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					     Session III-A

Introduction to Performance Based
           Measurement
    Full Potential of ABC/M
   A process of ...
       Persuasion
       Education
       Success
   Top down or bottoms up methodology




INCENTIVES & PERFORMANCE MEASUREMENT-SPRING 2009   2
    Keys for Implementation
      Success--Cucuzza & Ness
   Link to other systems

   Get rid of old systems

   Tie to compensation




INCENTIVES & PERFORMANCE MEASUREMENT-SPRING 2009   3
What’s It Like Out There?
   Rapidly changing operations
   Complex reporting structures
   Resource limitations
   Technology overload
   Investor expectations
   Regulatory scrutiny
   Market over-reaction

INCENTIVES & PERFORMANCE MEASUREMENT-SPRING 2009   4
     What Does It Take to
           Survive?
   Changing operating paradigms
   Financial managers with business perspective
   Real-time assessment capability




INCENTIVES & PERFORMANCE MEASUREMENT-SPRING 2009   5
         7 Steps for
    Implementation Success
   Prepare strategic objectives
   Identify critical success factors (CSF)
   Determine units of measurement
       Quantity, quality, time or cost
   Set performance standards
       Benchmarking
   Collect data
   Evaluate and make revisions
   Reward achievement
INCENTIVES & PERFORMANCE MEASUREMENT-SPRING 2009   6
    What Finance Brings to
         the Table
   Knowledge of critical business processes
   Understanding of the interdependence
    between these processes
   Capability of measuring factors in financial and
    non-financial terms
   Ability to integrate PBM with the balanced
    scorecard approach to reporting


INCENTIVES & PERFORMANCE MEASUREMENT-SPRING 2009       7
            PBM and Planning
   Emphasizes the implementation of the
    strategic plan
   Provides a basis for strategy driven spending
   Avoids the trap that over 67% of companies fall
    into--failure to integrate strategic and financial
    plans
                                                   The Hackett Group




INCENTIVES & PERFORMANCE MEASUREMENT-SPRING 2009                       8
PBM and Daily Operations
   Provides a catalyst for action
   Links planning and incentive compensation
       Only 58% of companies tie strategic planning
        and incentive compensation
                                                   The Hackett Group

   Offers a basis for balanced scorecard metrics
   Ensures real-time feedback
       Information for operating results

INCENTIVES & PERFORMANCE MEASUREMENT-SPRING 2009                       9
 How PBM Can Make You a
 Hero…or at least a True
     Business Partner
It will allow you to:
 Demonstrate strategic insight

 Become part of the decision-making process

 Assume role of change agent

 Fulfill key role of preserving company assets

 Assist the transformation of financial planning

   into a value added process
 Facilitate elimination of the “bean-counter”

   stereotype
INCENTIVES & PERFORMANCE MEASUREMENT-SPRING 2009    10
     Session III-B

Performance Based Measurement-
            Metrics
         7 Steps for
    Implementation Success
   Prepare strategic objectives
   Identify critical success factors (CSF)
   Determine units of measurement
       Quantity, quality, time or cost
   Set performance standards
       Benchmarking
   Collect data
   Evaluate and make revisions
   Reward achievement
INCENTIVES & PERFORMANCE MEASUREMENT-SPRING 2009   12
              Success Stories
   Lucent Technologies--PBM doesn’t guarantee
    success
   Bar-S Foods Company
   Bal Seal Engineering Company, Inc.
   Knight-Ridder Inc.




