CIMA Conference: Essential management
accounting tools
Key performance indicators
Robin Tidd, FCMA CGMA, MCIM
Saturday 25 April 2015
Robin Tidd MBA FCMA CGMA MCIM
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•
•
•
•
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Founder of rtm established 1980
Working time spent on performance improvement and culture exercises
with businesses of all sizes. Led over 250 assignments over the past 34
years.
Run 300 Managing Directors’ Workshops attended by 3000+ MDs
Chairman 2000-2005 of CIMA Members in Practice Group. Council
Member and member at some time of five different policy committees
of CIMA
Currently launching expansion of a unique new model retainer business
for SME’s.
Author of dozens of articles and of four publications including ‘Business
Performance Management’ ‘the Road to Continuous Improvement and
‘KPIs’ for Nelson Croom, award winning on-line publishers .
The three Purposes of Key Performance Indicators
• To show results across the business … the
Scorecard
• To provide knowledge of how to improve
• To motivate and involve… to cause action
The latter point is the most
difficult.
All three are essential
Managers getting Control of their Processes…..
The best you can ever do as a front line manager with
a given Process is:1. Define what good looks like as an outcome in
simple measures
2. Frequently (SICs) measure whether you are
hitting that level
3. If you are …move the target
4. If not why not, where is the
leakage/waste/opportunity
5. Agree actions with your people
6. Log the actions
7. Review the actions frequently (SICs)
8. Ensure that actions are done
…and so get control of the process
Mapping or modelling a Process should make it clear
what to measure
Quote
“In some organisations only one person
has the overview, and is too busy to do
anything about it.”
Managing Director
Finance Director
Sales Director
Manager
Customer
Services
(inside)
‘Reps’
Manager
Special
Products
Manager
General
Products
Purchasing
Manager
Production
Manager
Technical
(QA)
Manager
Warehouse &
Distribution
Manager
Assistant
Accountant
No
Staff
Production
Supervisor
Staff
Estimator
Drivers
Production Coordinator
Stores
Controller
Foreman &
Workforce
Production
Office Staff
Design
Supervisor
Warehouse
Manager
Warehouse
Staff
Staff
Who do we work for?
• We need a hierarchy so that everybody has someone to
look to for development. We need it for management.
• BUT We should view the organisation as a series of
processes with feedback loops. There are internal
suppliers and customers and it all leads to the
customer.
• Ultimately we work for the customer not the boss.
What do others say?
• Good to Great (Jim Collins)
– ‘Confront the brutal facts’
– ‘Be disciplined’
• Winning KPIs (David Parmenter)
– ‘Only 10% of (the Fortune 500) organisations know how
to use KPIs properly???’
– ‘A KPI which is not (reviewed) at the very least weekly is
useless as a performance tool’
• Out of the Crisis (W Edwards Deming)
– ‘Understand the process’
Culture is fundamental… and how you use
information is fundamental to culture
The Deming or Shewhart Cycle
Measurement
built in here
Essentially a
Circle..
LEARNING
ACT
PLAN
CHECK
OR
STUDY
DO
APPLYING
Monster Process Map….
(but it worked!)
Two stories about Short Interval Controls
• Monthly sales meetings
• Daily operations management
filling and testing gas bottles
…but it could be any kind of
operation
Observations on Management Control
Reds Greens and Blues!
BEVERAGES
1
2
3
4
No. of people
5
6
7
8
9
Observations
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
16%
Absent
28%
Idle
56%
Working
Observations on Management Control
Reds Greens and Blues!
IND. 1
1
2
3
No. of people
4
5
6
7
Observations
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
30%
Absent
27%
Idle
43%
Working
Observations on Management Control
Reds Greens and Blues!
IND. 2
1
2
No. of people
3
4
5
6
Observations
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
39%
Absent
21%
Idle
40%
Working
Observations on Management Control
Reds Greens and Blues!
