Many companies are facing difficulties in measuring performance of support functions within the organization, such as Human Resources, Information Technology, or the Finance and Accounting Department.
What sets apart these functional areas from sales or production, is the difficulty in capturing the outputs, or the impact of their work on the organization. It is a common mistake for companies to focus on measuring what is easy to measure such as $ Sales, % Sales quota attainment, % Market share, # Production cycle time or # Production output.
However, in order to produce the best results for the organization, a performance management system should be aligned across the organization, and not isolated around the key functional areas.
Common KPIs to monitor the performance of the Accounting Department are:
Timeliness:
- # Days to close the books and sign off the month
- # Days to close the books and sign off the year
- # Time to process invoices
- # Time to process transaction /payment
- # Time spent correcting documents or input data per week
- # Payroll processing time
- % Financial reports submitted on time
- % Travel expense accounts processed in three days
- # Days in accounts receivable
Quality:
- % Input errors detected
- % Invoices accuracy
- % Accuracy of transactions /payments
- # Factual errors identified in reports
- # Errors reported by outside auditors
- % Audit recommendations implemented
- % Transaction items requiring reconciliation
- % Collection rate of outstanding amounts
Generic KPIs
- # Internal complaints received
- # Internal customer satisfaction index with accounting services
- % Tasks finalized on time
- % Internal procedures updated
- % Processes optimized
- # Accounting employees to FTEs ratio
- # Improvement ideas coming from accounting employees
- # Accounting employees engagement index
Based on the departmental strategy and the objectives formulated, suitable KPIs can be selected to monitor performance.
In the case of larger companies, the accounting department can consist of different teams which manage specific activities: accounts receivable, accounts payable, payroll. In this context, a dashboard can be used to monitor all the key activities, in conjunction with a scorecard, that will comprise the strategic objectives and the KPIs.
Some of the KPIs presented above under the clusters Timeliness and Quality, can also be measured at individual level. For example # Payroll processing time can be different from one accountant to another and an internal SLA (Service Level Agreement) can be established for this activity, while also taking into account the qualitative aspect of work, such as # Payroll errors.
By clarifying the role of the accounting function, and establishing a strategy, it becomes more easily to identify its overall contribution to the organization. Objectives help managers to map this contribution, while KPIs keep them focused on what matters the most for the department.
By Cristina Tărâță, from: http://www.performancemagazine.org/how-to-measure-the-performance-of-your-accounting-department/