Scorecards and KPIs enhance decision-making

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1 Please disable pop-upblocking software before viewing this webcast. Scorecards and KPIs enhance decision-making Oct. 25, p.m. 3:30 p.m. ET We will be starting soon.

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3 Addressing your questions through Q&A If you experience any technical difficulties, please contact or 3

4 Other helpful features you can use Be sure to shut down all other applications to allow more internet bandwidth. Slides Help Resources Share If you experience any technical difficulties, please contact or 4

5 Presenters Brian Page Partner, Audit Services Not-for-Profit and Higher Education Practices Philadelphia, PA Joseph Mulligan Senior Manager, Advisory Services Not-for-Profit and Higher Education Practices New York, NY Katrina Gomez Manager, Advisory Services Not-for-Profit and Higher Education Practices New York, NY 5

6 Learning objectives Explain key performance indicators (KPIs) to deepen understanding Identify processes for selecting KPIs Assess the risk of manipulation to systems that generate KPIs Describe meaningful scorecards that monitor achievement of goals and performance metrics 6

7 Agenda Overview Determining KPIs for your organization Types and characteristics of performance indicators Scorecards and dashboards Summary Q&A/Discussion 7

8 Agenda Overview Determining KPIs for your organization Types and characteristics of performance indicators Scorecards and dashboards Summary Q&A/Discussion 8

9 Overview Quote KPI Overview KPI definition When you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind; it may be the beginning of knowledge, but you have scarcely in your thoughts advanced to the state of science. - William Thomson Mathematical physicist 9

10 Overview Quote KPI Overview KPI definition What gets measured, gets managed. - Peter Drucker Management theorist, author 10

11 Overview KPI Overview A modern-day phenomenon KPI definition What can the Fitbit and Fitbit users teach us about KPIs and decision-making? 11

12 Overview Definition KPI Overview KPI definition In a 2012 Harvard Business Review article entitled, The True Measure of Success, Michael J. Mauboussin defines key performance indicators (KPIs) as the metrics companies use most often to measure, manage and communicate results. 12

13 Overview KPI Overview Benefits of establishing KPIs KPI definition KPIs help management: Measure performance Manage the organization Communicate results 13

14 Overview KPI Overview Relevance to today s not-for-profit organizations KPI definition Constituents have an increasingly voracious appetite for information: Board members Donors Management Employees Watchdogs Rating agencies Government officials Foundations Is this project a wise investment? What is the organization s demonstrated track record? How are we doing? 14

15 Overview KPI Overview Relevance to today s not-for-profit organizations KPI definition Driving the need for meaningful and timely reporting: Competitive and market pressures Aspirational strategic, business and operating plans Enhanced governance practices Continuous improvement management philosophies Employee engagement Performance-based compensation 15

16 Overview KPI Overview Relevance to today s not-for-profit organizations KPI definition What are the right things to measure? Access to a plethora of data and information has provided organizations with the opportunity to measure nearly everything. Nonprofits can measure performance at a variety of levels of organizational execution. Are there wrong things to measure? What is the relationship between measure, manage and communicate? 16

17 Agenda Overview Determining KPIs for your organization Types and characteristics of performance indicators Scorecards and dashboards Summary Q&A/Discussion 17

18 Determining KPI KPIs Overview for your organization KPI definition Performance indicators can be developed for various levels of an organization: Enterprise or institutional Departmental Finance HR Fundraising Enrollment Membership 18

19 Determining KPI KPIs Overview for your organization KPI definition Performance can be ascertained at individual levels and in aggregate. 19

20 Determining KPI KPIs Overview for your organization KPI definition Enterprise- or institutional-level performance indicators should be derived from the various unitlevel KPIs. 20

21 Determining KPI KPIs Overview for your organization KPI definition Performance indicators should be aligned with the organization s overarching strategy and business objectives. R e s o u r c e s Human Financial Technological Physical Mission Strategy & Business Plans KPIs Reporting Board Employees Constituents Community S t a k e h o l d e r s 21

22 Determining KPIs for your organization KPIs help organizations ascertain if and how they re executing against their strategy and business plans. Where are we now? Internal/external Core competencies Competition Constituent needs Changes in marketplace Opportunities/threats Financial position What are our organizational and departmental aspirations? What does success look like? 22

23 Determining KPIs for your organization Strategic endeavors and business plans typically aspire to significantly enhance the way organizations operate: Build out new programmatic/business areas Refine service delivery and/or increase emphasis on select existing areas within the operation Expand geographically Adjust existing practices and operating models to better serve constituent needs Divest programs/offerings with diminished relevancy Sharpen focus An organization s KPIs should reflect its priorities. 23

24 Agenda Overview Determining KPIs for your organization Types and characteristics of performance indicators Scorecards and dashboards Summary Q&A/Discussion 24

25 Types and KPI characteristics Overviewof performance indicators Benefits of establishing KPIs KPIs help management: KPI definition Measure performance So...where do we start? Manage the organization Communicate results 25