FILLING
1
No. of people
2
3
4
Observations
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
23%
Absent
34%
Idle
43%
Working
Supervision Time
Supervision Time
Short interval controls
• Look closer at the process and see more
• Aid the psychological ‘attitude to change’ process
• Enhance, reinforce and accelerate the learning process and
therefore the quality of the process improvements which
actually happen
• Give time for re-adjustment when off plan, therefore creating
prevention
(example sales visits and filling coleslaw)
• Short interval control principles relate both to
– provision of KPIs and to
– review meeting
A great culture has….
•
•
•
•
Right figures, correct figures, remove fear
Scientific, better decision making
Honesty, openness and dealing in facts
Efficiency in collecting information, reduced
investigations and reduced ‘ad hoc’-ery
• Direction and purpose… targets lined up with
strategy
• Learning and improvement throughout the
organisation
• Empowerment, involvement
Quote
“When the only tool you have is a hammer
its amazing how many things start to look
like a nail.”
The Process of Change
Levels of Acceptance
Acceptance of Change = Learning
PHYSICAL
LOGICAL
EMOTIONAL
‘Full on’ KPIs
What we mean by ‘Full-On KPI’s’ is:• every area of the business has its high level and low level KPIs
being produced automatically
• at the ideal intervals
• being reviewed with the people in the process
• against improvement targets
• regularly
• in a fixed hierarchy of well run Action Review Meetings
• being quantified in financial terms (££ per unit or per cent of
out put, resource, waste etc.)
• going into a high level dashboard
• which is also reviewed regularly
• allowing top management to see that managers are
controlling their processes
THANK YOU
Robin Tidd
M 07973 713574
E-mail robin.tidd@btinternet.com
CIMA Conference: Essential management
accounting tools
Outcome costing & budgeting project
Dr Alasdair Macnab FCMA, CGMA
Saturday 25 April 2015
OUTCOME COSTING/COST EFFECTIVENESS and INTEGRATED
REPORTING in the PUBLIC SECTOR
Macnab Consulting Ltd
Purpose of this Element of the Presentation
To provide some thoughts on:
• How outcome costing in public sector organisations can
assist:
• Resource allocations.
• Strategy execution.
• To determine cost-effectiveness/value for money.
• Contribute to Integrated Reporting/Management.
Macnab Consulting Ltd
Public Sector
Presents significant challenges:
• Performance seldom confined to a single formal
organisation:
• Government is often an intermediary in process of
prioritisation and resource allocation
• PM system should include the organisation, numerous
stakeholders & resources providers
• Need to balance divergent views and consensus
Macnab Consulting Ltd
Is public sector that much different from
private sector?
• Greater accountability and transparency is
required.
• 2 challenges arise:
• Sustainability
• Adaptability
Macnab Consulting Ltd
Strategy vs. Structure
In public/not-for-profit sectors:
• Structures set up for administrative reasons
• Staff carry out functions in cross-cutting ways
29
Macnab Consulting Ltd
RBGE High
Level
Structure
Macnab Consulting Ltd
Objectives Delivered By Divisions
Division
Biodiversity
Research
Collections
Management
Visitor Attraction
Education
CSD
Enterprise
Division
CSD
X
X
X
X
X
X
X
X
X
Environmental &
Financial
Sustainability
Land & Buildings
Facilities
Strategy
Management
& Control
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Enterprise
Horticulture
Science
People
X
Horticulture
Science
Funds
X
Macnab Consulting Ltd
Frameworks
• Alternative system required to measure/manage
organisational performance.
• Frameworks incorporate non-financial measures which:
• Provides balance to financial measures to:
• Overcome potential for divergent activity.
• Encourages:
• Discussions on organisational strategy.
• Working together.
Macnab Consulting Ltd
Macnab Consulting Ltd
Importance of KPI Selection
• Selection of relevant KPIs, KRIs & KIPA1s important
to:
• Align institutional effort to goals.
• Make the right causal linkages.
• Assess progress towards those goals.
1. KIPA – Key Impact Progress Assessment - A qualitative assessment of progress of an objective
that has not reached a conclusion due to its long-term nature but which has seen effort
expended (Macnab & Mitchell 2014).
