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2 | CFO Key Performance Indicators (KPI) Survey
Table of contents
Foreword........................................................................ 3
Define KPIs................................................................. 6
Takeaways.................................................................... 22
Contacts....................................................................... 24
PwC Luxembourg | 1
2 | CFO Key Performance Indicators (KPI) Survey
Foreword 2015
CFO Budgeting
Survey
A unique overview of the priorities of
the budgeting and forecasting process
in Luxembourg for 2015.
Origin 2014
We created the CFO series in 2011 to provide an
www.pwc.lu/ffe
Rationale
A lack of information on the changes to the finance
function’s main activities in Luxembourg prompted us
to begin the series. www.pwc.lu/ffe
Purpose 2013
Our aim is twofold: on the one hand, to provide a
snapshot of the Luxembourg industry for the topics of CFO Key Performance
interest, and on the other hand, to infer insights from Indicators Survey
a comparison between current trends and previous www.pwc.lu/finance-function-effectiveness
and mindset.
Indicators (KPI)
Survey
Context
Today, in 2017, we are renewing our survey on key
performance indicators (KPIs), which are more in
the spotlight than ever before due to the real need
for guidance in the current market uncertainty
and volatility, coupled with the abundance and
2012
diminishing cost of data. CFO Budgeting
Survey
Thank you www.pwc.lu/consulting
study.
2011
CFO Reporting Survey
www.pwc.com/lu/consulting
CFO
Reporting
Survey
Christian Scharff Thomas Campione A unique and
unprecedented overview of
the priorities of the
Finance Function
regarding the 2011
reporting in Luxembourg.
Our sixth edition of the CFO survey series takes its aim at how key
performance indicators (hereafter “KPIs”) are used in today’s finance
function. In this instalment, as opposed to the previous entries in the series,
we have decided to shift our focus from the Luxembourg marketplace as
a whole to primarily operational companies, thereby reducing size and
sector biases.
The survey’s general purpose was to provide an insight into the way in
which operational companies manage their KPIs with regard to our general
approach:
2 3
Define
KPIs
1 4 Iterate and
review
6 5
34% 14%
Greater than EUR 0 - 10m
EUR 250m
55%
Subsidiary
45%
26% Parent
EUR 10 - 50m
14%
EUR 100 - 250m 12%
EUR 50 - 100m
PwC
PwC
Luxembourg
Luxembourg 55
| |
Define KPIs
Strategy comes first
”
complementary to the strategy, which at a glance. An overly complex set of
would act as the roadmap – and as
a diagnostic tool. It should provide
KPIs not only distorts the company’s
performance and financial situation measure.
a general idea of the position and but also overburdens the finance team
direction the company aims to follow, with excessive data gathering and Robert McNamara
while at the same time instantly preparation. If a KPI is ambiguous in
directing management to the areas that any shape or form, do not consider it.
require improvement. A well-defined
set of key performance indicators is
33%
General company performance 98%
17%
14% 14%
Long-term strategic goals 45%
45%
38%
3%
of respondents re-evaluate their set of KPIs
Never Yearly Semi-annually More often quarterly or more frequently.
Strategy
Strategy map
Business objectives
Value drivers
KPIs
”
Thankfully, financial ratios are the technological maturity.
most straightforward metrics to track,
primarily because of their quantitative
being wrong.
nature. In general, we distinguish
Douglas W. Hubbard
Liquidity Solvency
7%
10% 24% 33%
32%
46% 42%
19% Never
16%
11% Yearly
Quarterly 20%
23% 13%
16% 16%
55% Monthly 10% 12%
Weekly 14%
1 2 3 4
Balanced set of KPIs Data needs to be ready Strive to establish Don’t limit yourself to
within the four whenever it makes cause-and-effect forward analysis –
categories: sense to review it; relationships between project-realisation data
(profitability, activity, having real-time data is your KPIs and your completes and provides
liquidity, solvency) of significant added business objectives key information for
value future projects
Pitfalls to avoid
• Using generic financial KPIs that are not representative of the
specifics of your business or industry (EBITDA is commonly used as
it is generally a better estimate of operating cash flows; however,
in some industries – such as those with significant finance-lease
obligations – EBIT may be more appropriate)
• Overlooking the cost of collecting meaningful data for each of the
desired measures
• Lacking an adequate management-information system to support
the collection, analysis and reporting process
• Failing to reconcile the various data sources and not understanding
what drives variances
“
Finding the balance You can’t
Basing a set of KPIs solely on financial recognised through general accounting
manage what
data would prevent a company from rules, such as intellectual capital
you don’t
”
reaping the benefits of the clear or customer relationships. Lastly,
measure.
