Nine Rules to Manage Performance Metrics: Tips from FP&A Experts

Anything with a number has a measure, but a metric drives a business decision. How do organizations use metrics to drive the right business decisions, and how do they manage the proliferation of metrics when we have the capacity to measure and store everything? In today’s shifting financial environment, companies need to ensure their metrics guide the best outcomes that align with the organization’s goals.

Brooke Ballanger, AFP | 29 October 2021

Learn more about the worldwide importance of FP&A and corporate finance

In a recent AFP Asia-Pacific webinar, “9 Rules to Manage Performance Metrics,” Bryan Lapidus, FPAC, AFP’s director of FP&A Practice, moderated a discussion on the lifecycle of performance metrics to share insights and “rules” on how to manage a company’s metrics.

Joining Lapidus for the discussion were Hari Ramani, controller and reporting analysis lead at Royal Dutch Shell in Shinai, India; Lance Rubin, founder of Model Citizn and co-founder of Full Stack Modeller in Melbourne, Australia; and Kevin Wong, Asia finance lead for Blue Bottle Coffee in Hong Kong, China. These finance experts provided rules for each performance metric lifecycle: creation, maintenance and retirement.

Summary: 9 Rules to Manage Performance Metrics

Creation 

1) Propel the Company into Action  

According to Ramani, making metrics as clear and legitimate as possible for the future is one of the most important metric drivers. “Too often, metrics are set up in a way that tell us what has happened in the past and what is happening right now, but it does not tell us what needs to happen in the future,” said Ramani. “While your metrics need to intuitively inform you if there is a big gap towards your ultimate goal, they also need to tell you how to take your business forward.” 

In addition, Ramani encourages companies to drive toward clear targets with interim checkpoints that allow for validation against its ultimate potential. That way, it is easier to know what needs to happen in the next couple of quarters to achieve a number for a long-term goal.  

2) Construct with “SMART KISSes” 

Smart is an acronym for attributes of well-defined metrics: Specific, Measurable, Achievable, Reliable, Time-bound. “Whatever metric you are going to create, it needs to be specific — specific enough that you can take action,” said Rubin when explaining the concept of SMART goals. “You want to make sure that you are setting a target that is achievable and reliable, as this is an important part of setting up something that you can rely on.” 

Rubin also explains how an important manta around metrics is to “Keep It Super Simple” (KISS). While you might not have the metrics mastered right away, get started by testing through time on simple key performance indicators (KPIs). “The SMART KISSes are really about aiming for those key goals around SMART for the metric, but then getting started, testing it, using it, and being agile,” said Rubin. 

3) Align the Organization from Top to Bottom 

According to Wong, top-level metrics need to break down to a fundamental level — something that all levels of the organization can agree on and support. When we work in large organizations, different levels will have feasibility care over different metrics. “That is why I think it is important for us as FP&A individuals to be able to help the organization break down goals into their bits and pieces, into the breaks that build the castle or the house,” Wong said.  

Wong also believes that metrics and individuals should be able to draw a line from strategic to operational to tactical levels of operational metrics. “Each level should have a higher purpose where they understand that by achieving these metrics, it helps achieve certain goals that lead to the strategy and vision for the company.” 

Maintenance 

4) Validate Externally 

According to Ramani, validating metrics externally means constantly having an eye on what is happening outside of your organization. It is important to look at what is going on in the shifting market, how the competition is responding, and how you need to position yourself in both the immediate and long term. 

Ramani notes that you need to be able to say, “My operating assumptions have changed, and my metrics need to follow suit. I need to ensure that the metrics reflect the current condition that I have externally, and the responses I am putting together internally.” 

Ramani also explains that it is important to constantly check on driving your business direction, as you set out those metrics for a reason. Make sure the metrics are aligned with your strategy and goals. 

5) Validate Internally 

Metrics need to be reviewed on a timely basis by all levels of the management team, according to Wong. He explains that metrics should ultimately lead to a higher goal or direction. “We have to constantly validate and evaluate if the formula is still correct,” said Wong. “And a lot of times when the market changes, like with the pandemic, we must re-evaluate the formula again.” 

6) Automate for Execution 

Rubin encourages companies to automate the production of metrics and reports, thereby allowing it to be visible and have a greater impact. Automation allows for an easier management process to gather how metrics are being looked at and moving over time. 

In addition, Rubin explains the importance of authenticity and interpretation when maintaining metrics. “It needs to be driving good performance but also aligned to people and helping the organization,” said Rubin. 

Retirement 

7) Define Obsolescence 

“There is a reason why we have put the metric in place, but it is also crucial that we know when the life of a metric is done,” said Ramani. “Once you have hit defined targets, the metric itself can evolve or morph into something else; we need to be carefully watching out for whether or not that metric is still relevant.” 

Ramani also encourages companies to check if the metric continues to help define or drive the right behaviors. “Check those behaviors as soon as you create the metric, and constantly watch out for those signs of obsolescence,” said Ramani. “If the targets are achieved, or if the metrics themselves are no longer relevant, consider retiring them.” 

8) Reflect on the Purpose for Creation 

When focusing on the retirement of metrics, Rubin suggests reflecting on why it was created in the first place. “If we create it to drive revenue, and it is not driving revenue, then the purpose no longer exists,” said Rubin. “The key thing to understand is the pattern of what was evident at that point in time and what has changed.” 

Rubin also advises to avoid unnecessary vanity KPIs. “It is important to understand and even document what this KPI is for,” said Rubin. “Define it and make it available to people. This provides an opportunity to reflect on not just facts changing but maybe your goals and strategy are changing too. The KPI is not always needed when the facts have changed.” 

9) Balance Consistency with Utility 

According to Wong, companies must balance the consistency of maintaining certain metrics or getting rid of certain metrics with the utility of the metrics. “It is important to remove unnecessary KPIs that would remove focus for the teams, but also important for us to keep in the high-level KPIs that will be kind of timeless and useful for the business in the long term,” said Wong. 

Wong also advises to assess controllables that the team can manage, and how to focus that on KPIs rather than spreading attention across all KPIs. “Some KPIs will be timeless and will always be an indicator of the overall business health and direction,” said Wong. “At the same time, we always have to consider those special circumstantial KPIs that would be useful to focus on in the short run.” 

Learn more about the worldwide importance of FP&A and corporate finance on AFP’s Asia-Pacific page.