Macnab Consulting Ltd
Develop a Costing Model
Starting Point:
Staff effort to outputs vs data ascertained from cost centres:
Macnab Consulting Ltd
RELEVANT PUBLICATIONS
The Strategic Objective Costing (SOC) model: Macnab, Mitchell & Carr (2010) & Macnab and Mitchell (2012);
Outcome Budgeting in the Public Sector: Challenges and Solutions. An Exploratory Empirical Study (Macnab
and Mitchell (2014)
• Calculate staff effort (time-sheets) allocated to
supporting achievement of specific strategic objectives.
• Calculate non-salary expenditures - double-coding to cost
centres + relevant objective.
• Aggregating produces the total cost of the objective.
Macnab Consulting Ltd
ALLOCATING STAFF AND
NON-SALARY EXPENDITURE
TO OBJECTIVES
Macnab Consulting Ltd
COST ALLOCATIONS
SCIENCE DIVISION
COST CENTRE
SB (Conservation & Genetics)
SF (Floristics)
STAFF
£
A
XXX
B
XXX
C
XXX
D
XXX
TOTAL STAFF COSTS
FOR OBJECTIVE BY SB
XXXX
TOTAL COSTS FOR
COST CENTRE SB
XXXXX
E
XXX
F
XXX
G
XXX
TOTAL STAFF COSTS
FOR OBJECTIVE BY SF
XXXX
TOTAL COSTS FOR
COST CENTRE SF
TOTAL COST FOR RBGE
A01
BIODIVERSITY
A02
COLLECTIONS
MANAGEMENT
A03
VISITOR
ATTRACTION
STAFF
TIME (%)
TIME (%)
TIME (%)
A
25
35
10
B
50
50
-
C
10
20
-
D
20
15
10
TOTAL STAFF COST ON EACH
OBJECTIVE
XXXX
XXXX
XXXX
TOTAL FINANCE COST ON EACH
OBJECTIVE
XXXX
XXXX
XXXX
TOTAL COST ON OBJECTIVE BY SB
aaaa
XXXXX
XXXXX
E
70
20
-
F
30
20
-
G
-
10
-
TOTAL STAFF COST ON EACH
OBJECTIVE
XXXX
XXXX
XXXX
TOTAL FINANCE COST ON EACH
OBJECTIVE
XXXX
XXXX
XXXX
TOTAL COST ON OBJECTIVE BY SF
bbbb
XXXXX
XXXXX
TOTAL COSTS FOR EACH OBJECTIVE
aaaa+bbbb
XXXXXX
XXXXXX
STRATEGIC OBJECTIVES
XXXXX
XXXXXX
Macnab Consulting Ltd
INFORMATION FLOW
Matching Costs
(proxy for effort)
to Objectives/KPIs
Strategic Objective
Costs can be
reconciled to Cost
Centres for
budgeting purposes
Macnab Consulting Ltd
OUTCOME COSTING MODEL
Total general ledger quantum of cost
Direct resource 1
Direct resource 2
Direct resource 3
Direct resource 4
Overheads applied
to resources based
on ABC
Activity 1
Activity 2
Activity 2
Activity 3
Activity 3
Output 1
Outcome measures
Output 2
Output 3
Output 4
Outcome 1
Outcome 2
Outcome 3
Macnab Consulting Ltd
RBGE
Model
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EXAMPLES OF OBJECTIVE COSTING – RBGE – Apr – Dec 14
Macnab Consulting Ltd
To develop a format for reporting this information.
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Directors Report:
Summary:
xxxxxxxxxxxxxxxx
Highlights:
xxxxxxxxxxxxxxxxx
Areas of Concern:
xxxxxxxxxxxxxxxx
Decisions:
1.xxxxxx
2.xxxxxxxxxx
Macnab Consulting Ltd
Visitor Attraction Activity Costs – October – December 2014
Macnab Consulting Ltd
To link individual
government body
performance
outcomes and their
related costs to
national
government
performance
outcomes.
