PerformanceMeasurementFramework

Usethefollowingassessmentcriteriatogainaclearerunderstandingofyourbusinesscomparativetootherlevelsofperformance,andideasastohow thiscanbeimproved:

Budgeting[resource allocation],Planning [performance planning]and Forecasting [performance planning].

Level1 Simplebudgeting. Financialfocus. Spreadsheetbased. Nooperational focus. Runbyfinance.

Level2 Effortstoreduce thetimetakento preparebudgets. Simpleforecasting. CPMbudgeting system implemented,but thesystem emulatesa spreadsheetbased system,i.e. spreadsheetinputs intobudgetmodel.

Level3 Movedtorolling forecast. Driverbased budgeting,butstill aCFOorientated viewoftheworld. Somecross functional involvementin eitherbudgetingor forecasting operational managersuse budgetingsystem toentertheir businessdrivers.

Level4 Budgetingprocess linksfinanceand operations. CFOand operational managersinvolved andactivelyusing budgets. CPMplanning systemlinkedto operational planningsystems bybusinessdrivers. Financialbudgetis anoutcomeofthe planningprocess.

ProfitabilityModelling andOptimisation [causalmodellingto Noclear understandingof thenonfinancial ABCusedto calculate profitabilityona Activitybased profitabilitymodel exists. Activitybased profitabilitymodel exists.

Level5 Budgetinglinkedto strategyand forwardplansas wellasoperational targetsand activities. Clearcutstrategy planningprocess. IntegratedIS system,linking finance,operations andstrategy. Organisationwide involvementand engagement,top bottomandcross functional. Widespreaduseof eventanalysis. Clear understandingof thefinancialand

businessinsightsloop, althoughthisalso coversnonfinancial causalmodelling].

driversof profitability. Focusison ABC/activitybased analysisofcost drivers. Usersandanalysts areseenas specialists. Oneoffanalyses arethenormrather thantheexception.

periodicbasis(e.g. atmonthend) Resultsof profitability analysisareshared withmanagersbut notformallyused indecisionmaking

Thesystem supports profitability modellingandback solving. Profitability informationisused inmanagement decisionmaking butonaperiodic basis. Systemsand processesare largelyfinancial based.

Causeandeffect linksbetween financialandnon financialdriversare identified. Profitability informationisused bymanagersto makeresource allocationdecisions toachievebusiness objectives Thesystem supports sophisticated profitability modelling,suchas MonteCarlo analysis.

Scorecards/Dashboards [strategytranslation andallboxesinprocess +capability perspectives+target setting]

Scattergun approachto performance measurement. Disconnected dashboardsin spreadsheets.

Common dashboards implementedina CPMapplication. Consistent presentationbut limitedlinks

Scorecard supportedbysome formofstrategy mapi.e.clear linksbetween measuresand strategy.

Structuredand coherentmetrics, withcleareffortsto validatethe measuresi.e.we havecheckedthat wereallyare

nonfinancial driversof profitabilityand value. Investmentplans anddecision makingarealigned tothesedrivers Continuousand widespreadeffort tovalidatecausal links. Profitability modellingand analysisis constraintbased weunderstand wherethecritical andcapacity constraining resourcesareand buildtheseintoour models. Coherenttopto bottomframework formeasures. Measuresare mappedtovalue driversand strategic

Everyoneinevery functionhastheir ownmetrics. Individualtargets setbyfunctional managerswithno coordinationacross functions.

betweenmetrics. Metricspresented inmanagement meetingsbutissues withdata consistency. Individualtargets setbyfunctional managerswithno coordinationacross functions.

Scorecardusedto trackprogresson strategybut reflectsstrategy ratherthanatool tohelpcreate strategy. Targetsaligned throughstrategy mapbutnotlinked withfinancial targets(budgetstill winsout)

measuringtheright thingintheright ways. Scorecardusedby executiveteamand operational managerstoreview progresson strategy. Consistenttopto bottombusiness drivertargetsto achievestrategic goalsbutstillsome conflictwith financialtargets.

Operationaland Management Reporting

Lotsofdataexists, butmuchofitis conflicting. Itisdifficultifnot impossibletoknow whatthedatais tellingyou. Individualshave theirown spreadsheetswhich

CPMapplications forfinancially oriented management reporting,BP platformforother typesofreporting, butdatais inconsistent. Usersmakemore

Systemshelp understandpoor performance,but usuallyafterthe event. CPMapplications stillseparatefrom BI/operational reportingbut reasonabledegree

CPMsystemsin particularusedto identifygood performanceand bestpractices ratherthanjust focusingon understandingpoor performance. Realtimealerting

objectives. Thecauseand effectlinkages betweenmetrics arevalidated Strategy map/metrics frameworkpartof strategy formulation process,linkedto strategy management. Financialgoalsare outcomesof businessdriver targets.Individuals measuredon businessdriver targets. Operationaland management reportingdata consistentwith CPMfinancialand budgetdata. Predictiveanalytics areusedwecan establishthe impactof

theyusefor localised operationaland management reporting. Thewholeprocess istimeconsuming andrepetitive.

useofpackaged reportingtoolsbut needITorsuper usertobuildnew reports/analysis. Norealabilityto understandwhat theissuesarewith poorperformance.

ofconsistency throughsharedETL tools/capabilities. Userscancreate ownreportsand analysiswithout significantIT support. Norealabilityto respondinreal timeand/orpro actively.

ofperformance issuesbutlimited abilitytotake correctiveactions without management reviewand approval.

FinancialConsolidation andReporting [complianceandvalue reporting].

Onlycorporate financeisinvolved inconsolidation andreporting. Muchofthe reportingismanual andspreadsheet based. Sometimesthe resultsarea surprise!

Legacyversionof CPMfinancial consolidation applicationused. Systemand processesfocused aroundcorporate finance. Numbersare accurateand auditedbuttake toolongto produce.

Currentgeneration CPMfinancial consolidation application implemented. Consolidationis rapidandtimely, butdataisnot linkedto management reportingsystems. Financialreporting ishighqualityand

Financial consolidation applicationlinked withmanagement reporting. Financialdata consistentwith highlevel management reportingdatabut lackofanalysisto nonGLtransaction dataoutsideCPM

operationalevents inrealtime(ornear realtime)and respond accordingly. CPMsystemslinked withBusiness ActivityMonitoring (BAM)systemsfor realtimesense anddetect capability. Usersatthelocal leveltake correctiveactionin responsetoreal timeevents. Financial consolidationis linkedwith management reportingand budgeting. Realtime consolidation. Alldecisionmakers usethedataona daytodaybasis. Thereporting structuresboth

Nointegrationto otherCPM applicationsorBI infrastructure.

trusted,usedby executivesto monitorperiodic financial performance. Financial consolidation processesanddata managedacross financefunction.

applications. Financial consolidation system implementedina distributedmanner toprovide managementand statutoryviewto executivesat businessunitlevel.

forconsolidation andmanagement reportingare consistentacross theorganisation. Dataand masterdatais consistentwith otheranalytic applications outsideCPM. Asaresultdrilling downto understandthe driversof performanceis relatively straightforward. LeveragesXBRL.

CopyrightAndyNeely,January2009