INCENTIVES & PERFORMANCE MEASUREMENT-SPRING 2009   13
             Lucent Technologies                       Murray Hill, NJ



   Uses a proprietary “Dashboard”
       Financial & operational information visual interface
       Reduced 200 pages of data to 16 metrics
       Graphical gauge presentation
       Color coded
       Drill-down capability
   Total training time…10 minutes
   Demonstrates finance’s knowledge of the
    business and willingness to meet operating needs
    INCENTIVES & PERFORMANCE MEASUREMENT-SPRING 2009                     14
    Lucent Technologies, cont.
   User access is monitored
       Usage is up 600%
   Developed in-house using off-the-shelf software
   Distributed on Lucent’s security-protected intranet




    INCENTIVES & PERFORMANCE MEASUREMENT-SPRING 2009   15
        Bar-S Foods Company                        Phoenix, AZ


   On-line executive information system
   Similar to Lucent’s dashboard
       Drill-down capability
   Individual profiles for each user
       Information can be tailored
   System is working
       In 5 years, on-time shipments increased from
        92% to 99.4%
   Finance can serve rather than “number-crunch”
INCENTIVES & PERFORMANCE MEASUREMENT-SPRING 2009                 16
        Bal Seal Engineering
           Company, Inc.                           Foothill Ranch, CA

   Company was suffering operationally
   Adapted Goldratt’s The Goal
       One of the company’s constraints was bad
        information
   Finance did not easily embrace the change
   Improvements were memorable
       Lead time fell from 8 to 2 weeks
       On-time delivery went from 60% to 98%
   Shift from accounting-managed to economic-
    value managed information
INCENTIVES & PERFORMANCE MEASUREMENT-SPRING 2009                        17
          Knight-Ridder Inc.                   Miami, FL



   Uses performance metrics to assess
    management processes
   Performance measurement linked with
    balanced scorecard to ensure alignment with
    strategic direction
   Each shared services team developed its own
    KPIs (key performance indicators)
       Facilitated broad acceptance
   Drives continuous improvement
INCENTIVES & PERFORMANCE MEASUREMENT-SPRING 2009           18
    Critical Success Factors
   Required for Strategic Objective Attainment
   Identify one CSF for each objective
   Identification process can be difficult
   Some CSF Examples




INCENTIVES & PERFORMANCE MEASUREMENT-SPRING 2009   19
    Typical Critical Success
            Factors
   Sales department measures
       # of orders taken
       # of new customers
       # of potential customer contacts
       # of return orders
   Shipping department measures
       # of orders shipped
       # of shipping errors
   Innovation measures
       # of new inventions
       # of patents
       # of strategic business acquisitions

INCENTIVES & PERFORMANCE MEASUREMENT-SPRING 2009   20
    Who’s Measuring What?
   Time Warner
        % of network upgraded
        # of subscribers served
   Eli Lilly and Co.
        # of new product launches
        % of sales from new products
   Dell Computer Corp.
        New plant construction
        Days supply in inventory
   AT&T
        # of calls on network
        # of new networks
INCENTIVES & PERFORMANCE MEASUREMENT-SPRING 2009   21
CSF Measurement Factors
   Non-financial Measures
   Operational Focus
   Consider the Ease of Data Collection




INCENTIVES & PERFORMANCE MEASUREMENT-SPRING 2009   22
                 Benchmarking
   Formal “benchmarking” involves the activities
    of “world-class” companies
   “World-class” standards can frustrate “normal”
    organizations
   Settle for a stretch rather than an impossible
    dream
   Consider “best-in-class” standards


INCENTIVES & PERFORMANCE MEASUREMENT-SPRING 2009     23
    Evaluation and Revision
   Remember the ease of collection
   Use meaningful measures
   Monitor at least weekly…even daily
   Make real-time adjustments
   Invite participation in the solution process




INCENTIVES & PERFORMANCE MEASUREMENT-SPRING 2009   24
               Reward System
                 Integration
   Include CSF attainment in the reward system
   Avoid sub-optimizing rewards




INCENTIVES & PERFORMANCE MEASUREMENT-SPRING 2009   25
       Performance Based
      Measurement Graphic
                SP          Drives       PBM

                                 Generates   Supports



                            Action                      $P




INCENTIVES & PERFORMANCE MEASUREMENT-SPRING 2009             26

				
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