‘Best Practice Board &

Management Reporting:
Developing Your
KRA – KPI – KPM Hierarchy
John Petty, FCPA, FCA
Previously Australia’s Representative on International
Federation of Accountants (IFAC),
Professional Accountants in Business Committee
john@pettypresentations.com.au
0417 367 951
 New Governance Model for
Reporting to Boards
"Often directors are reluctant to agree to receive less
information. They feel they need to know.
I think it's a mistake, because ultimately boards will be
footed with liability for those smoking guns that might be
buried in the bottom of a 50-page report that no director
has enough time to absorb in the time available and
review critically.
We've worked hard to reduce the amount of material and
keep it focused on the strategic, important issues."
 New Governance Model for
Reporting to Boards
“Far too much in too many papers, and far too much of it
not focused on board-level policy land strategy".
"There was a great tendency to feed up to the board far too
much detail for want of knowing what the right balance
was between the role of board, management and the
risks involved.
In the last year I've worked with the executives to refine and
reduce the amount of material. Literally we were being
swamped with paper."
Graham Bradley, Chairman, Stocklands, HSBC (Aust),
Director, Singtel and Queensland Investment Corp
 New Governance Model for
Reporting to Boards
A leading company director say some Australian
boards are now limiting the amount of information
they allow to "filter up" from management and the
committee processes on corporate governance
issues, leaving more time for the directors to
concentrate on what really matters - strategy.
GO FOR IT!!!
My Message Today:
NEW DAYS
NEW WAYS
 NEW MEASURES
 NEW REPORTS
 EY ‘MEASURES THAT MATTER’
“In today’s volatile markets, a company’s
non-financial performance, namely its
ability to identify, demonstrate and
communicate value in its intangibles, future
growth platforms and strategic options, is a
key differentiator for investors, almost
irrespective of short-term cashflows and
tangible assets. And the greater the
uncertainty, the greater the significance of
non-financials to investors’ decision-
making as leading indicators of future
financial performance.”
 EY ‘MEASURES THAT MATTER’
The Top Ten MTM: (in order)
1. Execution of Corporate Strategy • STRATEGY
2. Quality of Corporate Strategy • MARKET
POSITION
3. Market Position
• MANAGEMENT
4. Management Credibility • INNOVATION/
5. Innovativeness RESEARCH
6. Management Experience • PROCESS
7. Research Leadership • PEOPLE
8. Quality of Major Business Processes
9. Global Capability
10. Ability to Attract & Retain Talented People
Where is ‘FINANCIAL’ Result??
 CIMA
Six BPM Dimensions Model
Competitive Performance - against competitors / other councils

Financial Performance - traditional measures, profits, cash

Quality of Service - to satisfy the residents, customers

Flexibility - ability to adapt / switch / improve

Resource Utilisation - productive use of resources

Innovation – ability to change / grow / develop

Exceptionally well accepted model

D im e n s io n s o f
P e r fo r m a n c e
C o m p e titiv e n e s s
F in a n c ia l P e r fo r m a n c e
Q u a lity o f S e r v ic e
F le x ib ility
R e s o u r c e U tilis a tio n
I n n o v a tio n
T yp e o f M easu re
R e la tiv e m a r k e t s h a r e a n d p o s itio n
S a le s G r o w th
M e a su r e o f C u sto m er b a se
P r o fita b ility
L iq u id ity
C a p ita l S tr u c tu r e
M a r k e t r a tio
R e lia b ility
R e s p o n s iv e n e s s
A e s th e tic s /a p p e a r a n c e
C le a n lin e s s /T id in e s s
C o m fo rt
F r ie n d lin e s s
C o m m u n ic a tio n
C o u r te sy
A ccess
A v a ila b ility
S e c u r ity
V o lu m e F le x ib ility
D e liv e r y S p e e d fle x ib ility
S p e c ia lis a tio n fle x ib ility
P r o d u c tiv ity
E ffic ie n c y
P e r fo r m a n c e o f th e in n o v a tio n p r o c e s s
P e r fo r m a n c e o f in d iv id u a l in n o v a tio n s
 Developing Your
KRA – KPI – KPM Hierarchy
KRA’s: Key Result Areas

