Key performance indicators Robin Tidd, FCMA CGMA, MCIM Saturday 25 April 2015 CIMA Conference:...

Key performance indicators

Robin Tidd, FCMA CGMA, MCIM

Saturday 25 April 2015

CIMA Conference: Essential management accounting tools

Robin Tidd MBA FCMA CGMA MCIM

• Founder of rtm established 1980• Working time spent on performance improvement and culture exercises

with businesses of all sizes. Led over 250 assignments over the past 34 years.

• Run 300 Managing Directors’ Workshops attended by 3000+ MDs• Chairman 2000-2005 of CIMA Members in Practice Group. Council

Member and member at some time of five different policy committees of CIMA

• Currently launching expansion of a unique new model retainer business for SME’s.

• Author of dozens of articles and of four publications including ‘Business Performance Management’ ‘the Road to Continuous Improvement and ‘KPIs’ for Nelson Croom, award winning on-line publishers .

The three Purposes of Key Performance Indicators

• To show results across the business … the Scorecard

• To provide knowledge of how to improve• To motivate and involve… to cause action

The latter point is the most difficult.

All three are essential

Managers getting Control of their Processes…..

The best you can ever do as a front line manager with a given Process is:-

1. Define what good looks like as an outcome in simple measures

2. Frequently (SICs) measure whether you are hitting that level

3. If you are …move the target 4. If not why not, where is the

leakage/waste/opportunity5. Agree actions with your people6. Log the actions7. Review the actions frequently (SICs)8. Ensure that actions are done…and so get control of the process

Mapping or modelling a Process should make it clear what to measure

Quote

“In some organisations only one person has the overview, and is too busy to do anything about it.”

Managing Director

Sales Director Finance Director

Manager Customer Services (inside)

‘Reps’ Manager Special

Products

Manager General Products

Purchasing Manager

Production Manager

Technical (QA)

Manager

Warehouse & Distribution

Manager

Assistant Accountant

Staff

Staff

No Staff

Production Supervisor

Estimator

Production Co-ordinator

Foreman & Workforce

Stores Controller

Production Office Staff

Design Supervisor

Drivers Warehouse Manager

Warehouse Staff

• We need a hierarchy so that everybody has someone to look to for development. We need it for management.

• BUT We should view the organisation as a series of processes with feedback loops. There are internal suppliers and customers and it all leads to the customer.

• Ultimately we work for the customer not the boss.

Who do we work for?

What do others say?

• Good to Great (Jim Collins)– ‘Confront the brutal facts’– ‘Be disciplined’

• Winning KPIs (David Parmenter) – ‘Only 10% of (the Fortune 500) organisations know how

to use KPIs properly???’– ‘A KPI which is not (reviewed) at the very least weekly is

useless as a performance tool’

• Out of the Crisis (W Edwards Deming)– ‘Understand the process’

Culture is fundamental… and how you use information is fundamental to culture

ACT PLAN

CHECK OR STUDY

DO

Measurement built in here

LEARNING APPLYING

Essentially a Circle..

The Deming or Shewhart Cycle

Monster Process Map….(but it worked!)

Two stories about Short Interval Controls

• Monthly sales meetings• Daily operations management

filling and testing gas bottles …but it could be any kind of

operation

Observations on Management ControlReds Greens and Blues!

BEVERAGESNo. of people

1 2 3 4 5 6 7 8 9Observations

1 16% Absent2345 28% Idle6789

1011121314 56% Working151617181920

Observations on Management Control

Reds Greens and Blues!

IND. 1No. of people

1 2 3 4 5 6 7Observations

12 30% Absent345678 27% Idle9

101112131415 43% Working1617181920


IND. 2No. of people

1 2 3 4 5 6Observations

12 39% Absent3456789 21% Idle

101112131415 40% Working1617181920


FILLINGNo. of people

1 2 3 4Observations

12 23% Absent345678 34% Idle9

101112131415 43% Working1617181920

Supervision Time

DOING32%

SUPERVISING5%

TELEPHONE6%ADMIN.

31%

GET INFO.5%

OTHER21%

Supervision Time

DOING64%

SUPERVISING19%

TELEPHONE3%

ADMIN.3%

GET INFO.3%

OTHER8%

DOING

SUPERVISING

TELEPHONE

ADMIN.

GET INFO.

OTHER

Short interval controls

• Look closer at the process and see more• Aid the psychological ‘attitude to change’ process• Enhance, reinforce and accelerate the learning process and

therefore the quality of the process improvements which actually happen

• Give time for re-adjustment when off plan, therefore creating prevention

(example sales visits and filling coleslaw)• Short interval control principles relate both to

– provision of KPIs and to – review meeting

A great culture has….

• Right figures, correct figures, remove fear• Scientific, better decision making• Honesty, openness and dealing in facts• Efficiency in collecting information, reduced

investigations and reduced ‘ad hoc’-ery• Direction and purpose… targets lined up with

strategy• Learning and improvement throughout the

organisation• Empowerment, involvement

Quote

“When the only tool you have is a hammer its amazing how many things start to look like a nail.”

