detailed reporting.  For myself, out of the 30 potential combinations above (Orders + Revenue), I chose to follow only 10. However, the 30 above would represent just the financial portion. The 10 I have included also include metrics on Pair performance. While only a fraction of the total permutations, it will give me an immediate indication if there are potentially greater issues to deal with respective to our corporate performance.

 

            What’s important to note is that this is not just a “Finance” document; it’s a document that needs to be shared among the Management team and used to prompt discussion or decision making. The data needs to be unquestioned and easily updated. It needs to be a document that other team members are eager to receive and provides them with the necessary “temperature”. Are you achieving that with your current dashboard reporting?

 

Thanks for reading . . . .

 

Jeffrey Ishmael

Executive Dashboard…or Exec Data Dump?

March 12th, 2009 Comments off

One of the key projects I wanted to complete during Q1, which is almost finalized, is the introduction of an Executive Dashboard. For my current company, there has never been any form of EIS (Executive Information System) reporting in place so this involved the intro of a brand new reporting tool. For this type of situation there are countless pros and cons. On the one hand, there’s the open arms welcome of something that will help with key decision-making and provide new perspectives on the business. On the other hand, when everyone starts getting involved in “what they need” you run the risk of having what should be an overview turning into a data dump of so much info that it becomes more of a burden than useful tool.

                With respect to the creation of an Executive Dashboard, there are numerous off-the-shelf capabilities that can be integrated with your current reporting platform. For this company, which is using an older & customized form of MAS, I’ve chosen to take the more simplistic approach and build an Excel-based template that can be easily updated and will provide the snapshot that the greater management team will find of value. Especially since this type of tool has never been implemented.  Further considerations include the different segments or metrics that you believe need to be reported on.  In most cases, you’ll find a summarized reporting of Orders, Revenues, Balance Sheet, and Customer-centric items.

                But even then, with respect to each segment, do you really need to report on every item within each segment? For Revenue, I chose to report only to the level of Domestic and International for the segments of Footwear and Other, respectively. While we have additional segments such as Clothing, Accessories, etc., Footwear is still the core category that we need to watch the closest. I also chose to break this out at both a dollar and pair level. If any one of the team needs data on other softgoods then we can certainly pull that data but I don’t want to see a summary view turn into a data dump that can’t be synthesized in a matter of minutes. That’s really what the goal of the dashboard should be….a snapshot of the company that can be digested in a matter of minutes and provide a brief insight into the key areas that are critical to the success of the business. If any of these areas fall outside of the Company’s “comfort zone”, then it certainly warrants additional review and the pulling of details that are easily available.

                This is a much larger topic that I will be discussing in further detail and providing examples of what we implement for our own use.

Thanks for reading. . . .

Jeffrey Ishmael

Performance Indicators & Balanced Scorecards. . . .

September 5th, 2008 Comments off

With all the discussions this week regarding IFRS I felt compelled to step back a bit and cover a slighter broader organizational topic – Balanced Scorecards. For myself, I love any indicator that is going to provide me some insight as to how the organization is performing, and hopefully the tracking has been in place long enough that I can start making year-over-year comparisons. However, the question I still have yet to see answered by any one team is “How many indicators are sufficient to provide you with an overview of corporate performance?”. Granted, these need to be broken up into financial and non-financial, but let’s just take one area. If you refer back to the book “The Ultimate Question”, there is really only one indicator that needs to be tracked….whether or not your customer will recommend you to others. Ok…perhaps a bit simplistic. But let’s look at the average approach.

For the companies I have been at, there have been anywhere from 6-50 indicators tracked on a monthly basis. If there are indeed 40-50 being tracked do I need to see these figures every month and draw some type of conclusion? Probably not. But I am VERY interested in the trends that these indicators may take over a period greater than a quarter. While I do want to see the data compiled monthly, a month does not make a trend. I also believe that it’s very difficult to narrow your indicators down to very small amount and gauge the performance for what could be a very complex organization. Are you going to only pick 6-10 indicators for a company that has R&D, Engineering, Quality, and Call Center functions? By the time you pick one indicator for each area you’ve hit your limit.

Aside for the standard financial indicators, I want to know about others that are directly affecting our customers. For instance:
– What are the number of current or past due “service” calls? Are we servicing our customers and delivering on contractual obligations?
– What are the number of warranty related issues? Not from a $$ perspective but from a “customer touch” perspective.
– Are our Service technician training levels appropriate for the install base in their region?
– What are the system performance measures from IT so that employees remain productive?
– What is our On-Time Delivery performance? I care that we booked the revenue but I also want to make sure we met our customer expectations.
– What is our performance for the accurate shipment of customer orders? How many orders were processed incorrectly?
– What is our order return rate? While not necessarily negative, it is a cost to the company.
– What is our employee turnover and is it due to termination or resignation?
– What is our capacity utilization / labor absorbption rates?

While not necessarily a “financial” performance measure, all of these indicators, and dozens more, have the ability to directly impact the bottom line financial performance. When the financials are closed at the end of the month and we see the final story I want to know exactly what was influencing our results and how we might be able to improve them moving forward. Perhaps there have been areas that have improved dramatically versus the prior year and it’s time to start fine tuning some of our process. How is your organization performing and how do you track it?

Thanks for reading. . . . .
Jeffrey Ishmael