KPI’s: Key Performance Indicators

KPM’s: Key Performance Measures

PERFORMANCE MEASUREMENT HIERARCHY:
RELATIONSHIP OF ORGANISATIONAL
HIERARCHY TO PERFORMANCE MEASURES
• Long-term shareholder wealth
• Return on investment PERFORMANCE
Company • Market value MEASURES
• Operating Profits
• Return on Assets
Group • Market Image

Shorter Planning Horizons

Increasing Specificity
• Market share
• Customer loyalty
Division • Target Costs

Emphasis on Cost
• Product design objectives
• Revenues

Performance
• Unit margins
Business Units • Product / process technology
• Component quality
• Obtain scheduled production
Plant or Branch • Achieve target costs
• Achieve target quality
• Attain scheduled production
Cell or Team • Minimise scrap
• Process quality improvement
 THE TRIFECTA:
BEING STRATEGIC & VIRTUAL
• 40% Abandoned / Refocused Budgeting
   Rolling Forecasts
• 40% One Day Reporting
   Virtual Close
• 74% Corporate / Balanced Scorecard
= 154%
= New Budget, New Reporting Time, New Score
“A major challenge for CFOs is helping to formulate and
communicate strategy, internally and externally – the market is
more discerning of a company’s strategy”
Steve McKerihan, CFO St George Bank
 NEW BUDGET FOCUS/APPROACH:
‘ROLLING FORECASTS’
2 4
1 Jan 1 July 30 June
The 90 day
6 X Quarterly Rests Deliverables
6 X Quarterly Rests
6 X Quarterly Rests

Bye Bye Budgeting… “The annual budget is dead. Long

live the rolling forecast.”
Annie Gurton, International Management Magazine
 Report On A Page (ROAP): The ‘A4’ Report
POSSIBLE INDICATORS:
FINANCIAL CUSTOMER INTERNAL BUSINESS INNOVATION, LEARNING HUMAN RESOURCES
PERSPECTIVE PERSPECTIVE PERSPECTIVE & GROWTH PERSPECTIVE PERSPECTIVE

Sales Revenue New Customer Enquiries Plant Utilisation No. of patent applications Serious Injury Frequency
Contribution Margin Cust Enquiry conversions Productivity No. of Product Launches Lost Time Accident
Gross Margin Return Customers System Downtime Time to market Absenteeism
Major Cost Dissections Customer Satisfaction Days Debtors - Punctuality Reports
EBIT Customer Complaints Days Creditors No of graduates employed Staff Sentiment/morale
PBT Customer Retention Stock Turn Capital spend Retention / Resignation Rates
PAT Customer Profitability R & M Spend - -
Cash Flow Customer Concentration Quality Rejects, Rework Number of Suggestions made-
Interest Cover Telephone response times Waste/efficiency Sales from new products -
Gearing (Debt/Equity) On time Delivery in Full Environmental Incidents No. Suggestions implemented Level of Training
Treasury Management Queue length - - Skills Index
Economic Value Add Market Share/growth - - Teamwork index
- Share Key Accounts as - - -
- Preferred Supplier - - Employee Buy In Index
- No Cooperative Jobs - - -
- Accounts outside credit terms - -
- Warranty/Credit Claims - - -
- - - - -
- - - - -
- - - - -
- - - - -
Report On A Page (ROAP): The ‘A4’ Report
POSSIBLE INDICATORS:

ENVIRONMENTAL SOCIAL/COMMUNITY ??

