key performance indicators robin tidd, fcma cgma, mcim saturday 25 april 2015 cima conference:...
TRANSCRIPT
Key performance indicators
Robin Tidd, FCMA CGMA, MCIM
Saturday 25 April 2015
CIMA Conference: Essential management accounting tools
Robin Tidd MBA FCMA CGMA MCIM
• Founder of rtm established 1980• Working time spent on performance improvement and culture exercises
with businesses of all sizes. Led over 250 assignments over the past 34 years.
• Run 300 Managing Directors’ Workshops attended by 3000+ MDs• Chairman 2000-2005 of CIMA Members in Practice Group. Council
Member and member at some time of five different policy committees of CIMA
• Currently launching expansion of a unique new model retainer business for SME’s.
• Author of dozens of articles and of four publications including ‘Business Performance Management’ ‘the Road to Continuous Improvement and ‘KPIs’ for Nelson Croom, award winning on-line publishers .
The three Purposes of Key Performance Indicators
• To show results across the business … the Scorecard
• To provide knowledge of how to improve• To motivate and involve… to cause action
The latter point is the most difficult.
All three are essential
Managers getting Control of their Processes…..
The best you can ever do as a front line manager with a given Process is:-
1. Define what good looks like as an outcome in simple measures
2. Frequently (SICs) measure whether you are hitting that level
3. If you are …move the target 4. If not why not, where is the
leakage/waste/opportunity5. Agree actions with your people6. Log the actions7. Review the actions frequently (SICs)8. Ensure that actions are done…and so get control of the process
Mapping or modelling a Process should make it clear what to measure
Quote
“In some organisations only one person has the overview, and is too busy to do anything about it.”
Managing Director
Sales Director Finance Director
Manager Customer Services (inside)
‘Reps’ Manager Special
Products
Manager General Products
Purchasing Manager
Production Manager
Technical (QA)
Manager
Warehouse & Distribution
Manager
Assistant Accountant
Staff
Staff
No Staff
Production Supervisor
Estimator
Production Co-ordinator
Foreman & Workforce
Stores Controller
Production Office Staff
Design Supervisor
Drivers Warehouse Manager
Warehouse Staff
• We need a hierarchy so that everybody has someone to look to for development. We need it for management.
• BUT We should view the organisation as a series of processes with feedback loops. There are internal suppliers and customers and it all leads to the customer.
• Ultimately we work for the customer not the boss.
Who do we work for?
What do others say?
• Good to Great (Jim Collins)– ‘Confront the brutal facts’– ‘Be disciplined’
• Winning KPIs (David Parmenter) – ‘Only 10% of (the Fortune 500) organisations know how
to use KPIs properly???’– ‘A KPI which is not (reviewed) at the very least weekly is
useless as a performance tool’
• Out of the Crisis (W Edwards Deming)– ‘Understand the process’
Culture is fundamental… and how you use information is fundamental to culture
ACT PLAN
CHECK OR STUDY
DO
Measurement built in here
LEARNING APPLYING
Essentially a Circle..
The Deming or Shewhart Cycle
Monster Process Map….(but it worked!)
Two stories about Short Interval Controls
• Monthly sales meetings• Daily operations management
filling and testing gas bottles …but it could be any kind of
operation
Observations on Management ControlReds Greens and Blues!
BEVERAGESNo. of people
1 2 3 4 5 6 7 8 9Observations
1 16% Absent2345 28% Idle6789
1011121314 56% Working151617181920
Observations on Management Control
Reds Greens and Blues!
IND. 1No. of people
1 2 3 4 5 6 7Observations
12 30% Absent345678 27% Idle9
101112131415 43% Working1617181920
Observations on Management ControlReds Greens and Blues!
IND. 2No. of people
1 2 3 4 5 6Observations
12 39% Absent3456789 21% Idle
101112131415 40% Working1617181920
Observations on Management ControlReds Greens and Blues!
FILLINGNo. of people
1 2 3 4Observations
12 23% Absent345678 34% Idle9
101112131415 43% Working1617181920
Supervision Time
DOING32%
SUPERVISING5%
TELEPHONE6%ADMIN.
