Comparing yourself to others or self-comparison to enhance your development, a good financial management strategy
In this article, the author explains why the concept of key performance indicators remains more a theoretical and virtual notion rather than a reality in most financial management departments of international companies. There are many reasons behind the frequent absence of dynamic dashboards… a plethora of software tools and sources, diverse and incompatible formats, variable schedules and availability, together with a lack of more palatable aggregators for the reader. He shares his perspective on the topic and provides ideas on what indicators to consider.
To measure yourself is to make progress
Measuring yourself through KPIs (or “key performance indicators”) is a sound and recommended way to manage a financial management department. Though they are the subject of much discussion, ultimately very few take them on board and utilise them effectively. Ask any treasurer which KPIs s/he uses and you will be surprised by the terse and disappointing answer. Even worse, if you ask to see these indicators, you will draw a blank in many cases. This is because they either do not exist or are not systematised and generated automatically using the same format and the same tool. Or else, it is because the treasurer enjoys producing a lot of figures and reports, but forgets that simplicity and brevity are essential qualities when creating documents for the CFO or Audit Committee. We should not produce reports merely for the sake of reporting but rather to be heard and read. “What gets measured, gets managed” according to the well-known financial management adage. The KPI is a metrical indicator designed to measure management performance; it is a business indicator and ratio determining whether or not companies are making progress. It enables goals to be set for the treasury team and should be viewed as a useful indicator. If you are overweight but never weigh yourself, you cannot expect to lose weight. Only a mirror will tell you if you are on the right track. And if you do weigh yourself, surely you set a weight loss goal. How will you know if you are running faster if you don’t time yourself over a set distance using a stopwatch? This seems so obvious and yet…
"What gets measured, gets managed” according to the well-known financial management adage."
The tyranny of KPIs
Be careful not to be dictatorial or produce an excess of KPIs, or fall into the trap of working alone. There is a kind of “measure mania” which can be counterproductive and which some companies have implemented based on Anglo-Saxon models. This is a self-assessment tool but also a potential way to compare yourself to your peers.
You need to shape your comparative data and keep it static or consolidate it over time in order to make a comparison with the past and view the changes. Even then, it is imperative to remember that you can only compare like with like. Therefore, a “fixed” and constant measurement tool will allow you to evaluate changes, positive or otherwise.
The choice of KPIs is also dependent on the company’s strategy and financial culture. To each their own approach, according to their own specific criteria. What is important to me might not be so to a competitor. It is crucial to determine measures for improvement and be able to show this progress to management. This is also, therefore, a tool for self-promotion, something that I feel many people overlook. Without clear results, how will you demonstrate your contribution or added value? Knowing how to sell yourself in-house requires quantified KPI-type data.
Assessment without adequate communication makes no sense
Calculating performance indicators without communicating them or determining actions based on them would serve no purpose and would be purely theoretical and an utter waste of time. Obviously, they will need to be revised and re-evaluated from time to time to see if they are still relevant. Measurement enables transparency. Why not communicate your results if they are good and share them with pride? While exposing yourself poses a risk, it offers an undeniable opportunity to give yourself an edge for once. The treasurer’s focus is on producing figures and reports, but there is no synoptic reflection of their ability to perform effectively. To communicate well requires a contemporary tool, accessible to everyone from a smartphone and/or a PC, operating in real time to provide the most updated information possible. To be successful, you need a KPI strategy based around a limited number of KPIs, using light graphics, which are often more striking, and keeping key messages and recommendations succinct.
“There are many different types of KPIs. It is up to you to determine what is of most interest to you depending on your business context and culture.”
Selection of dashboard indicators
Once KPIs have been carefully selected, the most difficult challenge will be to deliver them in a semi- or fully-automated way. This is a different ball game entirely. The treasurer is frequently tasked with collating information and data and aggregating the results into a spreadsheet. Without access to an appropriate dashboard tool, nothing is simple. If no such resource is available, different documents have to be compiled in paper format or excerpts cut and pasted, proving difficult to read and without the option to rework them. It would be boastful to claim to have a complete “dashboarding” tool without an ad hoc ETF type tool, for example. A real dashboard can be consulted from your PC in real time, with the option to extract a specific figure or piece of information and in this way tailor a document to the reader’s requirements. This is the hallmark of a proper dashboard, which allows us to work, analyse and make decisions. Anything else is nothing more than a set of useless aggregators without any practical application. And here I am speaking from experience accrued over a lifetime.
