Less is more. It's an idiom most finance pros embrace for everything from management oversight to how many data points get crammed onto a presentation slide. Yet KPIs seem to unleash an unquenchable thirst for more, more, more. If measuring three key performance indicators helps business, the thinking goes, wouldn't measuring 10 be even better? What about 20? Or even 30?
The end result is that department heads become so awash in data that their eyes glaze over and they disengage from the process of collaborating with the finance function. And KPI overload can cause the FP&A team problems, too. If every metric is deemed important enough to earn the label KPI, then no indicator truly stands out or signals importance. The term becomes diluted, and those indicators that should warrant extra attention get lost in the static of so much noise.
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Tracking performance indicators that actually drive growth is no small feat. But finance leaders have more to do than merely pare back the overgrowth and get teams to focus on the KPIs that truly matter. They must also nurture engagement and trust with those metrics, so that the right data can unlock insights—and action. Here's how to get started.
There's no question that different business units or departments may favor certain metrics over others. But when each department head is left to define and label that metric in a silo, it becomes impossible to compare data across department boundaries. Rather than communicating about which KPIs are truly key, everyone is stuck talking their own data dialect. A metrics catalog can be a quick, efficient way to get everyone speaking the same language. It pulls together all financial and operational business metrics into one central database, as well as defines how each is measured and how often. Because a shared understanding of the KPIs is the first step to figuring out which ones matter most.
Anyone in finance can tell you that manual spreadsheets and spreadsheet-based presentations can be riddled with inaccuracies: outdated data, typos, redundancies. That's why such a large part of most FP&A teams' time is spent verifying and double-checking data and formulas. But spreadsheet peril isn't a secret confined to the finance department. Budget managers know the spreadsheets that get circulated sometimes reflect inaccurate data. And the quickest way to erode trust with other departments is to share reports built on bad data or ask them to enter budgets or submit plans into a system that isn't accurate and up-to-date.
When people feel they can't trust the accuracy and consistency of the KPIs they're tracking, they naturally begin to cast a wider and wider net for validation and reassurance. To stop that net-casting, a single source of truth is nonnegotiable. Cloud-based software trump spreadsheets in this area, because they're updated in real time for all users, so managers know the KPIs they're looking at are accurate.
No performance indicator can tell a story on its own, of course. And an isolated metric isn't going to spur strategic insights or questions; it's not going to prompt action or engagement. Instead, budget managers need to be able to see KPIs in context—how the indicator has been performing over time, what the forecast looks like for the near and distant future, which underlying data might be influencing the movement. But how can finance leaders help budget managers dig deeper without causing a deluge of data? The trick is an intuitive financial and operational dashboard that's easy to use.
Selecting a few actionable KPIs is much more effective than many merely interesting performance indicators. Communication clarity is highly valuable, and what gets shown makes a statement about priorities. The dashboard should draw the user into what is truly important. Additionally, budget managers should feel empowered to answer their own queries and run their own reports (rather than sapping the FP&A team's time with such requests). And a dashboard that has a strong visual component makes it easy to see, at a glance, the financial context surrounding certain KPIs.
Loren Den Herder is director of the Business Application Development Group at Moss Adams LLP. His leadership and expertise has helped improve business results for companies across numerous industries and business functions.