31%
GET INFO.5%
OTHER21%
Supervision Time
DOING64%
SUPERVISING19%
TELEPHONE3%
ADMIN.3%
GET INFO.3%
OTHER8%
DOING
SUPERVISING
TELEPHONE
ADMIN.
GET INFO.
OTHER
Short interval controls
• Look closer at the process and see more• Aid the psychological ‘attitude to change’ process• Enhance, reinforce and accelerate the learning process and
therefore the quality of the process improvements which actually happen
• Give time for re-adjustment when off plan, therefore creating prevention
(example sales visits and filling coleslaw)• Short interval control principles relate both to
– provision of KPIs and to – review meeting
A great culture has….
• Right figures, correct figures, remove fear• Scientific, better decision making• Honesty, openness and dealing in facts• Efficiency in collecting information, reduced
investigations and reduced ‘ad hoc’-ery• Direction and purpose… targets lined up with
strategy• Learning and improvement throughout the
organisation• Empowerment, involvement
Quote
“When the only tool you have is a hammer its amazing how many things start to look like a nail.”
Levels of Acceptance
PHYSICAL
LOGICAL
EMOTIONAL
Acceptance of Change = Learning
The Process of Change
‘Full on’ KPIs
What we mean by ‘Full-On KPI’s’ is:- • every area of the business has its high level and low level KPIs
being produced automatically • at the ideal intervals• being reviewed with the people in the process• against improvement targets• regularly• in a fixed hierarchy of well run Action Review Meetings• being quantified in financial terms (££ per unit or per cent of
out put, resource, waste etc.)• going into a high level dashboard• which is also reviewed regularly• allowing top management to see that managers are
controlling their processes
Outcome costing & budgeting project
Dr Alasdair Macnab FCMA, CGMA
Saturday 25 April 2015
CIMA Conference: Essential management accounting tools
Macnab Consulting Ltd
OUTCOME COSTING/COST -EFFECTIVENESS and INTEGRATED
REPORTING in the PUBLIC SECTOR
Macnab Consulting Ltd
Purpose of this Element of the Presentation
To provide some thoughts on:
• How outcome costing in public sector organisations can assist:
•Resource allocations.
•Strategy execution.
•To determine cost-effectiveness/value for money.
•Contribute to Integrated Reporting/Management.
Macnab Consulting Ltd
Public Sector
Presents significant challenges: • Performance seldom confined to a single formal
organisation:
• Government is often an intermediary in process of prioritisation and resource allocation
• PM system should include the organisation, numerous stakeholders & resources providers
• Need to balance divergent views and consensus
Macnab Consulting Ltd
Is public sector that much different from private sector?
• Greater accountability and transparency is required.
• 2 challenges arise:
• Sustainability
• Adaptability
29Macnab Consulting Ltd
Strategy vs. Structure
In public/not-for-profit sectors:
• Structures set up for administrative reasons
• Staff carry out functions in cross-cutting ways
Macnab Consulting Ltd
RBGE High Level Structure
Macnab Consulting Ltd
Objectives Delivered By Divisions
Division Biodiversity Research
Collections Management Visitor Attraction Education Funds People
CSD X X
Enterprise X
Horticulture X X X
Science X X X X
Division Land & Buildings Facilities Strategy Management& Control
Environmental & Financial
Sustainability
CSDX X X X X
Enterprise X X X
Horticulture X X X
Science X X X X
Macnab Consulting Ltd
Frameworks • Alternative system required to measure/manage
organisational performance.
• Frameworks incorporate non-financial measures which:
• Provides balance to financial measures to:
• Overcome potential for divergent activity.
• Encourages:
• Discussions on organisational strategy.
• Working together.
Macnab Consulting Ltd
Macnab Consulting Ltd
Importance of KPI Selection• Selection of relevant KPIs, KRIs & KIPA1s important
to:
• Align institutional effort to goals.
• Make the right causal linkages.
• Assess progress towards those goals.