Macnab Consulting Ltd
CONCLUSIONS
1. An operational system of outcome budgeting is
viable.
2. Outcome budgeting links resources to
performance.
3. Outcome budgeting allows government
spending to be identified with desired national
outcomes.
Macnab Consulting Ltd
Scottish Government Requires Value for Money
Public Services: “are high quality, continually improving, efficient and
responsive to local people's needs”:
“The quality of public services and the way in which they are
delivered has a major impact on Scottish society and the overall
performance of the Scottish economy.
Better and more efficient public services enhance our quality of life,
support sustainable economic growth and assure those that fund and
rely on them that their public services are responsive, provide value
for money and are continually improving.”
Macnab Consulting Ltd
NAO – VFM Model
Macnab Consulting Ltd
How do we Assess Effectiveness and Economy?
Effectiveness: assess - KPIs, KRIs, and KIPAs.
• Attainment represents the desired outcome proxy for value.
Economy (cost)
• Use outcome costing as the basis for deriving
relevant costs.
Macnab Consulting Ltd
Outcome Cost- Effectiveness Analysis
• “rate of change of costs c/w rate of change in outcomes”
• If outcome delivery (indicators) increases at faster rate
than cost of resources allocated,
• or if resources cost decreases at faster rate than
outcomes delivery reduces,
• then cost-effectiveness increases.
• Obviously, the converse is true.
Macnab Consulting Ltd
Example of
Outcome
CostEffective
Analysis
Macnab Consulting Ltd
Year 1
Year 2
Year 3
Year 4
Year 5
KRI 1
Herbarium Specimen Record Downloads
206,860
210,000
270,000
320,000
375,000
KRI 2
Number of Herbarium Specimens Digitised and online
247531
275000
295000
315000
335000
KRI 3
Percentage of Library Collection available digitally
1
2
5
10
10
KRI 4
Number of Gold Standard samples in the DNA bank
0
96
192
384
576
cost
National Collections Cost
2,555,530
2,597,160
2,664,780
2,565,650
2,597,850
Macnab Consulting Ltd
Calculation of the C-E Score
average of all KRI Normalised scores
Outcome cost effectiveness score
=
------------------------------------------------------------------------------------
normalised outcome cost score
Macnab Consulting Ltd
Comparison of Cost-Effectiveness Scores of Two Outcomes
OUTCOME COST EFFECTIVENESS SCORE
of our National Collections and Tourism & Recreation KRIs
2.200
2.000
National Collections
1.800
1.600
Visitor Attraction
1.400
1.200
1.000
0.800
year 1
year 2
year 3
year 4
Macnab Consulting Ltd
year 5
<INTEGRATED REPORTING>
“A concise communication about how an organisation’s
strategy, governance, performance and prospects…..lead to
the creation of value over the short, medium and long term”
(IIRC)
• Periodic - part of an existing communication – e.g.
Annual Report
• Concise – filtered to include ONLY material financial and
non-financial disclosures
Macnab Consulting Ltd
Macnab Consulting Ltd
How does Integrated Reporting <IR> help?
• Creates Value
• Provides increased understanding of long-term value
drivers to enable better:
1. Strategy formulation
2. Decision-making
3. Business model implementation
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Tells the story:
• Of how value is created – internally and
externally
• Succinctly – wins trust/secures reputation
• Encourages better relationships with
stakeholders
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Involves employees
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Outcome Costing:
• Provides information linking resource use and
performance achievement.
• Useful for strategic planning, governance, and
management.
• Plays a role in external stewardship-oriented reporting.
• Valuable in making assessments of how an entity has
been managed and whether VFM is being attained.
Macnab Consulting Ltd
Outcome Cost-Effectiveness Analysis
• Assesses the relative use of scarce resources,
• Improves public sector value for money,
• If appropriate management action is taken.
Macnab Consulting Ltd
THANK YOU!
Macnab Consulting Ltd
Alasdair Macnab +44 7900245467
alasdairmacnab@outlook.com
Macnab Consulting Ltd
Lunch
Please return for
start at 1.50pm