Many companies measure their progress against annual objectives through profit and loss (P&L) reporting and a business performance measurement (BPM) tool. In many cases, this tool is a scorecard summarising the key P&L and balance sheet numbers. Is this enough? What does an effective BPM process look like? And how can FP&A support its efficiency? These are the 6 things that will make or break your BPM process.
1. A defined company business plan
Measuring business performance should not merely involve selecting key indicators, such as sales, and cascading them down the company structure. Neither should it involve only reporting the actual performance of these numbers against budget through a green-yellow-red flag system.
Rather, an effective BPM should be based on the company’s annual business plan. The company business plan should therefore include quantitative and qualitative goals.
Quantitative goals should reflect the company’s operational objectives and be derived from the yearly budget. Qualitative goals should reflect the company’s strategic priorities. A limited number of strategic priorities helps business units focus on an achievable amount of actions and maximises their chances of success.
2. A consistently deployed business plan
During my career, I have seen cases where different departments within the same company were pursuing objectives that conflicted with one another. As a result, achieving these objectives led to contradictory effects which were detrimental to the company’s overall strategic goals.
On the other hand, I have seen a positive example where a process called business plan deployment (BPD) was used to roll out the company’s priorities and objectives. This process originated in lean manufacturing and can be scaled to a whole company.
First, top management needs to agree on clear company goals for the year. Then, all levels of the organisation take these goals and translate them into their own objectives. At each level of the organisation, the set objectives must support those of the next level up.
3. Involvement of all employees
In each part of the organisation, specific goals should be assigned to specific individuals. In order to achieve broad-scale engagement, these individuals should include managers.
By assigning each goal, the selected individuals can better understand their personal contribution to the company’s overall goals. They can also develop a stronger connection to the objectives and become more committed to delivering them.
4. High visibility
Publication of periodic results is not enough to make target progress tangible to all departments. An effective business performance measurement process requires a visual representation of each department’s business plan.
In other words, a board of the departmental business plan should be placed where the team can gather around it. By doing so, all team members can get a grasp of the department goals. Confidential quantitative objectives can be shown as indices, to avoid disclosing sensitive data to potential visitors.
Remote working teams should, in turn, implement virtual boards which can be made accessible on shared directories of the company network.
5. The right tools
For quantitative objective measurement, key performance indicators (KPI) should first be selected and monitored on a scorecard. In case of deviations, the scorecard should additionally contain corrective measures assigned to specific people. I have successfully experienced this method, known as Plan-Do-Check-Act (PDCA), in the manufacturing environment. Since it involves a compelling call to action for each measure, this method is also appropriate for general business performance management.
To measure the achievement of strategic priorities, specific actions and milestones should be monitored using a light version of a project tracking tool. As with the scorecard reporting, actions supporting the priorities should be assigned to specific people. Clear due dates should also be defined.
6. Driven by finance
Since the FP&A team is typically responsible for the budgeting and reporting process, it should also own the business performance management process.
At all levels where the company business plan is deployed, the respective finance manager should participate in the definition of the priorities and objectives. Finance should also set up the scorecard and strategic priority tracking tool.
During the year, finance should maintain both a realistic scorecard and a strategic priority report that are free of wishful thinking. Finance should also conduct scorecard and priority reviews with the management team. Specifically, these reviews should verify the execution of the actions required to achieve the unit, and therefore company, goals.
The article was first published in Unit4 Prevero Blog