1. KIPA – Key Impact Progress Assessment - A qualitative assessment of progress of an objective
that has not reached a conclusion due to its long-term nature but which has seen effort
expended (Macnab & Mitchell 2014).
Macnab Consulting Ltd
Develop a Costing ModelStarting Point:Staff effort to outputs vs data ascertained from cost centres:
Macnab Consulting Ltd
RELEVANT PUBLICATIONSThe Strategic Objective Costing (SOC) model: Macnab, Mitchell & Carr (2010) & Macnab and Mitchell (2012); Outcome Budgeting in the Public Sector: Challenges and Solutions. An Exploratory Empirical Study (Macnab and Mitchell (2014)
• Calculate staff effort (time-sheets) allocated to supporting achievement of specific strategic objectives.
• Calculate non-salary expenditures - double-coding to cost centres + relevant objective.
• Aggregating produces the total cost of the objective.
Macnab Consulting Ltd
ALLOCATING STAFF AND NON-SALARY EXPENDITURE TO OBJECTIVES
Macnab Consulting Ltd
SCIENCE DIVISION
COST CENTRE STAFF £
SB (Conservation & Genetics) A XXX
B XXX
C XXX
D XXX
TOTAL STAFF COSTS FOR OBJECTIVE BY SB XXXX
TOTAL COSTS FOR COST CENTRE SB XXXXX
SF (Floristics) E XXX
F XXX
G XXX
TOTAL STAFF COSTS FOR OBJECTIVE BY SF XXXX
TOTAL COSTS FOR COST CENTRE SF XXXXX
TOTAL COST FOR RBGE XXXXXX
STRATEGIC OBJECTIVES A01 BIODIVERSITY
A02 COLLECTIONS
MANAGEMENT
A03 VISITOR
ATTRACTION
STAFF TIME (%) TIME (%) TIME (%)
A 25 35 10
B 50 50 -
C 10 20 -
D 20 15 10
TOTAL STAFF COST ON EACH OBJECTIVE XXXX XXXX XXXX
TOTAL FINANCE COST ON EACH OBJECTIVE XXXX XXXX XXXX
TOTAL COST ON OBJECTIVE BY SB aaaa XXXXX XXXXX
E 70 20 -
F 30 20 -
G - 10 -
TOTAL STAFF COST ON EACH OBJECTIVE XXXX XXXX XXXX
TOTAL FINANCE COST ON EACH OBJECTIVE XXXX XXXX XXXX
TOTAL COST ON OBJECTIVE BY SF bbbb XXXXX XXXXX
TOTAL COSTS FOR EACH OBJECTIVE aaaa+bbbb XXXXXX XXXXXX
COST ALLOCATIONS
Macnab Consulting Ltd
Matching Costs (proxy for effort) to Objectives/KPIs
Strategic Objective Costs can be reconciled to Cost Centres for budgeting purposes
INFORMATION FLOW
Macnab Consulting Ltd
OUTCOME COSTING MODEL
Total general ledger quantum of cost
Direct resource 1 Direct resource 2 Direct resource 3 Direct resource 4Overheads applied to resources based
on ABC
Activity 1 Activity 2 Activity 2 Activity 3 Activity 3
Output 1 Output 2 Output 3 Output 4
Outcome 1 Outcome 2 Outcome 3Outcome measures
Macnab Consulting Ltd
RBGE Model
Macnab Consulting Ltd
EXAMPLES OF OBJECTIVE COSTING – RBGE – Apr – Dec 14
Macnab Consulting Ltd
To develop a format for reporting this information.
Macnab Consulting Ltd
Directors Report:
Summary:xxxxxxxxxxxxxxxx
Highlights:
xxxxxxxxxxxxxxxxx
Areas of Concern:
xxxxxxxxxxxxxxxx
Decisions:1.xxxxxx2.xxxxxxxxxx
Macnab Consulting Ltd
Visitor Attraction Activity Costs – October – December 2014
Macnab Consulting Ltd
To link individual government body performance outcomes and their related costs to national government performance outcomes.
