We CFOs are in the measurement business. To assess our organizations’ financial stability and progress, we rely on an alphabet soup of metrics—EPS, ROE, ROI and EBITDA, to cite a few acronyms. But there is an equally pressing need to measure something else - ourselves.
CFOs are essentially paid to analyze the flow of capital into and out of the business, but how we go about these tasks is a measure of our overall effectiveness and the operating efficiency of the accounting and finance staff.
There are conventional yardsticks to gauge this productivity; metrics like the time it takes to close the books, the total costs per full-time finance employee, and the financial report error rate, among others. Many accounting and finance departments are also measured as a percent of the organization’s total revenue, with the best of us supposed to cost less than one percent.
Well and good. But in order to facilitate continuous improvement, modern CFOs need timelier and more granular details to learn where we may be going off the rails.
Is This Really Bad?
There’s nothing wrong with conventional measurements of accounting and finance performance, but they tend to be very general, failing to account for the differences in strategy and operations from one company to the next. My total costs per FTE might be higher than my competitors, but is this really bad?
Maybe we perceive our accountants as more of a strategic function, and are willing to pay them extra for this value. And just because your time to close is better than ours doesn’t mean we’re having trouble reconciling the accounts.
I’m not advocating that we jettison the conventional metrics or even change them. Good CFOs should care that all the accounts are accurately and quickly reconciled before the reporting goes out, even insisting that a variance analysis be conducted before the recs are completed. But great CFOs should want more—the ability to access real-time data analyzing the efficiency of our processes at far more granular levels.
If You Can, You Should
With a cloud-based, automated accounting and finance system, this opportunity is at hand. Richer presentations can be delivered to the CFO, with metrics designed to provide specific answers to specific questions about the business. The details are in the data, accessible to strong analytics.
Certainly, a good CFO will want to know the percentage of the balance sheet that was un-reconciled. But a great CFO also wants to know this metric in relation to the underlying processes performed:
The average number of assignments per user
The average assignment rejection rate
The average number of completed assignments
The average number of days to completion for a selected assignment
These insights can only be acquired if the provider of the accounting and finance system has stored enough data to analyze and benchmark against industry peers. The data should come from millions of reconciled accounts, posted journal entries and executed tasks, all culled from the specific actions of users. For the CFO looking to run a tight ship, this dynamic data becomes actionable intelligence.
The CFO should operate like a data scientist of sorts, leveraging analytics to divine unique correlations, outliers and trends. We may still be swimming in an alphabet soup of key performance indicators, but we’ll be swimming more deeply, scavenging for the golden insights guiding our continuous improvement and measuring our performance against our peers and our own internal goals.