Key performance indicators for accounting department: A discussion

Accounting / bookkeeping is a concept that has been in practice ever since the advent of industries and workforce. However, if we ask the question 'What are the key performance indicators in Finance and Accounting practice?' the chances of getting a standard answer remain slim. The concepts of Quality and Process have long been the preserve of manufacturing. Services, notably IT have embraced many of these principles. Can it be extended to the Finance and Accounting world effectively? Can KPIs be defined effectively around these vital parameters? Are there models/examples? Rahul Murdeshwar, CFO of Godrej Hershey Ltd advises a simple approach to setting KPIs for the Finance Department, based on traffic light metrics. Green/Red/Yellow ratings may be applied to all account codes based on schedules and reconciliations for each account code. One can then work on a target like 90% Green accounts.

It becomes important to define success criteria for each account to be labeled green, red or yellow. An example would be:

Number of closing issues identified during the close process. Target < 10 in a year, Example: Closing in number of days (5 days) Number of adjustment entries and value of adjustment entries passed during the closing days In our practice of serving global clients at ThomasandAlex, we have kept a keen focus on Key Performance Indicators (KPIs) for accounting, bookkeeping and financial management functions. Our accounting KPIs have revolved around productivity and quality. Accordingly we have designed a productivity tracking system which is set up together with the customer. Eventually, service pricing is calibrated to this system. From our experience we have found that it is best for the system to evolve through these stages.

1. To keep the risks low initially for the customer, engagement begins with a dedicated resource on a full time or part-time equivalent basis
2. Workflow definitions are achieved and transition of processes to this accountant completes
3. A productivity system is set up for these processes. Throughput measures are outcome focussed and typical measures would be transaction volumes, quantity and type of documents processed etc.
4. Baselines are marked for current processes as well as other potential processes that can be smart sourced. These are based on measurements agreed jointly with the customer.
5. From this point onwards, scalability of engagement is on the basis of productivity.

As for Quality, we have a range of KPIs for accounting that are established on a Behaviorally Anchored Rating Scale (BARS), much the same way Rahul Murdeshwar outlines earlier. We have allowed enough flexibility to have this customized for every client situation.

If you are ready to consider this for your business, contact us and we will be happy to serve you.

You are also welcome to discuss further on our blog : Click here