insights that non-financial indicators they can be an early signal of future
provide. Namely, they add the financial performance and can track
aforementioned compass dimension, competitive advantages. For example,
and this is for three reasons. First, new product development/launches or W. Edwards Deming
they share a closer connection to the expanding organisational capabilities
long-term corporate strategy (e.g. a may be important strategic goals,
focus on customer satisfaction or staff but may hinder short-term financial
motivation). Second, non-financial performance in the strict accounting
indicators usually uncover realms of sense.
intangible value that are not necessarily
10% 15% 7%
15% 21% 8%
7% 32% 2%
22% Never Never
35%
Yearly 28% Yearly
40%
12% Quarterly Quarte
78% 46% 2%
5%
Monthly Month
Weekly Weekly
46% 38%
36% 43%
10%
10%
5% 5% 2% 10% 10%
Full-time Absenteeism Staff morale Customer Customer Staff morale
equivalents (FTE) loyalty satisfaction
Non-financial operations
Past
Financial
Non-financial
Customer Internal processes
Current
To achieve our vision, how To satisfy our shareholders
should we appear to our and customers, what
customer? How do business processes must we
customers perceive us? excel at? What is critical in
What is critical? our business processes?
Pitfalls to avoid
• Using purely financial KPIs.
• Overlooking the sustainability of a business.
• Adopting a myopic business approach.
• Not granting ownership of KPIs to staff members.
”
darkness.
However well designed a set of KPIs their indicators internally, leading Arthur C. Nielsen
might be, they will have a limited inadvertently to uninformed employees
impact if they are not embedded in monitoring and tracking potentially
the company’s culture. Benefits will unrelated KPIs. In order for a ship to
be reduced if management fails to move in one direction as effectively
garner sufficient awareness of the as possible, all rowers must know the
company’s long-term strategy and direction of the compass.
obtain engagement from employees.
Many companies share very few of
31% 29%
29%
21%
12%
7% 69%
Strategy map
Financial
Customer
What did you do to
improve performance on
Internal processes one or more of the drivers
delivering our strategy?
Learning & growth
Use for
appraisal and Use as starting Use as guide for Communicate
rewarding of point for determining strategy to all
employees reporting information
need
Pitfalls to avoid
• Sharing information locally.
• Broadcasting an inconsistent overall message leading to
inconsistent actions.
• Not linking the different departments’ KPI sets.
• Misaligning personal targets with strategic objectives.
”
In an ideal world, all the energy and promptly react to any unknown factor.
focus would be directed towards
analysis, rather than preparing and
If a company receives information late,
it is often unable to rectify the situation said.
generating the set of KPIs. In other in time, leading to snowballing negative Neil Mason
words, as little time as possible should consequences. When competition is
be allocated to non-value-adding fierce, being able to rapidly correct your
processes. However, producing strategy and shift your focus will grant
coherent and reliable KPIs over time you an undeniable competitive edge.
is key and pushing for time reductions Nowadays, technology gives us the
might have a negative impact on data opportunity to generate real-time and
quality. The time dedicated to gathering granular data, which in turn enables us
and preparing data directly correlates to make informed business decisions.
to the company’s agility – its ability to
Fewer than 1 business day 2 to 5 business days 6 to 10 business days More than 10 business days
2/3
31% 29%
21%
take less than one business week to generate their KPIs.
What type of system are you currently using to calculate your set of KPIs?
Dedicated application for financial On-premise financial application Spreadsheets or manual processes
planning (i.e. advanced application) modules (e.g. module of an ERP)
How far have you automated the preparation of your financial and non-financial KPIs?
