Financial KPIs and Dashboards: Picking the right metrics to measure your company’s performance

by Daniele Tedesco

In my 15+ years of FP&A experience, I’ve seen the role of CFOs and finance teams change profoundly.

Today, being a finance professional means much more than just being a bean counter; modern CFOs are expected to play an active role in setting company strategy and need to be able to implement financial approaches that drive real value for their organizations.

These new responsibilities are a bit of a double-edged sword; on one hand, they offer exciting opportunities for CFOs and their teams to go beyond the textbook definitions of their roles and become active players in steering the company ship. On the other hand, however, they also force us to face challenges that our traditional finance training may not have prepared us for.

That’s exactly why we’ve launched Apliqo’s new Masterclass series with Jack Alexander; to help both new and experienced finance professionals grapple with the challenges and changes of their evolving roles.

In our previous Masterclasses, we explored the effects of COVID-19 on FP&A, the benefits of Scenario Planning, and communication and presentation tips for finance professionals.

In our upcoming Masterclass, Jack Alexander will show you how to set the right KPIs to track and measure your company’s performance.

The pitfalls of performance management

Measuring and reporting on a company’s financial performance is the backbone of traditional FP&A. However, this seemingly straightforward and obvious responsibility is an area I see even experienced finance professionals struggle with.

Generally, I see companies fail at performance management in the following ways:

  • They measure everything. The simple reality is that not every metric of your company’s operations is a key measure of its success. Unfortunately, I’ve seen even experienced managers at important companies fall into the trap of tracking too many metrics.

  • They’re not specific enough. Another pitfall commonly undermining companies in their ability to measure their performance is a lack of specificity. Picking and tracking the right KPIs is a balancing act that requires you to dive deep enough into key areas of your business without getting lost in a sea of data.

  • They’re detached from the company’s goals. There is no one-size-fits-all approach to performance management. Your company’s KPIs need to be directly derived from its strategic goals, and while the KPI sets from different companies may overlap on a few metrics, your approach to measuring your company’s performance needs to be tailored to its goals.

Picking the right KPI set

In order to improve your team’s approach to performance management, you need to lay down a framework that ensures you’ll be measuring the metrics most appropriate to your business and its goals. To do that, it helps to ask yourself this million-dollar question:

Where does our company see itself in both the short and long term?

Asking and trying to answer this question immediately forces you and your team to head back to the drawing board and revisit your company’s strategy…

Asking this question also immediately projects you into a position where you’re playing an active role in guiding your company’s future. I’ve written about this in my past posts, but it’s just as important here: Unfortunately, the accounting mindset is a stumbling block undermining today’s finance professionals.

If you’re reading this, chances are that (like me) you received a pretty stock-standard finance education; one that taught you to be a bean counter more than a strategist. This mindset instilled in many of us during our formative years can make it difficult for finance professionals to break out of their shells and see their work as more than just “a finance drill.”

The exact way you review and restructure your company’s approach to performance management will obviously depend on the nature of your business. However, some common areas of improvement I’ve seen apply to many different scenarios include:

  • Asking the right questions. Nothing is more useless to performance management than asking close-ended questions that encourage a simple “yes or no” answer. Remember that the goal of performance management is to track progress, and the best way to do that is through the use of open-ended questions that encourage reflection and invite discussion. Try asking “how well are we managing our budget?” versus “did we meet our budget?”

  • Focusing on consistent, recurring KPIs. Larger companies often encompass a variety of different business units. In order to accurately measure the progress of the entire organization, your KPI set needs to be aligned across these different business units, allowing you to compare and contrast their success. Your KPIs also should be recurring, meaning they allow you to track and measure your progress on a regular basis.

  • Having a healthy mix of leading and lagging KPIs. Lagging indicators show us whether we’ve been successful in the past, whereas leading indicators help us foresee whether we’ll be successful in the future. Looking at a dashboard riddled with lagging indicators makes it very difficult to positively influence your company’s future. In my experience, most organizations use KPI sets made up almost entirely of lagging indicators.

  • Being efficient! If you need to invest in an entirely new ERP system to collect the data needed to analyze your company’s performance, chances you’re on the wrong track.

For more tips on tracking and measuring the right KPI set for your company, make sure to save your seat at our upcoming Masterclass with Jak Alexander on Thursday, May 27th, 2021. With over 40 years of financial leadership experience, Apliqo is proud to count on Jack’s support in bringing you these exclusive classes designed to help you embrace the challenges of your evolving role as CFO.