Reporting, KPIs, Benchmarking, Scorecarding & Dashboards
February 11, 2015
What's it all about?
If you want to create a best-in-class AP team, recording and using metrics are key activities to figure out where you are and where you need to be. The phrase “You can’t manage what you can’t measure” is particularly relevant within AP.
But with such an array of terms and formats around these days describing the gathering and communicating of the right business information, it can be hard to know the best way to go about it all.
And while systematically leveraging metrics to manage performance will definitely help AP find its voice and assert its value within the organisation, AP teams are usually too busy firefighting, struggling against the clock just to complete routine tasks. There is typically not much time left for in-depth performance analytics.
In fact, Accounts Payable News, the online AP publication, estimates that currently only about 10% of AP teams record metrics weekly; 53% do so on a monthly basis. And this is often just 2 or 3 metrics.
So, let’s get down to defining what the various terms mean, how to collect the right information and how often, and importantly, how to use and communicate this information most effectively.
Reporting & Metrics:
There’s always been reporting. What is it exactly? Reporting is the most basic representation of information or data into a formatted, regular, organised format. It is the necessary first step to investigating and improving performance, but it is only that. Reporting will give you the raw information needed but not necessarily in a readily digestible format. Information to be used as a standard for measuring performance – i.e. metrics-- also needs to be balanced out so that it incorporates other, more subjective criteria, not just the strictly numeric. (We’ll get to that later.)
Then there are Key Performance Indicators (KPIs). These are specific metrics – a subset of all the metrics gathered -- designed to help determine performance vis-à-vis defined strategic targets. In the world of AP, typical KPIs are early or late payment calculations, or DPO (days payables outstanding), discount capture and match rates—all of which would be tied to overall targets of efficiency and cost control.
Defined metrics and KPIs should figure as part of your overall Accounts Payable Vision, Mission and Goals statements, continuously reviewed and updated as necessary.
But metrics and KPIs are best-used and most meaningful when placed into a context: over time to show a trend, compared apple-to-apple to other similar organisations or against a specific measurement target. Putting the numbers into a context is where benchmarks come into play, but this is not always easy to do in AP.
In the US, external benchmarking data is more readily available from the likes of Hackett Group, AQPC, Aberdeen, studies from the IFO or IOMA, etc. Some benchmarking info is available in the UK from Accounts Payable News, but it is otherwise nowhere near as prevalent or easy to find.
Relevant benchmarks would be year-on-year measurements, or as compared to sister companies or against other internal departments. The ideal would be to benchmark against a defined, accepted “best practice”. Benchmarking reports are often thus divided into top, middle and low performance brackets to provide guidance.
What’s a scorecard then? Well, there are scorecards and there are balanced scorecards so scorecard is a term used slightly differently from organisation to organisation.
Many managers use a scorecard as a format to quickly represent metrics and KPIs by putting them into an easy-to-read, often one-page, “at-a-glance” rundown. It’s a way to show and communicate the Forest, not just the Trees.
To make a scorecard a reliable, consistent snapshot of organisational performance, it’s important, as Alex Brown of the Project Management Institute says, to keep it real and keep it honest, no matter how much it may hurt!
A balanced scorecard on the other hand is a notion which originated in business with Robert Laplan and David Norton’s introduction of a framework to provide senior management with non-financial indicators to balance out the appraisal of the organisations performance against their Vision and Strategies. So, not just financial indicators but also information on processes, customer perspectives and employee learning and growth.
Both scorecards and benchmarks are ways to quickly and hopefully decisively answer the question “How are we doing?”.
At FISCAL we have used the scorecard in this latter way and have developed a survey which is used to assess AP departments against 20 subjective criteria. We recommend using it as part of your annual review process, together with your basic accounts payable metrics as outlined above.
You can request a copy of the FISCAL Accounts Payable Scorecard here.
Dashboards have come into popular business use in the past several years and are now automated in many software systems. A dashboard is a very high level, usually graphical representation of information contained in the scorecards, updated real-time. This is an ideal way to represent and pitch AP performance to SMT. Here’s an example from Clever Q:
Business managers are now accustomed to viewing metrics in this way, so it’s a good idea for AP managers to follow suit and develop their own dashboard, selecting the most relevant criteria and information for SMT.
Conclusion – The Overall Process
- Define the metrics to be recorded – it is worth meeting with Finance or Senior Management to discuss the metrics they want to see, and agreeing on everything with them beforehand. Some metrics may also be determined by what you can feasibly get from your accounting system or ad-hoc reporting methods.
- Agree on the frequency and the timing, together with management
- Allocate / delegate some of the collection responsibility to your team
- Generate the metrics -- on a weekly, if not daily basis
- Set department goals, targets and KPIs
- Compare / Benchmark your metrics – over time, against similar organisations, against best-practice standards and vis-à-vis targets
- Prepare the Scorecards and Dashboards
- Communicate – to the team, and upwards to Finance and Senior Management Teams on a regular, defined basis
- Collect feedback and revise your metrics and department goals as necessary