Which KPIs are worth tracking?
Srinivas Pothireddy, vice president at Apps Associates, told CFO Dive which metrics to analyze and which to ignore for meeting today’s digitized demands.
In this Q&A with Jane Thier (@thier_jane), Srinivas answers questions around which KPI’s are worth tracking and how you can leverage Analytics to help evaluate gaps in the financial close cycle, and introduce business process changes through digitalization, to alleviate problems and enable easier access to information.
Financial metrics — tracking them, analyzing them, and knowing which ones to pay attention to in the first place —comprise the backbone of an organization, no matter the industry. Most businesses already have set finance KPI goals, and many use Excel to analyze data, or they use traditional business intelligence (BI) to look at data. Both of these methods can make it fairly difficult to stay competitive today because of the way they lead to data silos.
Organizations must know which metrics to track and measure. Generally agreed-upon “must have” metrics, when it comes to the finance department, include earnings before interest and taxes, liquidity ratio, net cash flow, working capital and vendor expenses.
With BI and other tools that can connect ERP systems to budget data, finance teams can also track more unique KPIs that require in-depth data processing.
CFO Dive spoke with Srinivas Pothireddy, vice president at Apps Associates, about which metrics finance teams should pay special attention to in the year ahead.
This interview has been edited for clarity and brevity.
CFO DIVE: Can you give some examples of lesser-known KPIs? Why are they vital for financial reporting?
SRINIVAS POTHIREDDY: While the most important key metrics can determine the health of an organization and indicate future growth, lesser-known KPIs are vital [in that they let the] finance [team] focus on operational performance of individual departments. Some examples for these KPIs:
Days sales outstanding, which determines the effectiveness of a company’s credit and collection efforts.
Days inventory outstanding, which gives the days, on average, a company takes to turn its inventory into sales.
Days payable outstanding, which is how many days a company takes to pay its bills and invoices to suppliers, vendors or other companies.
Actual vs. budgeted expenses.
Cash flow ROI, which [indicates] the performance of an investment or product.
Revenue by product line or product.
As finance becomes increasingly digitized, what can CFOs, other finance executives and their teams do to stay ahead of the curve?
POTHIREDDY: Finance has increasingly become digitized, but [while it] yields successful results, the path towards digitalization is still being explored. Finance teams continue to have a large scope for adopting digital technologies, with the goal to improve existing business models and engage in opportunities for increased revenue. To stay ahead of the curve, CFOs, VPs of Finance and their teams can:
Integrate disparate systems, [potentially including] external expense managements systems, freight management systems, budget and forecast tools and other external sales transactional systems, with the core financial processes to improve accuracy and reconciliation.
Collect historical transactional data sets that can later be used for trending, predictive analytics and advanced analytics.
Capture and store information with a “Data Lake,” which can be used for reporting and warehousing. As the number of systems in use and data grows, it becomes crucial to capture the details of low-level transactional information from all sources available.
Scale data processing systems for compute and storage as data grows.
Where should CFOs draw the line between human tasks and automated tasks? Which parts of the reporting process are well-positioned to be digitized, and which should still be done by humans?
POTHIREDDY: Most tax and regulatory reporting, in addition to core business functions, are already automated, or in the process of getting automated. This includes month-end and year-end financial reports, SEC reporting, and Wall Street reporting.
However, there are still several tasks that will continue needing human involvement. Among them:
Compliance, fraud monitoring and detection, including checks and balances
Approvals like expense, PO & request approvals
Advanced analytics and continuous improvements in business processes
Read the full article here: – https://www.cfodive.com/news/which-kpis-are-worth-tracking/566183/
About Apps Associates:
Apps Associates is an enterprise application services leader with a customer-first focus. Apps Associates has more than two decades of experience helping organizations innovate through digital transformation initiatives. Customers such as Brooks Automation, Hologic Inc., Edwards Vacuum, and Take Two Interactive Software turn to Apps Associates for strategic counsel, system integration and the services required to solve their most complex business challenges – utilizing experience in analytics, application modernization, process automation, digital systems, technology and operations. To learn more about how Apps Associates can help you align your business with the right technology, visit: www.appsassociates.com, or follow Apps Associates on social media on Twitter and LinkedIn.