We help our clients design and implement sophisticated performance measurement systems. However, it is always a struggle to keep these from being hijacked by the finance departments, who focus on month to month data and not long term goals.
Performance measurement systems are affected by the culture of the group designing and using them. There is nothing wrong with a financial reporting system, but this should not be confused with a performance management system. The latter is intended to guide an organization to results. The finance function, however, is grounded in a culture of risk avoidance and control. The effect of that perspective is to focus on process, accuracy of predictions and variance with expected data.
How much variation in month to month results are typical for your industry? Are long-term trends heading in the right direction? Does your executive team have evidence that past variance with plans is a good predictor of failure to meet goals? Is there a basis to believe this is the case now? Is the finance function being given undue influence over business operations? Remember, accounting is a trailing indicator and, while a provider of important data, it is a supporting function, not a business driver. Tip:
Discuss with your client during performance measurement system design what the specific culture, perspective and impact each department will have on providing data and interpreting those data. Talk about how decisions will be made if one set of data are well outside of expected predictions. How are accountabilities to be set, i.e., how much allowance is appropriate for variance and who is accountable for "fixing" that variance? Have these conversations during the design phase so that your client is not embroiled in conflict about a number rather than measuring progress against long-term organizational objectives.© 2009 Institute of Management Consultants USA