Many owners/members of the management team do NOT have the time or the interest to review a significant amount of financial information each month but need to be aware of what is going on as well as potential problems and opportunities as they arise.
Effective finance people can keep these individuals aware and involved by producing a short, but insightful monthly report normally referred to as KPIs – Key Performance Indicators. They also “get out” into the functions to both understand and to help drive these KPIs to make sure the financial results are clear and tied into financial/budget goals, that the KPIs are achievable, and that they understand them well enough to serve as a consultant to the functions and monitor progress regularly.
The KPI report can be available prior to or consistent with the monthly financial reporting and is a combination of financial and operational information that reflects the “good health” of the business relative to orders, backorders, stock levels, collections, lead time fulfillment, jobs started and completed, operating efficiency measures and other goals. KPI reporting is NOT a detailed financial analysis, but largely a recounting of “leading indicators” of the vitality of the business as defined by the management team goals.
Problem areas regarding KPIs:
- Finance does not know the business well enough to develop meaningful KPIs.
- Finance does NOT communicate within the company to have access to this information.
- Finance is unable to communicate effectively with senior management
- Finance is purely limited to what “happened” and not what will be happening.
- Finance doesn’t get out into the functions to help drive KPI clarity, results vs. budget/goals, and progress