I was just at a conference where the
Best metrics for the finance and accounting organization itself?
Answers
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
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.
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Carrie - Your answer about getting invoices out on time to customers reminded me a business
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.
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.
Each organization within finance would have its own operational metrics (not just the financial ratios). For example,
We recently started to measure financial forecast accuracy. Talk about hitting the very center of what we do in
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.
In my previous job as
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!
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It should have read "can't measure" as opposed to "can measure"
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.