This module will: Measurable examples:

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1 Metrics Management Improve Your Budgeting and Control By John L. Daly & Dan Chenoweth MBA, CPA, CMA, CPIM MBA, CPA Executive Education, Inc. (734) Executive Education, Inc., Inc Focus of Session This module will: Build framework for dealing with control Begin with non-financial metrics Start by looking at the whole company Subsequently drill down to level of profit centers and cost centers & Innovation Measurable examples: Number of new products introduced Product introduction lead-time Number of patents obtained Training hours per person Employee turnover Employee satisfaction Executive Education, Inc., Inc Executive Education, Inc., Inc Associated with Kaplan and Norton at Harvard University. Choose key performance indicators (KPIs) based on critical ca success factors (CSFs): Based on unique business strategy. Measurables for companies in the same industry should be different. Executive Education, Inc., Inc Executive Education, Inc., Inc

2 Operational Measurement Examples: Equipment utilization Production efficiency Billable hours Revenue per employee Revenue per order Revenue per customer Executive Education, Inc., Inc Executive Education, Inc., Inc Perspective Measurement examples: Profit Profit per something (Good to Great) Shareholder value-added added (SVA) Debt/Equity Return on investment Return on assets Executive Education, Inc., Inc Executive Education, Inc., Inc Perspective Southwest Airlines Measurement examples: Quality Ratings Speed of Service Repeat s New Acquisition Market Share Executive Education, Inc., Inc

3 Case Output Measures How would you measure the amount of work done? Health care Public accounting Manufacturing Restaurant Retail Output Measures Metrics depend on identifying an output measure for each activity. May examine at a company-wide level or for individual cost/profit centers. Good to Great companies all used profit/something as their key metric. Executive Education, Inc. Inc Executive Education, Inc., Inc Typical Budget/Actual Comparison Did this department do well or poorly? Month Ending 8/31 Actual Budget Difference % Diff. Wages 107, ,634 2, % Benefits 40,927 39,585 1, % Other Expenses 39,880 36,475 3, % Total Expenses 188, ,694 7, % Key Metric Examples Company-wide examples: Kroger: Profit/person in geographical area Nucor: Profit/ton of finished steel Walgreens: Profit/customer visit Wells Fargo: Profit/employee Executive Education, Inc., Inc Statement with Metrics Can you tell now? Month Ending 8/31 Actual Budget Difference % Diff. Wages 107, ,634 2,668 25% 2.5% Benefits 40,927 39,585 1, % Other Expenses 39,880 36,475 3, % Total Expenses 188, ,694 7, % Output Units 16,980 15,267 1, % Cost/Unit $11.08 $11.84 ($0.76) (0.6%) Output Measure Examples Profit centers Services: # of billable hours Retail: # of customers Wholesale: # of orders fulfilled Manufacturing: # of hours at standard Cost centers: Accounts Rec: # of invoices processed Supervision: # of active projects Executive Education, Inc., Inc

4 Performance Metrics Each activity should have at least one metric measuring financial performance: Cost centers: cost/unit Profit centers (commonly): Revenue/unit Cost/unit Gross Margin/unit Business Performance Management Each software vendor different. Common BPM modules: Analytics Budgeting Consolidations Metrics Portal (for remote access) Dashboards common Executive Education, Inc., Inc Executive Education, Inc., Inc Metrics Usage Managers measured against fixed cost and variable cost/unit. Less need for interim budget revisions. Activity i costs used similar il manner to ABC. Benchmarking Changes perspective from past to future Reduces politics Focuses process on what numbers should be rather than on what they have been Cost aspects discussed in 2:50 pm session Know Your Cost Executive Education, Inc., Inc Performance Management Recent survey said that 62% of companies reported that getting combined financial and operation information was hard or very hard. 64% said that data is different between departments. Uses of Metrics Exhibits: Retail profit center: Schedule I Manufacturing cost center: Schedule II Healthcare: Schedule III Professional services: Schedule IV Executive Education, Inc., Inc Executive Education, Inc., Inc

5 Tips for Success 1. Determine one or two metrics which will define your organization s overall success 2. Determine the metrics for all four balanced scorecard perspectives which lead to accomplishing the organization s goals 3. Develop output measurements for each major company activity Executive Education, Inc., Inc Tips for Success (cont d) 4. Include output measurements and $/unit in all financial responsibility reports 5. Manage to the metrics Executive Education, Inc., Inc Contact Information Dan Chenoweth John L. Daly Dan or (734) Executive Education, Inc., Inc