26 Types and KPI characteristics Overviewof performance indicators KPI definition Performance indicators should be aligned with the organization s overarching strategy and business objectives. R e s o u r c e s Human Financial Technological Physical Mission Strategy & Business Plans KPIs Reporting Board Employee Constituents Community S t a k e h o l d e r s 26

27 Types and characteristics of performance indicators Performance indicators should be aligned with the organization s overarching strategy and business objectives. What do stakeholders need to know to better understand our organization s performance and achievement, and to make more informed decisions? That which is perceived to be important should be communicated, and therefore both measured and managed. Board Employee Constituents Community S t a k e h o l d e r s 27

28 Types and KPI characteristics Overviewof performance indicators KPI theory KPI definition Should stakeholder needs/interests determine what we measure/manage? Measure performance Manage the organization Communicate results 28

29 Types and KPI characteristics Overviewof performance indicators KPI theory KPI definition Is communication of performance part and parcel of ongoing management and measurement? Measure performance Manage the organization Communicate results 29

30 Types and characteristics of performance indicators Performance indicators should be aligned with the organization s overarching strategy and business objectives. R e s o u r c e s Human Financial Technological Physical Mission Strategy & Business Plans KPIs Reporting Board Employee Constituents Community S t a k e h o l d e r s 30

31 Types and characteristics of performance indicators Performance indicators should be aligned with the organization s overarching strategy and business objectives Mission Strategy & Business Plans KPIs There should be a clear and inextricable link between organizational strategy, business plans, effectiveness assessment and an organization s KPIs Reporting 31

32 Types and characteristics of performance indicators Kaplan and Norton s Balanced Scorecard framework categorizes performance measures into four main categories. How does the market see us? Customer perspective Financial perspective How do we look to stakeholders? Internal business perspective What must we excel at? Innovation and learning perspective Can we continue to improve and create value? 32

33 Types and characteristics of performance indicators Characteristics of strong performance indicators include: Appropriate creates focus on activities that align with strategy Meaningful measures outcomes, not outputs or routine functions Targeted addresses management priorities Balanced taken from multiple perspectives Quantifiable easy to aggregate, compute and compare 33

34 Types and characteristics of performance indicators Characteristics of strong performance indicators include: Insightful conclusions can be made from the data Clear promotes understanding and agreement; easy to market Objective bias removed Unobtrusive and sustainable does not disrupt nor cause distrust Leading indicators predictive vs. lagging measures 34

35 Types and characteristics of performance indicators Customer perspective Addresses delivering value to constituents (students, faculty, parents, alumni, donors, funding sources, etc.) Core measurements depend on your sector Market share Size of freshman class (higher education) Percentage of homeless community fed (food banks) Retention and growth Number of active/new members (associations/museums] Percentage of student transfers (higher education) Number of new major donors (fundraisers) 35

36 Types and characteristics of performance indicators Customer perspective Service Number/quality of grants made (philanthropy) Shelter services offered (social services) Percentage adjunct faculty (higher education) Average number of years to graduation (higher education) Satisfaction Contract/grant renewals (social services) Response time for financial aid, registration, billing problem resolutions (higher education) Quality ratings of dormitories, food service, health facilities, technology (higher education) 36

37 Types and characteristics of performance indicators Financial perspective Encompasses the fundamentals of the financial value of the institution, including revenue generation and fiscal management (resource allocation and investment decisions): Revenue growth and mix Percentage of income by revenue stream Size and annual growth of endowment Percentage of grants mix Growth of tuition/dues/donations/fees Size and annual growth of unrestricted and restricted funds 37

38 Types and characteristics of performance indicators Financial perspective Cost reduction/productivity improvement Net contribution per course credit Variable cost per departmental unit Asset utilization Net asset mix Endowment fund utilization Investment strategy Return on investment Investment mix Socially responsible spending level 38

39 Types and characteristics of performance indicators Internal business perspective Addresses operating performance; core competencies. Operations Number of invoices per FTE processed FTEs per department Innovation Self-service capabilities Records/content management Website-usage statistics Post-service Service evaluations Timeliness of billing corrections 39

40 Types and characteristics of performance indicators Innovation and learning perspective Addresses the fundamentals of investing in people, including staff acquisition, retention, development and technology. Employee competencies Number of annual training hours per person Number of articles published Motivation and empowerment Turnover/transfers Promotions Information systems IT budget as a percentage of revenue Technology effectiveness scorecard results 40

41 Types and characteristics of performance indicators Case study One organization s approach to aligning KPIs to strategy Strategy Build out new programmatic areas Improve service delivery Expand geographically Adjust the operating model to better serve constituent needs Divest programs/offerings with diminished relevancy Sharpen focus Program enrollment Impact/constituent KPI Number of offices; number of offices in target locations Cost/constituent; cost/offering Number of constituents served/offering; operating margin/offering Number of activities; number of different constituent groups served 41