Fines for Infringement Donations made

Environmental incidents Community involvement
Recycled products No of local community projects
Energy consumption/efficency % staff female
Organic Waste management % staff underpriveleged/disadvantaged
New products/ packaging
Reduced water usage
Rehabilitation
Tree plantings
Wildlife management
Emissions
External complaints
Externally reportable incidents
Financial Focus Skandia
1. Total assets ($) Navigator
2. Total assets/employee ($)
3. Revenues/total assets (%)
4. Profits/total assets ($)
5. Revenues resulting from new business operations ($)
6. Profits resulting from new business operations ($)
7. Revenues/employee ($)
8. Customer time/employee attendance (%)
9. Profits/employee ($)
10.Lost business revenues compared to market average (%)
11.Revenues from new customers/total revenues (%)
12.Market value ($)
13.Return on net asset value (%)
14.Return on net assets resulting from new business operations ($)
15.Value added/employee ($)
16.Value added/IT employee ($)
17.Investments in IT ($)
18.Value added/customer ($)
Customer Focus
1. Market share (%)
2. Number of customers (#)
3. Annual sales/customer ($)
4. Customers lost (#)
5. Average duration of customer relationship (#)
6. Average customer size ($)
7. Customer rating (%)
8. Customer visits to the company (#)
9. Days spent visiting customers (#)
10.Customers/employees ($)
11.Revenue-generating staff (#)
12.Average time from customer contact to sales response (#)
13.Ratio of sales contacts to sales closed (%)
14.Satisfied Customer Index (%)
15.IT investment/salesperson ($)
16.IT investment/service and support employee ($)
17.IT literacy of customers (%)
18.Support expense/customer ($)
19.Service expense/customer/year ($)
20.Service expense/customer/contact ($)
Process Focus
1. Administrative expense/total revenues (%)
2. Cost for administrative error/management revenues (%)
3. Processing time, outpayments (#)
4. Contracts filed without error (#)
5. Function points/employee-month (#)
6. PCs and laptops/employee (#)
7. Network capability/employee (#)
8. Administrative expense/employee ($)
9. IT expense/employee ($)
10.IT expense/administrative expense (%)
11.Administrative expense/gross premium (%)
12.IT capacity (CPU and DASD) (#)
13.Change in IT inventory ($)
14.Corporate quality performance (e.g., ISO 9000) (#)
15.Corporate performance/quality goal (%)
16.Discontinued IT inventory/IT inventory (%)
17.Orphan IT inventory/IT inventory (%)
18.IT capacity/employee (#)
19.IT performance/employee (#)
Renewal and Development Focus
1. Competence development expense/employee ($)
2. Satisfied Employee Index (#)
3. Relationship investment/customer ($)
4. Share of training hours (%)
5. Share of development hours (%)
6. Opportunity share (%)
7. R&D expense/administrative expense (%)
8. Training expense/employee ($)
9. Training expense/administrative expense (%)
10.Business development expense/ administrative expense (%)
11.Share of employees under age 40 (%)
12.IT development expense/IT expense (%)
13.IT training expense/IT expense (%)
14.R&D resources/total resources (%)
15.Customer opportunity base captured (#)
16.Average customer age (#); education (#); income (#).
17.Average customer duration with company in months (#)
18.Educational investment/customer ($)
19.Direct communications to customer/year (#)
20.Non-product-related expense/customer/year ($)
Renewal and Development Focus
21.New market development investment ($)
22.Structural capital development investment ($)
23.Value of EDI system ($)
24.Upgrades to EDI system ($)
25.Capacity of EDI system (#)
26.Ratio of new products (less than two years) to full company
product family (%)
27.R&D invested in basic research (%)
28.R&D invested in product design (%)
29.R&D invested in applications (%)
30.Investment in new product support and training ($)
31.Average age of company patents (#)
32.Patents pending (#)
Human Focus

1. Leadership Index (%)

2. Motivation Index (%)
3. Empowerment Index (#)
4. Number of employees (#)
5. Employee turnover (%)
6. Average years of service with company (#)
7. Number of managers (#)
8. Number of women managers (#)
9. Average age of employees (#)
10.Time in training (days/year) (#)
11.IT literacy of staff (#)
12.Number of full-time permanent employees (#)
13.Average age of full-time, permanent employees (#)
14.Average years with company of full-time, permanent employees (#)
15.Annual turnover of full-time, permanent employees (#)
16.Per capita annual cost of training, communication and support programs for full-
time permanent employees ($)
Human Focus (Cont’d)
17.Full-time permanent employees who spend less than 50 percent of work hours
at a corporate facility; percentage of full-time permanent employees; per capita
annual cost of training, communication, and support programs
18.Number of full-time temporary employees; average years with company of full-
time temporary employees.
19.Per capita annual cost of training and support programs for full-time temporary
employees ($)
20.Number of part-time employees and non full-time contractors (#)
21.Average duration of contract (#)
22.Percentage of company managers with advanced degrees in:
• Business (%)
• Advanced science and engineering degrees (%)
• Advanced liberal arts degrees (%)
 Albrecht’s Corporate Radar:
Tracking the Forces that are Shaping your business
* Economic * Customer
* Competitor * Social
* Geophysical * Legal
* Technological* Political