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How Finance Can Get Top Performance Marks

by Jonathan Collins, 10 March 2011

topics:
Corporate Performance Management Management

tags:
finance function goal setting measurement performance management strategy

A good performance management framework should align corporate vision and strategy with business and departmental objectives. As the global economy rebounds and companies begin to migrate from survival and sustaining mind-sets to one appropriate to growth, now is a good time for finance leaders to re-evaluate their finance function strategies and set their future plan.

A key component in this process is linking the finance strategy to the performance management function.

The Plan

A well thought-out and executed performance management function begins with understanding the strategic plan for the organization as a whole and its impact on the finance function. While different companies use different frameworks to define their strategy, every strategy addresses the following elements:

For the finance function to have an impact and support the overall company strategy, the finance function needs to have its own vision, strategy, set of critical success factors and key performance indicators. In developing your key performance indicators, make sure you are balanced between leading and lagging indicators.

Goal Setting

Once the finance function strategy is set, finance function team members need to set their goals against this strategy. Goal setting at the business area, department or individual level should encompass objectives or measures for results (what actions or outputs need to be produced) and skills/behaviors (how actions are to be performed).

From the perspective of an effective performance management system, measures and targets should be SMART:

Specific: easily understood and agreed upon by managers and staff
Measurable: able to be quantified and updated regularly
Actionable: within the control of the business area/individual
Realistic: be achievable
Time-bound: i.e., within a certain time period

In addition, goals should balance financial and non-financial measures, and should link the strategic to the operational.

Finance-Specific Issues

There are a few areas in the strategic development and goal-setting process that are specific to finance.

Organization. The primary goal for most finance functions at public companies is to align the finance function under the CFO, whose primary responsibilities are financial statement production and audit support, with secondary responsibilities being financial management support.

The organization should be measured on the drive toward common accounting policies, common accounting processes used across the business, and providing better insight into corporate performance through management reporting.

For global companies, the goal of consolidating the number of support functions and centralizing them in one cost-effective location would be appropriate. This will help to save costs, improve efficiency, standardize processes, and enforce internal control.

Measurement. Production of accurate and auditable financial statements is key. The finance function should have goals around driving common data standards through the use of a common chart of accounts, and common financial management measures.

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