All too often you hear senior managers say “If you can´t measure it, you can´t control it.” This is why in most organizations, almost everything gets measured.
There is continued pressure for each individual and for the organization as a whole to attain their goals, to improve the way they work, and to ensure that everyone´s contributions are directed towards the organization´s overall goal.
Performance Management and Key Performance Indicators(KPIs) are widely used in order to track, monitor, evaluate, and even reward individual and organizational performances.
In the last decade or so, finance departments of all organizations have felt the increased pressure to perform especially as the role of the CFOs and the finance departments as a whole has seen significant changes.
Finance KPIs and metrics are seen as important indicators of how well the finance department is managing its performance and achieving its targets.
In the olden days, performance management appraisal or performance evaluations done by managers once a year used to be sufficient in determining how well a specific employee is working or applying her skills to further the organization´s goals. However, in these types of employee evaluations, it is hard to truly gauge whether or not a specific employee is doing the right thing.
While it is easy to say an employee is hard working, if he or she is not doing tasks that add real value to the company, it is all but futile.
This is precisely why performance management metrics and KPIs have risen in the world of finance.
Using performance management metrics or finance KPIs give managers that quantifiable measure that paints a clear picture of how well an individual and how well the department or organization is attaining its targets.
A clear illustration of the importance of finance KPIs within the finance department is this: If the finance department wants to enhance their credibility through delivery of high quality reports and plans to the board or senior management, some good examples of finance KPIs would be Finance Report Error KPI, Budget variance KPI or Budget Cycle time KPI.
It is important to note that the use of performance management metrics and finance KPIs must be carefully thought out because measuring unnecessary or inappropriate KPIs would just be a waste of time and will be counterproductive for the finance department.
Choosing the correct finance KPIs and finance metrics is key and this is where the dialogue between managers and their employees become important. They need to define their goals and their KPIs together.
Below are a few examples of the most commonly measured finance KPIs and performance management metrics as of 2017.
Finance KPI and Performance Management Metrics examples:
Accounts payable turnover
Accounts receivable turnover
Asset turnover rate
Average sum deposited in new deposit accounts
Average value of past due loans
Budget Creation Cycle time
Cash conversion cycle (CCC)
Cash dividends paid
Cash flow return on investments (CFROI)
Common stock equity
Cost of goods sold (COGS)
Cost per hour per lawyer (in-house)
Cumulative annual growth rate (CAGR)
Cycle time to perform periodic close
Cycle time to resolve an invoice error
Debt to Equity Ratio
Earnings per share (EPS)
Economic value added
Enterprise value/takeover value
Finance Error Report
Gross margin on managed assets
Gross profit margin
Interest on net worth
Internal Audit Cycle time
Invoicing processing costs
Labor and management cost
Labor and management earnings
Legal staff per size of revenue
Line items in Budget
Net change in cash
Net interest margin
Net new money
Net profit margin
Number of budget deviations
Number of invoices outstanding
Number of past due loans
Operating Cash flow
Operating profit margin
Other current liabilities
Other noncurrent liabilities
Payroll Headcount Ratio
Payment Error Rate
Percentage of accuracy of periodic financial reports
Percentage of effectiveness in payables management
Percentage of budget deviation relative to total budget
Percentage of electronic invoices
Percentage of financial reports issued on time
Percentage of invoices requiring special payment
Percentage of invoices under query
Percentage of legal budget spent outside
Percentage of low-value invoices
Percentage of payable invoices without purchase order
Preferred stock equity
Product turnover ratio
Profit loss due to theft
Profit per product
Quick ratio/Acid Test
Rate of return on assets
Return on equity
Return on assets
Return on capital employed (ROCE)
Return on investment (ROI)
Return to equity
Revenue per employee
Sales per share
Same store sales
Selling general and administrative (SG&A) expenses
Systems cost of payroll process as a percentage of total payroll cost
Tier 1 capital
Total current liabilities
Total legal spending as a percentage of revenue
Total of uninvested funds
Total quantity of new deposit accounts
Total sum deposited in new deposit accounts
Total value of past due loans
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