Measuring Performance: Linking Money to Mission Rebeka Mazzone, CPA
Accounting Management Solutions, Inc. www.amsolutions.net
June 23, 2010
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Measuring Performance: Linking Money to Mission Rebeka Mazzone
Accounting Management Solutions, Inc. June 30, 2010
About Us
• For more than a decade, Accounting Management Solutions, (AMS) has provided accounting support and financial management leadership at the consulting CFO, controller and accounting manager level to dynamic companies throughout the Northeast.
Objectives
• Discuss why scorecards are important
• Learn how scorecards are used as a form of measure
• Understand the differences between scorecards, KPIs, dashboards, benchmarks
• Getting started
Characteristics of Effective Financial Reporting
• No surprises for management – paralyzed by indecision
• Link to strategic plan • Plan linked to budget
• Measures: Key Performance Indicators (KPI) based on strategy
• Easy to understand
• Meaningful information
What do reports tell us?
• Strategic plan – Where do we want to go?
• Budget – How do we plan to get there?
• Statement of Activity – How did we do?
• Statement of Position – Where are we now?
• Statement of Cash Flow – How did we use our money?
• Cash Flow Projection – Do we have enough to get us there?
Understanding the Financial Condition
• Reports should be designed for the audience.
• There are 4 levels of reporting:
1. Transaction Detail – Finance Department/Department Managers
2. Detailed Financial – Finance Department/Department Managers
3. Management Financial Summary – Exec. Director/Finance Committee
4. Board Financial Summary – Full Board
Too much detail prevents users from focusing on the risks and opportunities.
Benefits of Scorecards
• Power to capture relationship between financial and non-financial data
• Ability to predict and manage future outcomes • Effectively present financial data to non-financial
people
• Drive strategic objectives throughout organization down to individuals
• Align business activities
Example: Revenue and Expense
Example: Revenue and Expense Per Student
Example: Revenue and Expense Per Student
Example: Revenue and Expense Per Student
EXAMPLE: Organizational Scorecard
Key Performance Measures: Non Programs
Going to School on Performance
• Balanced Scorecards = Grade Point Average
• Dashboards = Report card
• KPIs = Class grade
• Benchmarks = Class rank
Inputs & Outcomes
GETTING STARTED
Getting Started
Create a Cross-functional Team
• Project Champion • Clear leadership to drive vision
• Core Leadership Group • Assess core processes
and programs
• Limit team size
• Team orientation
• Requires long term commitment
Understand Your Audience
• Who will be using the scorecards?
• What impact do scorecards have on resource allocation and program decisions?
• What is the key information they need to understand to make strategic decisions?
Achieving strategic goals is the priority
Create Buy-in and Ownership
• Top leadership support
• Cross functional / representative teams
• Keep an open dialogue during planning stage
• Keep the process transparent
Enterprise Performance Management System (EPMS)
Board & Executive Director
Executive Director & Departments
Departments & Individuals
360 Review
Departmental Scorecards
VISION / MISSION
Organizational Scorecard
Starting Point
1. Examine mission and strategic plan
2. Set goals tied to your mission
• Short-term
• Long-term
3. Remember: Change takes time
What is the Goal?
• Organization-wide scorecard • Used to drive strategic plan objectives
• Departmental scorecards • Informed by Organization-wide scorecard
• Is generally division-specific (e.g. responsibilities and measures are unique to each department)
• Individual Performance Reviews • Align individual performance to organizational goals
“Measures start with a top down approach, but ultimately some will rise up from individual plans”
Strategic Goals & Objectives
Deciding What to Measure
• Mission and program effectiveness
• Anticipated growth • Benchmarking / peer
comparison
• Major financial statement line items and ratios
• Consider the relationship between money and people
Deciding What to Measure: External Drivers
• Legal & compliance
• Public perception • Going green/sustainability
• Safety
• IT
• Competition
• Facilities • Remaining life • Capacity
• Square foot per student
• Consumer satisfaction • Cost per square foot
(maintenance, utilities)
Deciding What to Measure: Four Pillars
• Financial measures – create value
• Profitability by program • Ability to meet obligations • Budget success
• Human Capital • Staff/Consumer Ratio • Staff cost per individual
served • Quality of programs/
education • Diversity ratios
• Operational Capacity • % time building /
classrooms occupied
• Consumer satisfaction (Individuals/donors/ grantors)
• Retention
• Completion Rates • Cost of success rates (link
$ to outcomes)
List and Prioritize – Critical
LOW HIGH
HIGH
Value to Institution & Mission
Value to Customers
No Value to Mission or Customers
Strategic Objectives: Example
Mission:
To assist low-income adults in realizing their full potential through literacy, employment, advocacy and community involvement.
Strategic Objectives: • Enhance the delivery of services by building on
the diversity of student strengths. • Expand the scope and array of our
educational services.
• Expand the base of our advocacy in the state and community for adult basic education.
Strategic Drivers: Example
• Increase service area by 10% over the next 3 years
• Enhance the Organization's admissions and marketing efforts
• Expand the “family service” continuum to better support parents.
• Establish operating reserves
• Determine the effectiveness of our programs and services through evaluations and outcomes studies.
Organizational Scorecard
Key Performance Measures: Programs
Individual Programs
Quantity
Quality
Organizational Scorecard
Key Performance Measures: Non Programs
Four Pillars
Goals: linked to budget
Operating Income (loss) by department
Change in Revenue per Student
Change in Expense per Student
Avg. # Students per FTE
360 Leadership Assessment
360 Performance Review
What should measures look like?
Key Performance Indicators (KPIs)
Scorecard Example
Exceed Goal
Goal
Moderate
Risk
Key Performance Indicators
• KPIs can be both quantitative and qualitative
• Cannot simply be the money
• Programmatic outcomes are the mission
• Finance is the backbone
• Need to trend over time
Key Performance Indicators (cont’d)
• KPI Review Cycle • Annual scorecard
• Quarterly scorecard
• K.I.S.S. • Simple to operate
• Simple to understand
• Simple call to action
Review Data For…
• Reliability
• Accessibility / availability
• Accuracy
• Timeliness – past is used to set future goals
• Communicability – Does your audience understand it?
Challenges
• Year One: • Benchmark year
• Lots of information not available
• Goal – prioritize and focus
• Year Two: • Measurement tools in place
• Review measures
• Ongoing: Reassessment
Some measures might not be available each year
Keys to Success
• A strategic plan and leadership support
• Clearly defined goals & organizational priorities
• Transparency across the organization
Do You See Any Benefits?
• Easier to understand – 1 hour Board meeting • People outside of finance can now understand • Ties money to outcomes to measure effectiveness • Ability to monitor outcomes over time • Monitor opportunities for
improvement • Better ability to
communicate value
Benefits
Cautions!
• Visions must be aligned • Independent of any one
department • Sustained effort • Start small • Project manager vs. project
champion • Consistent measures/valid
data
Next Steps
• Measure key executive performance
• Each department/division to implement
• Share this with staff; help drive goals and measures
• Data warehouse – move from Excel to database
For More Information
• Rebeka J. Mazzone CPA, Director Rhode Island Region Accounting Management Solutions, Inc. [email protected]
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