Macnab Consulting Ltd
CONCLUSIONS
1. An operational system of outcome budgeting is viable.
2. Outcome budgeting links resources to performance.
3. Outcome budgeting allows government spending to be identified with desired national outcomes.
Macnab Consulting Ltd
Scottish Government Requires Value for MoneyPublic Services: “are high quality, continually improving, efficient and responsive to local people's needs”:
“The quality of public services and the way in which they are delivered has a major impact on Scottish society and the overall performance of the Scottish economy.
Better and more efficient public services enhance our quality of life, support sustainable economic growth and assure those that fund and rely on them that their public services are responsive, provide value for money and are continually improving.”
Macnab Consulting Ltd
NAO – VFM Model
Macnab Consulting Ltd
How do we Assess Effectiveness and Economy?
Effectiveness: assess - KPIs, KRIs, and KIPAs.
• Attainment represents the desired outcome - proxy
for value.
Economy (cost)
• Use outcome costing as the basis for deriving
relevant costs.
Macnab Consulting Ltd
Outcome Cost- Effectiveness Analysis
• “rate of change of costs c/w rate of change in outcomes”
• If outcome delivery (indicators) increases at faster rate
than cost of resources allocated,
• or if resources cost decreases at faster rate than
outcomes delivery reduces,
• then cost-effectiveness increases.
• Obviously, the converse is true.
Macnab Consulting Ltd
Example of Outcome
Cost-Effective Analysis
Macnab Consulting Ltd
Year 1 Year 2 Year 3 Year 4 Year 5
KRI 1 Herbarium Specimen Record Downloads 206,860 210,000 270,000 320,000 375,000
KRI 2 Number of Herbarium Specimens Digitised and online 247531 275000 295000 315000 335000
KRI 3 Percentage of Library Collection available digitally 1 2 5 10 10
KRI 4 Number of Gold Standard samples in the DNA bank 0 96 192 384 576
cost National Collections Cost 2,555,530 2,597,160 2,664,780 2,565,650 2,597,850
Macnab Consulting Ltd
average of all KRI Normalised scoresOutcome cost effectiveness score = ------------------------------------------------------------------------------------
normalised outcome cost score
Calculation of the C-E Score
Macnab Consulting Ltd
0.800
1.000
1.200
1.400
1.600
1.800
2.000
2.200
year 1 year 2 year 3 year 4 year 5
OUTCOME COST EFFECTIVENESS SCOREof our National Collections and Tourism & Recreation KRIs
National Collections
Visitor Attraction
Comparison of Cost-Effectiveness Scores of Two Outcomes
Macnab Consulting Ltd
<INTEGRATED REPORTING>
“A concise communication about how an organisation’s strategy, governance, performance and prospects…..lead to the creation of value over the short, medium and long term” (IIRC)
• Periodic - part of an existing communication – e.g. Annual Report
• Concise – filtered to include ONLY material financial and non-financial disclosures
Macnab Consulting Ltd
Macnab Consulting Ltd
How does Integrated Reporting <IR> help?
• Creates Value
• Provides increased understanding of long-term value drivers to enable better:
1. Strategy formulation
2. Decision-making
3. Business model implementation
Macnab Consulting Ltd
Tells the story:
• Of how value is created – internally and externally
• Succinctly – wins trust/secures reputation
• Encourages better relationships with stakeholders
Macnab Consulting Ltd
Involves employees
Macnab Consulting Ltd
Outcome Costing:
• Provides information linking resource use and
performance achievement.
• Useful for strategic planning, governance, and
management.
• Plays a role in external stewardship-oriented reporting.
• Valuable in making assessments of how an entity has
been managed and whether VFM is being attained.
Macnab Consulting Ltd
Outcome Cost-Effectiveness Analysis
• Assesses the relative use of scarce resources,
• Improves public sector value for money,
• If appropriate management action is taken.
Macnab Consulting Ltd
THANK YOU!
Macnab Consulting Ltd
Alasdair Macnab +44 7900245467
Lunch
Please return for start at 1.50pm