One
source
of the
Flexible self-service reports Truth Ad hoc reporting/Pivot
Pitfalls to avoid
• Overuse of Excel sheets (frail basis for auditing, accountability and
quality controls)
• Lacking transparency and ownership if multiple business partners/
teams work together
• Rushing preparation
• Not implementing data-flow diagrams
• Overlooking redundancy across departments and inconsistent
granularity
“
Discerning noise from A point of
information view can be
The quality of an analysis correlates data granularity, and simple illustrative a dangerous
directly and positively with the quality capabilities. Yet, identifying meaningful
of its underlying data, its efficiency
and the strength of the technology
information can prove to be rather
difficult in our era of a constant influx
luxury when
supporting its processes. Long story
short, poor data quality and limited
of data. It is not just the frequency,
but also the overall volume that can substituted for
standardisation supported by weak easily become overwhelming. Who
or outdated tools will actually bring
close to no insight and will drive
could blame anyone for losing sight
of what is important in this sea of
insight and
”
costs up. There are prerequisites to
powerful analysis, including a reliable
data? Nonetheless, the aim of analysis
in general is to transform all of what understanding.
historical, actual and forecasted data was gathered and aggregated into
set, various and flexible analytical actions to manage performance above
methods and techniques, adequate benchmarks. Marshall McLuhan
Fewer than 1 business day 2 to 5 business days 6 to 10 business days More than 10 business days
5% 50% 45%
No Partly Yes
Time
Quick Wins Process Improvement Process + IT Re-engineering
Pitfalls to avoid
• Using over-cluttered dashboards and inadequate analysis
techniques
• Providing analysis that is interesting rather than useful
• Getting lost in the levels of granularity
• Trying to make sense of the entire data set instead of a strategically
selected segment
”
monthly financial-result presentations – an audience not only saves time but
an effective illustration of a finding can
be worth a paragraph of explanations.
also leaves little room for interpretation
and reduces cross-departmental to see.
The finding should stand out instantly miscommunication.
John Tukey
64%
5%
1/5 either don’t use historical data or don’t forecast.
MS office 98% 2%
Yes No In progress
26%
3%
7% 7%
Figures and Figures, explanations Figures, explanations, Figures only Graphics only
explanations and graphics graphics and others
Two variables Many Cyclical data Non-cyclical data Single or few categories Many categories
per item categories
Among items
Bar histogram
Few data
points
Scatter plot Two
variables
Comparison Single
variable
Changing Static
over time
Only relative Relative and absolute Only relative Relative and absolute Simple share Accumulation or Components of Accumulation to total &
differences matter differences matter differences matter differences matter of total substraction to total components absolute difference matters
Stacked 100% Stacked Stacked 100% Stacked area chart Pie chart Waterfall chart Stacked 100% bar chart Tree map
bar chart bar chart area chart w/subcomponents
Pitfalls to avoid
• Broadcasting bland numerical values that don’t translate the
strategy
• Displaying opaque financial figures that employees can’t
understand
• Communicating on aspects that have little connection to the day-to-
day business reality
”
changing business objectives with digitisation. The CFO and the overall
fixed measurement metrics. Such
an approach facilitates a strong
finance function must follow suit and
will see significant return on investment alignment.
understanding of the set of KPIs in doing so. Adaptation is becoming
among key stakeholders and owners. increasingly paramount to performance Med Jones
Meanwhile, investments in value- and this is unlikely to change any time
adding technologies, such as data soon.
26% 64%
48%
31% 29%
21%
7% Needs improvement
Yes
Which of these challenges are affecting you within your KPI process?
Are you planning on making future investments to improve you KPI preparation,
visualisation and analysis through:
19%
Finance
Pitfalls to avoid
• Having too little flexibility in the set of KPIs
• Lacking a feedback loop
• Not taking corrective action further than variance-analysis outputs
• Not providing a retrospective/empirical perspective on activities
Christian Scharff
Partner, I&S Consulting
Tel: +352 49 48 48 2051
christian.scharff@lu.pwc.com
Julien Jacqué
Senior Advisor, Finance
Tel: +352 49 48 48 4222
julien.jacque@lu.pwc.com
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