Levels of Acceptance

PHYSICAL

LOGICAL

EMOTIONAL

Acceptance of Change = Learning

The Process of Change

‘Full on’ KPIs

What we mean by ‘Full-On KPI’s’ is:- • every area of the business has its high level and low level KPIs

being produced automatically • at the ideal intervals• being reviewed with the people in the process• against improvement targets• regularly• in a fixed hierarchy of well run Action Review Meetings• being quantified in financial terms (££ per unit or per cent of

out put, resource, waste etc.)• going into a high level dashboard• which is also reviewed regularly• allowing top management to see that managers are

controlling their processes

THANK YOU

Robin Tidd

M 07973 713574E-mail [email protected]

Outcome costing & budgeting project

Dr Alasdair Macnab FCMA, CGMA

Saturday 25 April 2015

CIMA Conference: Essential management accounting tools

Macnab Consulting Ltd

OUTCOME COSTING/COST -EFFECTIVENESS and INTEGRATED

REPORTING in the PUBLIC SECTOR


Purpose of this Element of the Presentation

To provide some thoughts on:

• How outcome costing in public sector organisations can assist:

•Resource allocations.

•Strategy execution.

•To determine cost-effectiveness/value for money.

•Contribute to Integrated Reporting/Management.


Public Sector

Presents significant challenges: • Performance seldom confined to a single formal

organisation:

• Government is often an intermediary in process of prioritisation and resource allocation

• PM system should include the organisation, numerous stakeholders & resources providers

• Need to balance divergent views and consensus


Is public sector that much different from private sector?

• Greater accountability and transparency is required.

• 2 challenges arise:

• Sustainability

• Adaptability

29Macnab Consulting Ltd

Strategy vs. Structure

In public/not-for-profit sectors:

• Structures set up for administrative reasons

• Staff carry out functions in cross-cutting ways


RBGE High Level Structure


Objectives Delivered By Divisions

Division Biodiversity Research

Collections Management Visitor Attraction Education Funds People

CSD X X

Enterprise X

Horticulture X X X

Science X X X X

Division Land & Buildings Facilities Strategy Management& Control

Environmental & Financial

Sustainability

CSDX X X X X

Enterprise X X X

Horticulture X X X

Science X X X X


Frameworks • Alternative system required to measure/manage

organisational performance.

• Frameworks incorporate non-financial measures which:

• Provides balance to financial measures to:

• Overcome potential for divergent activity.

• Encourages:

• Discussions on organisational strategy.

• Working together.



Importance of KPI Selection• Selection of relevant KPIs, KRIs & KIPA1s important

to:

• Align institutional effort to goals.

• Make the right causal linkages.

• Assess progress towards those goals.

1. KIPA – Key Impact Progress Assessment - A qualitative assessment of progress of an objective

that has not reached a conclusion due to its long-term nature but which has seen effort

expended (Macnab & Mitchell 2014).


Develop a Costing ModelStarting Point:Staff effort to outputs vs data ascertained from cost centres:


RELEVANT PUBLICATIONSThe Strategic Objective Costing (SOC) model: Macnab, Mitchell & Carr (2010) & Macnab and Mitchell (2012); Outcome Budgeting in the Public Sector: Challenges and Solutions. An Exploratory Empirical Study (Macnab and Mitchell (2014)

• Calculate staff effort (time-sheets) allocated to supporting achievement of specific strategic objectives.

• Calculate non-salary expenditures - double-coding to cost centres + relevant objective.

• Aggregating produces the total cost of the objective.


ALLOCATING STAFF AND NON-SALARY EXPENDITURE TO OBJECTIVES


SCIENCE DIVISION

COST CENTRE STAFF £

SB (Conservation & Genetics) A XXX

B XXX

C XXX

D XXX

TOTAL STAFF COSTS FOR OBJECTIVE BY SB XXXX

TOTAL COSTS FOR COST CENTRE SB XXXXX

SF (Floristics) E XXX

F XXX

G XXX

TOTAL STAFF COSTS FOR OBJECTIVE BY SF XXXX

TOTAL COSTS FOR COST CENTRE SF XXXXX

TOTAL COST FOR RBGE XXXXXX

STRATEGIC OBJECTIVES A01 BIODIVERSITY

A02 COLLECTIONS

MANAGEMENT

A03 VISITOR

ATTRACTION

STAFF TIME (%) TIME (%) TIME (%)

A 25 35 10

B 50 50 -

C 10 20 -

D 20 15 10

TOTAL STAFF COST ON EACH OBJECTIVE XXXX XXXX XXXX

TOTAL FINANCE COST ON EACH OBJECTIVE XXXX XXXX XXXX

TOTAL COST ON OBJECTIVE BY SB aaaa XXXXX XXXXX

E 70 20 -

F 30 20 -

G - 10 -

TOTAL STAFF COST ON EACH OBJECTIVE XXXX XXXX XXXX

TOTAL FINANCE COST ON EACH OBJECTIVE XXXX XXXX XXXX

TOTAL COST ON OBJECTIVE BY SF bbbb XXXXX XXXXX

TOTAL COSTS FOR EACH OBJECTIVE aaaa+bbbb XXXXXX XXXXXX

COST ALLOCATIONS


Matching Costs (proxy for effort) to Objectives/KPIs

Strategic Objective Costs can be reconciled to Cost Centres for budgeting purposes

