This article focuses on the importance of process improvements and KPIs.
How do you create a best-in-class process? And how do you implement it across the organization? These are some of the questions that may come to mind when thinking about process improvements. Our organization changed the monthly reporting as well as the monthly financial process, and the analysis process has become more effective. Prior to the changes, the financial statements were emailed out to the executive team, and some questions were emailed back to the controller. Our first step of the process was to whiteboard what the purpose of the meeting was and what we each wanted to achieve from the meetings. The second step was to determine the areas that impacted our decision-making and ascertain if the data exists. The team mapped out a plan to make changes to the process, document it, and review it. Once every member was on board, we proceeded to assign tasks, and set a timeline. Since then, our organization has continuously pushed not to be complacent in meetings but strive for constant improvement.
The most significant question you can ask yourself is why? The executive team felt it must be changed in order for the organization to improve its decision-making and to ensure that decisions were being made on accurate information. Previously, each of the executives would review the financial statements and come to different conclusions without any discussions about it. Also, the decisions were made without having data to analyze and no way to determine the success. There were also no KPIs or goals to track the success or failures of the strategies and initiatives; therefore, it was evident that changes in the process were necessary to succeed.
The following phase was to determine the KPIs that were most important to the organization, and a list was made. Some of the measures could not be calculated, such as an international gross profit, departmental gross profit, or renewal rates on maintenance and support. Hence, there was a brainstorm meeting to discuss the allocation of the general ledger data with a goal to calculate the KPIs efficiently. This was documented, manually tested, and then the allocations were built within the software. The allocation calculations were based on headcount, square feet, international revenue, and allocation of executive time to departments, but also the majority of salaries and benefits to cost of sales were moved in order to calculate a gross margin for each department. The departmental income statements can be viewed and analyzed either pre-allocation or post-allocation, allowing managers to review their department’s EBITDA prior to allocation or view the gross margin after allocation. The gross margin after allocation enables managers to concentrate on improving efficiencies, and they use it as a tool for hiring practices.
Afterwards, there was a need to add data, which mostly concentrated on revenue detail and the way it was being booked. The accounting department went through a thorough validation each month to ensure that each detail line item had the correct information and provided thorough revenue analysis.
There was enough data to calculate the KPIs and manually create them in Excel to ensure that they were reasonable. The executive team created the KPIs in the reporting tool, created the dashboards, and validated the values to ensure correctness. The KPIs were the first item that were reviewed by managers and executives during our monthly analysis meeting. This is analyzed and reviewed prior to examining the detail reports, such as the income statements, balance sheet, sales by person, and accounts receivable.
The departmental managers also now have a monthly process to review their financials. Previously, it was sent to them with no discussion, and KPIs were never even discussed with the departments. The accounting department reviews variances and documents the reasons for the variances like increased commission payments, lower revenue due to a low bill rate, and higher support renewals due to a marketing campaign.
The entire management team now is informed to make effective decisions and is held accountable to the data during the monthly analysis. Some of the data, such as revenue, can be viewed on a daily basis, and others, such as financials, are viewed on a monthly basis. The process derived is detailed in a calendar that the management team has access to.
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