By Davin Wilfrid, senior analyst, insiderRESEARCH
By now, everyone knows that developing key performance indicators (KPIs) is key to aligning a company's strategy to execution. But defining those KPIs is a far more difficult challenge than many anticipate. KPIs need to be broad enough to reflect trends across multiple metrics, but specific enough to give management real insight into corporate performance.
In the second part of the Financials 2011 conference keynote address, SAP's James Fisher (VP of marketing for Finance and EPM) laid out nine KPIs that typify a best-run organization. The nine KPIs are grouped into three broad objectives for financial performance:
Objective: Ensure regulatory compliance and effective risk management
KPI 1: Number of financial restatements
KPI 2: Percentage revenue at risk
KPI 3: Dollar amount of fines for non compliance
Objective: Outperform stakeholders financial expectations
KPI 4: Return on capital deployed
KPI 5: Total return to stakeholers
KPI 6: Number of earnings warnings
Objective: Deliver superior service at reduced cost
KPI 7: Days to close books
KPI 8: Cost of finance as % of revenue
KPI 9: Days sales outstanding
Obviously different organizations (consultants, analysts) will offer their own guidace on KPIs, and each company will need to customize according to their own needs. But starting with a baseline of strong KPIs is a must.