How Leaders Use Benchmarks and Best Practices to Transform Finance

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How Leaders Use Benchmarks and Best Practices to Transform Finance



#CFOD13Process Improvement in Finance:Transformation for Delivering Higher Value to the Business

Mary Driscoll, APQCSenior Research Fellow

©2012 APQC. ALL RIGHTS RESERVED.



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Welcome and Introductions…this is where you get to participate.




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Who is APQC……and why you should care.




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Who We Are

APQC is a member-based, 501(c)3 nonprofit specializing in benchmarking, knowledge management, measurement, and process improvement.

Our mission is to work with organizations around the world to improve productivity and quality by:

discovering effective methods of improvement,

broadly disseminating findings, and

connecting individuals with one another and with the knowledge they need to improve.




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APQC’s Core Competencies

Frameworks and maturity models

Benchmarking and best practices

Knowledge Management

Process improvement and measurement

Metrics and measures




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Getting Started…Why benchmark finance? What is involved?




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Where Did the Word “Benchmark” Come From?

First used by cobblers to measure people's feet for shoes.

They would place someone's foot on a "bench" and mark it out to make the pattern for the shoes.

You can see how this term has evolved to be used in business today.

Source: Wikipedia




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Benchmarks and Benchmarking

How much to improve

Standards and/or measures

Benchmark

How to improve

Best practices and/or what

works

Benchmarking




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Informal Definition

Benchmarking is the practice of being humble enough to admit that others are better at something and being wise enough to learn how to match, and even surpass, them at it.




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Best Practice/Practice

Methods and techniques that have consistently shown results superior than those achieved with other means

Used as benchmarks to strive for, however:There is no practice that is best for everyone or in every situation

No best practice remains best for very long as people keep on finding better ways of doing things




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Typical Benchmarking Life Cycle

“I want to see how I compare.”

“I don’t believe it, let’s compare again.”

Wash, rinse, repeat. (for the really stubborn)

“OK, I give up, how are they able to perform that way!?!?!?!”

Practices

Metrics




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Discussion Point

Who has documented any, most, or all of their key finance or accounting processes?

Who uses an external process or business frameworks?




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Process Classification FrameworkAPQC’s Process Classification FrameworkSM (PCF) is a taxonomy of business processes that allows organizations to objectively track and compare their performance internally and externally with organizations from any industry.

Built and regularly updated through collaboration with experts, practitioners, consultants, and academicians.

Most downloaded document.

Developed in the early 1990s

Used for many purposesBenchmarking

Standardization and measurement

Governance and accountability

Managing key functions and entire organizations




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Easy Access: www.apqc.org




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PCF Details




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APER Example

What is the value in this type of inventory?




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Valuable!

Value Shows When You Make It Yours

REALLY VALUABLE!




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Selecting Measures…… Quantifying process productivity




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Cost Effectiveness

Provides information concerning how well operating cost are managed. Key performance indicators usually include:

Cost per unit (e.g., invoice, check, and square foot)

Cost as a percentage of revenue

Cost as a percentage of total budget (e.g., accounts payable cost as a percentage of total F&A cost)

Actual cost versus budgeted cost

Supporting indicators usually include cost components as a percentage of total.




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Staff Productivity

Provides insights into how much output each full-time equivalent (FTE) employee has produced. Key performance indicators usually include:

Units of output (e.g., invoices and purchase orders) per FTE

Workload (e.g., customers and general ledger accounts) per FTE

Supporting indicators usually focus on factors that influence staff productivity such as hours of training per FTE and employee tenure.




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Process Efficiency

Provides insights into how well procedures and systems support operations. Key performance indicators usually include:

Error rate (i.e., rework rate)

Forecast accuracy rate (e.g., actual vs. forecast and non-cost measures)

Supporting indicators usually focus on factors that influence process efficiency such as system downtime rate and the degree of process automation.




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Cycle Time

Indicates the duration to complete a task. These Key performance indicators are measured in units of time (e.g., hours, days, and months) and usually include:

Processing time

Time to resolve customer inquiry

Supporting indicators usually focus on factors that influence cycle time such as the frequency of system breakdowns.




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Examples of Top vs. Median Performance

Source: APQC.

AP Efficiency Indicators:% of invoice line items received electronically (23) 50.0% 20.0% % of invoice line items matched the first time (21) 74.8% 60.0% Number of disbursements per FTE (24) 11,299 7,478 Number of invoice line items per FTE (24) 47,825 28,936 Number of invoices per FTE (25) 12,593 8,125

AP Costs:Personnel cost per process FTE (22) $47,532 $63,916Total cost as a % of revenue (20) $0.010 $0.015 Total cost per $1,000 revenue (21) $0.10 $0.14

Total cost per disbursement/payment (21) $9.64 $12.61

Number of peers providing data Top Median

Insurance Industry




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Data Reporting

Synthesizes analysis into concise and relevant findings.