A dashboard as an integral part of financial management reporting
In the final analysis, the dashboard is an integral part of reporting operations. While we are constantly being reminded that we live in an increasingly digital age, surely it would be unthinkable not to have a KPI summary report available at any time. The response seems self-evident. The much talked-about and often mystifying “BI” [Business Intelligence] should be limited to automated, concise real-time production of custom-made dashboards. If a report is dynamic, and therefore non-static, it will take on its full significance and be a decision-making, forecasting tool. You would be shocked at the incredible number of reports still being published by companies in paper or PDF format. Such formats prevent interaction between the producer of the report and its recipient. It is advisable to set the tool to include the option to raise “queries” so that the reader can achieve the degree of accuracy s/he is looking for. This very short information transmission time coupled with the option to view a document at any time will make a real difference and enable sufficiently prompt responses. Automation is also the best way to avoid mistakes and typos, incorrect imports and other mistaken overwriting of data. The perfect tool will ultimately allow simulation and extrapolation, which are the main purpose and function to be fulfilled.
A treasurer, at this point, will effortlessly become a financial wizard because no one will be able to generate summary tables as fast as they can. Time is a key factor as is versatility, which will enable unlimited work on the report. The small icon in the corner of your PC screen will make a difference if you can claim to provide access to it. Solutions do exist, as I can attest first-hand. What’s more, they work. The tool must remain simple in order to be usable and understandable for a non-geek financial management novice. This cannot be like SAP, at the risk of giving the CFO a case of indigestion.
I am astonished by the number of treasurers who ask me what my KPIs are and what I would recommend. Surely this proves that if they don’t yet know which KPIs to adopt, they are even less likely to know how to produce them. The key challenge is to first define what you want, how best to produce it, and lastly, where and how to store the underlying data for processing purposes (if additional processing is required). At the end of the day, with a good old Excel import, anyone can crunch numbers albeit with risk, sweat and significant effort. The reliability of the system and sources is crucial. Without this, the numbers can become counterproductive. It is a question of managing tools and interfaces efficiently. The ideal tool is flexible and adaptable; it is not necessarily a custom-made product but it is certainly not a “turnkey” solution. It is a flexible toolbox that will enable this aggregation in a single location and a single data form, static or variable, multiple or diverse, in different formats and from different sources. A real challenge that few tools can handle, at a decent price. If you really want to make a difference, you can achieve it with this type of tool.
“A “fixed” and constant measurement tool will allow you to evaluate changes, positive or otherwise.”
The spreadsheet, still the most frequently used technology
We have to acknowledge this paradox, which I have mentioned several times: despite our talk about technological advances, “Business Intelligence,” “cloud solutions” or other robotic processes, the spreadsheet is nevertheless used more than ever before. Doesn’t this represent a paradox of sophistication? Excel is the solution to everything, the treasurer’s Swiss army knife, the tool used consistently to consolidate dashboard data, either manually or semi-automatically where required. Nowadays anything can be exported from any tool in XLS format. Could the treasurer survive without Excel? One might well doubt this, and although it is a wonderful tool, it is unfortunately a dangerous weapon because it is not very reliable. Ask certain big banking institutions what they think. Underlying the practices of the London Whale, there were also calculation errors committed in Excel. All too often, columns are hidden rather than deleted and an absence of documentation makes them inaccessible. Excel’s strength is also its greatest weakness and there is a high price to pay for this flexibility. Would it not be better to ask an IT specialist to help create a dashboard rather than an XLS specialist who can turn their hand to anything until things get too technical...? It resembles, to some extent, a cancer within financial management departments when a dashboard is inadequately designed or where there is a failure to apply discipline when using it.
What do we mean by “KPI”?
There are many different types of KPIs. It is up to you to determine what is of most interest to you depending on your business context and culture. The attached list is a guide that I often recommend to anyone unsure of how best to tackle this type of project.
I hope that at the very least, it will give you an idea about useful indicators. Take the test to find out if you can produce indicators with ease (though certain data or ratios are relatively static for accounting reasons). If you cannot do so, you need to rethink your dashboard. Also, don’t forget that visuals are essential. Something that’s pretty and appeals to the eye will interest the reader. Don’t forget that “form” (though purists may find it unfortunate) is as important as “substance”. Since reports and financial management tables or those taken directly from TMS are unpalatable, cumbersome and not very readable, a “sexy” and attractive report will keep the full attention of top management. Emerging from the ranks is a way to raise your profile within the Finance Department. Generally speaking, treasurers are not known for producing attractive reports, even though this would earn the respect and interest of intended recipients. I would strongly encourage you to review your dashboard strategy and take your skills to the next level by judiciously carving out a specialism for yourself within the company’s finance department. This is a challenge within the capabilities of every ambitious treasurer.
François Masquelier, Chairman of ATEL