- December 20, 2018
- Posted by: Midridge International
- Category: Blog, Finance Function, Uncategorized
When we talk about business transformation, most organizations attempt to achieve that by focusing on cutting costs and protecting the margins. However, I dare say that business transformation cannot be achieved without effective performance management.
The Finance function can add great value by bringing clarity to all the elements that contribute to optimum business performance and how these elements work together to bring about change in the business.
Every modern and forward-looking business should have a robust enterprise performance management framework that takes a holistic and balanced view of the business and provides an understanding of how each element contributes to the whole, to move the business in the right direction.
An organization’s performance management framework should cover its Strategy and Planning; Execution and Delivery; Measurement and Reporting; Analysis and Feedback. Supporting these elements are Risk Management and Controls as well as effective Stakeholder Management, while Resource Management and Transaction Management remain at the core of an effective performance management framework.
Let me briefly explain each of these elements:
Strategy and Planning
Every organization should have well-articulated vision and mission statements. These high-level statements indicate the long-term ambition of the organization and how they will achieve it. To achieve this corporate ambition, the business needs to set clear, intentional and measurable objectives which are communicated to all the teams. A strategic business plan should be developed to break down the objectives and guide the “how” of achieving them. It’s basically a working document that details what is critical for the business, and what needs to be done.
Execution and Delivery
“Execution” is basically doing what you planned to do. This often involves implementing new changes, new policies, new technology or operating systems etc. It is important to ensure that “change projects” are appropriate and will actually help rather than hinder performance.
“Delivery” is about making sure that execution achieves the desired outcomes and that all stakeholders are being served in a way that is good for the business.
Measurement and Reporting
What should we measure? What performance indicators tell whether we are successful or not? How often should we track these indices and report on them? Who should get these reports and be accountable for the results? These need to be clearly mapped out.
Analysis and Feedback
Performance measures do not necessarily tell you whether your plan was wrong or whether you just did not follow your plan exactly right. They only tell you that you are not where you wanted to be.
So, analysis is needed to answer the key questions, and to give you feedback that you can build into a new plan – either a change of plan, or a plan to execute the existing plan better. That closes the performance cycle.
Risk Management and Controls
These are in the supporting environment for business performance management. Risks are things that may happen that may threaten the performance or even the going concern status of the business. Risk management is all about being aware of, assessing and reducing risks by various means.
Internal control is the control environment that helps to reduce the likelihood of some risk occurrences. This also includes “Compliance” because putting controls in place to ensure you are not in breach of any rules and regulations that guide your business, reduces the risks of penalties and other consequences of breaking laws and regulations.
Stakeholders are all the people that have an interest in the performance of the business, including the owners/shareholders. Their interests and how they impact the business performance need to be known and clearly understood. Do you need to plan any specific actions to ensure that they are a positive rather than negative influence in the performance of the business? It is better to manage that intentionally than to leave it to chance.
Now, how do these all add up?
For better business performance management, there are things that need to be considered:
- Understand that each of the elements help to drive towards better performance;
- Doing each of the elements better – better planning, better execution, better measurement, etc.; and
- Fitting the elements together better
Consider how planning, execution and measurement are linked or fitted together.
How do you know what to measure? Why would you report on measures that do not tell you whether you are actually doing what you planned, or tell you whether the results are as good as you hoped?
It is clear that the finance function can help drive the process of ensuring effective performance management and as a matter of fact be involved in monitoring the effectiveness of each element of the framework.