Finance KPIs and Metrics to Measure Success

Finance leaders must respond to stakeholder requests for information and support data-driven decisions. But without a framework to clarify stakeholder information needs, leaders risk delivering low-value, misaligned and ineffective insights.

Driver mapping solves the problem by aligning both enterprise and finance KPIs (and related data management, governance, reporting and analytics activities) to business outcomes. By mapping both enterprise and finance KPIs to drivers, you can determine the most relevant finance KPIs and metrics objectively and recommend them to decision makers based on factors such as data quality, latency, effort and timing.

To create a driver map, follow these steps:

Step 1. Develop a draft

Spend 30 minutes or less drafting a visualization of a driver map, which can then be shared with business leaders for feedback. Begin by identifying the target altitude (e.g., an entire organization, business unit or project). Then follow these substeps:

• Identify the primary, quantifiable North Star value outcome that the business, product or project you are mapping should deliver. 

• Note the primary strategic drivers that will determine performance against the value outcome. 

• For each strategic driver, identify tactical drivers related to core processes or new initiatives that will drive performance.

• Note any tactical, day-to-day activities that will impact each operational driver.

Important: The map should represent the primary drivers business leaders manage; it doesn’t need to be a complete scientific mapping of the organization. 

Step 2. Work with business leaders to edit the draft

A driver map should reflect how business leaders view operations delivering financial or other strategic outcomes. Use an incomplete or generic driver map as the basis for discussion and let business leaders add new drivers, redefine relationships and otherwise co-edit the initial draft. 

Step 3. Develop a metrics cascade

Map any finance KPIs or metrics that the organization currently reports to each driver those metrics describe. This will create a metrics cascade and allow you to further rationalize the finance KPIs and metrics that are reported. Drivers with too many finance KPIs and metrics (or too few) are easily identifiable: At most, there should be no more than five KPIs per driver. 

Step 4. Pressure-test the cascade for relevance

Using regression or lagged regression analyses, test the relevance of finance KPIs and metrics for each driver. This quantitative approach is also useful to cull the list of potential metrics and KPIs to a more reasonable number. For example, if your commercial leader believes new business is driven in part by territory size for sales reps, analyze the relationship between territory size and new business revenue. 

Step 5. Use driver map(s) to inform D&A strategy

Your driver maps should be a reflection or an abstraction of your enterprise’s D&A strategy. They may not only be used to inform decision makers with actionable and relevant information, but also to develop more intuitive dashboards, improve relational data models (such as data marts) and prioritize the work of data governance.

Step 6. Use a hybrid approach to curate the driver map

Revisit the driver map during the annual strategy process to determine whether finance KPIs are still relevant or an update is needed. Also consider hosting select maps on your organization’s intranet site or in business intelligence tools for further transparency and decision alignment.

Most business decision makers consider less than half of the broader financial implications of their operational decisions — and over 20% of business decision makers don’t consider any. The resulting low-quality decisions can cost as much as 3% of an organization’s earnings.

Placing “guardrails” into decision-support tools brings needed balance between decision-maker autonomy and decision governance. A guardrail defines a range of acceptable choices, allowing decision makers to act independently while preventing them from compromising finance KPIs. 

Consider this example: 

• A company’s FP&A team uses established finance KPIs to embed a predetermined inventory-to-sales ratio, i.e., a guardrail, in the company’s inventory purchasing tool. 

• When a decision maker inputs a purchase amount, the tool calculates a resulting inventory-to-sales ratio based on the established finance KPIs.

• That ratio is automatically highlighted in the tool and shared with FP&A if it falls outside the acceptable ratio. FP&A then discusses the decision with the relevant decision maker to determine how to proceed.