We recently held a webinar titled “Artificial Intelligence for Financial Executives” where you can find a recording and a poll showing very high alignment with the role CFOs/Financial Executives need to play. In his March 2023 GatesNotes post, Bill Gates said, “The development of AI is as fundamental as the creation of the microprocessor, the […]Continue reading
KPIs – Are We Measuring the Right Stuff?
Over the years as a CFO, I have seen a bazillion KPIs—usually in the form of graphs and/or tables of numbers & ratios known as key performance indicators (“KPIs”). Lots of graphs can impress the reader and it may APPEAR that the financial folks are really “on it” when it comes to measuring stuff. Sometimes, it’s accurate—the Financial team IS “on it”.
And sometimes, we (financial folks) are not “on it”.
We are often guilty of providing only outcome measures (trends in sales, margins, profits, and plenty of other P&L and Balance sheet measures). What is often (frankly, usually) absent is measurements of the input activities that produce the outcomes.
What’s the difference? Well – there’s a huge difference.
Outcome KPIs/measurements are not actionable. In sports terms, it’s the final score. On the other hand, input/activity measures reflect the actions that we can work on to produce the outcomes we measure and set as goals—often tied to incentive plans too.
Here are just a few examples of inputs/activities that can produce more revenue:
- Number of customer calls made
- Number of quotes/proposals issued
- Various marketing activities
- (I bet you could add plenty more)
What I generally see is organizations discussing all the things they need to do to improve the outcome KPIs they are producing, but not documenting/tracking the actions as KPIs themselves. It’s just easier to track outcomes, no doubt. If you cannot show activity KPIs, how do you know what is causing or preventing outcome KPIs going up or down?
I recommend that every organization review their KPIs at least annually to determine which actionable input KPIs they are tracking behind the outcome KPIs they measure. This way we can better connect cause and effect and understand what produces better outcomes with more than anecdotal commentary—but cold, hard facts supported by data.
Look at all the stats (inputs) football teams track to determine what is producing more points scored and fewer points allowed. It’s a good example for organizations to follow.