42 Types and characteristics of performance indicators Key challenges Some common challenges associated with selecting KPIs include: The most readily understood and commonly used measures are not always the best. Day-to-day operations are easier to measure than annual operating objectives and strategy. Many important activities are not thought of in measurable terms. Departmental achievement and measures are ascertained on an informal and non-quantifiable basis. Fear that information may be used to criticize performance. Concern over losing focus on the greater good. 42

43 Agenda Overview Determining KPIs for your organization Types and characteristics of performance indicators Scorecards and dashboards Summary Q&A/Discussion 43

44 Scorecards and dashboards A scorecard or dashboard is an aggregation and synthesis of an organization s or business unit s KPIs typically accompanied by visualization, performance targets and trend analysis. Scorecards and dashboards should be formulated at the discretion of management, based on the specific informational needs of the respective audience: Board Senior management Department Public

45 Scorecards KPI and Overview dashboards KPI definition Scorecards and dashboards enable organizations to convey their key performance indicators to interested parties. Mission Strategy & Business Plans KPIs Reporting 45

46 Scorecards and dashboards Scorecards and dashboards are generally established and maintained in a consistent manner over time, and seek to convey the organization s most critical success measures and business drivers

47 Scorecards and dashboards Examples

48 Scorecards and dashboards Examples

49 Scorecards and dashboards Common pitfalls Some common pitfalls that we have observed include: Lack of a common platform to report progress No tracking to specific objectives required to achieve strategies No responsibilities identified Progress reports that focus solely on implementation of project plans, but that do not address ongoing activities Reporting on activities and not outcomes Omission of management analysis, key issues and dependencies Lack of guidelines for preparation Lack of timely review of progress reports and feedback based on information submitted 49

50 Scorecards and dashboards Implementation considerations Conceptualizing a dashboard is half the challenge; implementation is key Define scorecard metrics Interview key constituents and stakeholders Decide which are the most important measures to be reported Establish thresholds for each metric Implement an automated tool (decision support) Identify baseline data for comparison Decide on a start date Analyze historical budgets, actuals and progress reports Determine baseline data 50

51 Scorecards and dashboards Implementation considerations Develop data warehouse requirements Identify systems and databases that store the necessary data Determine where linkages will be required between systems and warehouse Determine frequency of feeds to warehouse; real time, daily, weekly, monthly Develop progressreporting mechanism Align progress reports to measures Develop templates and reporting schedule Train stakeholders Assign progress report review champions Develop feedback loop process 51

52 Scorecards and dashboards Data integrity Systems and reporting must be periodically evaluated to ensure data quality and reporting accuracy. As such, we recommend that organizations: Identify and review the systems used to maintain security access to financial applications and databases Perform testing on IT policies and procedures to review specifics regarding passwords, access rights administration/review, and access monitoring policies Perform tests on administrative level access to in-scope applications and operating systems, firewall configurations, and access to key files for possible segregation of duties conflicts Test operating effectiveness of access change controls (new hires, modifications and terminations), user access reviews, and access monitoring Review systematic and automated batch processing procedures relevant to financial reporting 52

53 Agenda Overview Determining KPIs for your organization Types and characteristics of performance indicators Scorecards and dashboards Summary Q&A/Discussion 53

54 Please submit your questions and comments to the Q&A section 54

55 Summary Key takeaways from today s presentation include: KPIs are the metrics companies use most often to measure, manage and communicate results. Scorecards and dashboards aggregate organizations KPIs and can be developed at the departmental or organizational level. Management s and constituents principal needs for information should determine which performance indicators are considered key. Targets and thresholds help to provide context regarding performance aspirations and acceptable ranges. Scorecards and dashboards have the greatest integrity when populated from appropriately controlled systems. 55

56 Summary KPI Overview KPI definition KPIs help organizations ascertain the extent to which they ve succeeded at leveraging resources to achieve strategic and business objectives. R e s o u r c e s Human Financial Technological Physical Mission Strategy & Business Plans KPIs Reporting Board Employees Constituents Community S t a k e h o l d e r s 56

57 Agenda Overview Determining KPIs for your organization Types and characteristics of performance indicators Scorecards and dashboards Summary Q&A/Discussion 57

58 Q&A/Discussion 58

59 Presenters Brian Page Partner, Audit Services Not-for-Profit and Higher Education Practices Joseph Mulligan Senior Manager, Advisory Services Not-for-Profit and Higher Education Practices Katrina Gomez Manager, Advisory Services Not-for-Profit and Higher Education Practices

60 Disclaimer This Grant Thornton LLP presentation is not a comprehensive analysis of the subject matters covered and may include proposed guidance that is subject to change before it is issued in final form. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this presentation. The views and interpretations expressed in the presentation are those of the presenters and the presentation is not intended to provide accounting or other advice or guidance with respect to the matters covered. For additional information on matters covered in this presentation, contact your Grant Thornton LLP adviser. 60

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