Display findings using graphs, tables, and narration.

Measurement reporting should be clear, concise, and most of all visual.




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Benchmarking Peer Groupings




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Applying Judgment and Experience




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Financial Management Excellence




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Most Important Goal for a Major Process Improvement Initiative

72.41%

15.86%

11.03%0.69%

Both efficiency and effectivenessEfficiency (improve finance cost/produc-tivity profile, accelerate cycle speed, reduce error rates)Effectiveness (deliver more effective analytical support to the business)Don’t know

N = 145




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Most Popular Targets for Finance Process Improvement

78% Plan, budget, forecast/analyze, re-plan

72% Close/consolidate/report

70% General accounting (any sub-process)

50% Accounts payable transaction management

46% Working capital management




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Look at Correlations

Think through how performance in one area relates to performance elsewhere

Give the information context and a gut check.




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AP Performance Gap: Best vs. Worst

29 firms 29 firms

29 firms 29 firms

Percentage of invoice line items matched the first time

36%

85%--99%

116 companies with > $1 billion in revenues




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Total Cost of AP per Number of Invoices Processed Annually

Bucket 1 Bucket 4$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00 $5.43

$2.84

Median Figures

Median

Source: APQC Open Standards Benchmarking




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Cycle Time in Days Between Completion of Quarterly Consolidated Financial Statements and the Release of Earnings

Cycle Time in Days between Completion of Quarterly Consolidated Financial Statements and the Release of Earnings

Figure 12

6.0

15.0

20.6

10.0

15.0

23.5

12.0

20.0

30.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Top Performers Median Bottom Performers

SSCN = 25

HQN = 64

BUN = 107




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Percentage of Business Entity’s Inter-Company Transactions Processed by Automated Systems

SSC HQ BU0

10

20

30

40

50

60

70

80

90

100

65%

30%23%

95%

50%

60%

MedianTop

Source: APQC Open Standards Benchmarking




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Total Cost of Financial Reporting Per $1,000 in Revenue

Top Performers Median Bottom Performers$0.00

$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

$0.11

$0.23

$0.57

All Industries, Revenue greater than $1 Billion N = 148




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The Faster Close Costs Less

The Fastest: Quarterly Cycle TimeN = 49

The Slowest: Quarterly Cycle TimeN = 42

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

Bottom QuartileSource: APQC




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Part 3: Discover Best Practices……the “how” is just as important as the “how much.”




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Qualitative Information

Tells the “how” story

Focuses on the critical success factorsWhat allows companies to perform in a stellar manner?

People?

Process?

Technology?

Culture/Leadership?

How companies close thegap in performance




#CFOD13The idea is to isolate and analyze operating metrics and patterns that drive financial outcomes. This case study explains how the CFO works with business managers to understand and influence interactions between financial and non-financial variables, all with the intention of generating best-possible financial results for the enterprise.

http://www.apqc.org/knowledge-base/documents/new-cfo-turbocharges-revenue-modeling-using-bi-tools-and-techniques-aapa-ca


CFO Turbocharges Revenue Modeling Using BI Tools and Techniques: AAPA Case Study









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Gap Assessments to Light the Path to Financial Management Excellence

Manpower Group




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Manpower’s Approach to Finance Transformation




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The Effective Finance Charter: Intel

Link finance actions to the enterprise’s goals and needs

1. Keep Intel legal worldwide and maintain the highest standard of integrity

2. Maximize and grow profits by exercising business expertise,

independence, influence and leadership

3. Provide efficient world-class services

4. Protect shareholder value through effective risk management and control

5. Develop world-class finance professionals




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The Effective Finance Charter: OCC

Strategic Goals Come to Life with Annual Action Plans

1. Embrace accountability for the success of the business strategy

2. Anticipate customer needs through a better understanding of

their business

3. Ensure processes are operationally excellent

4. Be recognized as leaders in effective program and project

management

5. Optimize costs in delivering products and services




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Summary: Critical Success Factors

Alignment of financial management to overarching corporate objectives

Move to a more IT-savvy financial employee base who can manipulate/analyze large amounts of data

Formal training regimen to embed “business influencing” skills: analysis, negotiation, collaboration, etc.

Standardized and clearly communicated financial close process with associated due dates and gates

Process management principles and techniques

What else? Discussion?




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http://www.apqc.org/knowledge-base




#CFOD13Thank You!Process Improvement in Finance:Transformation for Delivering Higher Value to the Business



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