INFORMATION FLOW


OUTCOME COSTING MODEL

Total general ledger quantum of cost

Direct resource 1 Direct resource 2 Direct resource 3 Direct resource 4Overheads applied to resources based

on ABC

Activity 1 Activity 2 Activity 2 Activity 3 Activity 3

Output 1 Output 2 Output 3 Output 4

Outcome 1 Outcome 2 Outcome 3Outcome measures


RBGE Model


EXAMPLES OF OBJECTIVE COSTING – RBGE – Apr – Dec 14


To develop a format for reporting this information.


Directors Report:

Summary:xxxxxxxxxxxxxxxx

Highlights:

xxxxxxxxxxxxxxxxx

Areas of Concern:

xxxxxxxxxxxxxxxx

Decisions:1.xxxxxx2.xxxxxxxxxx


Visitor Attraction Activity Costs – October – December 2014


To link individual government body performance outcomes and their related costs to national government performance outcomes.


CONCLUSIONS

1. An operational system of outcome budgeting is viable.

2. Outcome budgeting links resources to performance.

3. Outcome budgeting allows government spending to be identified with desired national outcomes.


Scottish Government Requires Value for MoneyPublic Services: “are high quality, continually improving, efficient and responsive to local people's needs”:

“The quality of public services and the way in which they are delivered has a major impact on Scottish society and the overall performance of the Scottish economy.

Better and more efficient public services enhance our quality of life, support sustainable economic growth and assure those that fund and rely on them that their public services are responsive, provide value for money and are continually improving.”


NAO – VFM Model


How do we Assess Effectiveness and Economy?

Effectiveness: assess - KPIs, KRIs, and KIPAs.

• Attainment represents the desired outcome - proxy

for value.

Economy (cost)

• Use outcome costing as the basis for deriving

relevant costs.


Outcome Cost- Effectiveness Analysis

• “rate of change of costs c/w rate of change in outcomes”

• If outcome delivery (indicators) increases at faster rate

than cost of resources allocated,

• or if resources cost decreases at faster rate than

outcomes delivery reduces,

• then cost-effectiveness increases.

• Obviously, the converse is true.


Example of Outcome

Cost-Effective Analysis


Year 1 Year 2 Year 3 Year 4 Year 5

KRI 1 Herbarium Specimen Record Downloads 206,860 210,000 270,000 320,000 375,000

KRI 2 Number of Herbarium Specimens Digitised and online 247531 275000 295000 315000 335000

KRI 3 Percentage of Library Collection available digitally 1 2 5 10 10

KRI 4 Number of Gold Standard samples in the DNA bank 0 96 192 384 576

cost National Collections Cost 2,555,530 2,597,160 2,664,780 2,565,650 2,597,850


average of all KRI Normalised scoresOutcome cost effectiveness score = ------------------------------------------------------------------------------------

normalised outcome cost score

Calculation of the C-E Score


0.800

1.000

1.200

1.400

1.600

1.800

2.000

2.200

year 1 year 2 year 3 year 4 year 5

OUTCOME COST EFFECTIVENESS SCOREof our National Collections and Tourism & Recreation KRIs

National Collections

Visitor Attraction

Comparison of Cost-Effectiveness Scores of Two Outcomes


<INTEGRATED REPORTING>

“A concise communication about how an organisation’s strategy, governance, performance and prospects…..lead to the creation of value over the short, medium and long term” (IIRC)

• Periodic - part of an existing communication – e.g. Annual Report

• Concise – filtered to include ONLY material financial and non-financial disclosures



How does Integrated Reporting <IR> help?

• Creates Value

• Provides increased understanding of long-term value drivers to enable better:

1. Strategy formulation

2. Decision-making

3. Business model implementation


Tells the story:

• Of how value is created – internally and externally

• Succinctly – wins trust/secures reputation

• Encourages better relationships with stakeholders


Involves employees


Outcome Costing:

• Provides information linking resource use and

performance achievement.

• Useful for strategic planning, governance, and

management.

• Plays a role in external stewardship-oriented reporting.

• Valuable in making assessments of how an entity has

been managed and whether VFM is being attained.


Outcome Cost-Effectiveness Analysis

• Assesses the relative use of scarce resources,

• Improves public sector value for money,

• If appropriate management action is taken.


THANK YOU!


Alasdair Macnab +44 7900245467

[email protected]

Lunch

Please return for start at 1.50pm

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Key performance indicators Robin Tidd, FCMA CGMA, MCIM Saturday 25 April 2015 CIMA Conference:...

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