2015 04 28 CIMA EMAT conf 25 april KPIs r tidd and outcome costing a macnab

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CIMA Conference: Essential management accounting tools Key performance indicators Robin Tidd, FCMA CGMA, MCIM Saturday 25 April 2015 Robin Tidd MBA FCMA CGMA MCIM • 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 as a front line manager with a given Process is:1 Define what good looks like as an outcome in simple measures Frequently (SICs) measure whether you are hitting that level If you are …move the target If not why not, where is the leakage/waste/opportunity Agree actions with your people Log the actions Review the actions frequently (SICs) 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 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 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 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!) How 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 Year Year Year Year KRI Herbarium Specimen Record Downloads 206,860 210,000 270,000 320,000 375,000 KRI Number of Herbarium Specimens Digitised and online 247531 275000 295000 315000 335000 KRI Percentage of Library Collection available digitally 10 10 KRI Number of Gold Standard samples in the DNA bank 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 Macnab Consulting Ltd “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 help? • Creates Value • Provides increased understanding of long-term value drivers to enable better: Strategy formulation Decision-making Business model implementation Macnab Consulting Ltd Tells the story: • Of how value is created – internally and externally • Succinctly – wins trust/secures reputation • Encourages better relationships with stakeholders Macnab Consulting Ltd Involves employees Macnab Consulting Ltd 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 [...]... 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. .. 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:... 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... 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 Macnab Consulting Ltd RBGE High Level Structure Macnab Consulting Ltd Objectives Delivered By Divisions Division Biodiversity Research Collections Management Visitor Attraction Education CSD Enterprise... 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... 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... 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... 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 •... 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 Starting Point: Develop a Costing Model Staff effort to outputs vs data ascertained from cost centres: Macnab Consulting Ltd RELEVANT PUBLICATIONS The Strategic Objective Costing (SOC) model: Macnab, Mitchell... 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
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