2015 04 28 CIMA EMAT conf 25 april KPIs r tidd and outcome costing a macnab

Outcome costing & budgeting projectDr Alasdair Macnab FCMA, CGMA Saturday 25 April 2015 CIMA Conference: Essential management accounting tools... Macnab Consulting LtdOUTCOME COSTING/COS

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Key performance indicators

Robin Tidd, FCMA CGMA, MCIM

Saturday 25 April 2015

CIMA Conference: Essential management accounting tools

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Robin Tidd MBA FCMA CGMA MCIM

• Founder of rtm established 1980

• Working time spent on performance improvement and culture exercises with businesses of all sizes Led over 250 assignments over the past 34 years.

• Run 300 Managing Directors’ Workshops attended by 3000+ MDs

• Chairman 2000-2005 of CIMA Members in Practice Group Council

Member and member at some time of five different policy committees

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The three Purposes of Key Performance Indicators

• To show results across the business … the

Scorecard

• To provide knowledge of how to improve

• To motivate and involve… to cause action

The latter point is the most

difficult.

All three are essential

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Managers getting Control of their Processes…

The best you can ever do as a front line manager with

a given Process

is:-1 Define what good looks like as an outcome in

simple measures

2 Frequently (SICs) measure whether you are

hitting that level

3 If you are …move the target

4 If not why not, where is the

leakage/waste/opportunity

5 Agree actions with your people

6 Log the actions

7 Review the actions frequently (SICs)

8 Ensure that actions are done

…and so get control of the process

Mapping or modelling a Process should make it clear

what to measure

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“In some organisations only one person has the overview, and is too busy to do anything about it.”

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Manager General Products

Purchasing Manager

Production Manager

Technical (QA) Manager

Warehouse &

Distribution Manager

Assistant Accountant

Staff

No Staff

Production Supervisor

Estimator

Production ordinator

Co-Foreman &

Workforce

Stores Controller

Production Office Staff

Design Supervisor

Drivers Warehouse

Manager

Warehouse Staff

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• We need a hierarchy so that everybody has someone to look to for development We need it for management.

• BUT We should view the organisation as a series of

processes with feedback loops There are internal

suppliers and customers and it all leads to the

customer.

• Ultimately we work for the customer not the boss.

Who do we work for?

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What do others say?

• Good to Great (Jim Collins)

– ‘Confront the brutal facts’

– ‘Be disciplined’

• Winning KPIs (David Parmenter)

– ‘Only 10% of (the Fortune 500) organisations know how

to use KPIs properly???’

– ‘A KPI which is not (reviewed) at the very least weekly is useless as a performance tool’

• Out of the Crisis (W Edwards Deming)

– ‘Understand the process’

Culture is fundamental… and how you use

information is fundamental to culture

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ACT PLAN

CHECK

OR STUDY

DO

Measurement built in here

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Monster Process Map….

(but it worked!)

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Two stories about Short Interval Controls

• Monthly sales meetings

• Daily operations management

filling and testing gas bottles

…but it could be any kind of

operation

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Observations on Management Control

Reds Greens and Blues!

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Supervision Time

DOING 32%

SUPERVISING 5% TELEPHONE

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Supervision Time

DOING 64%

DOING SUPERVISING TELEPHONE ADMIN GET INFO OTHER

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Short interval controls

• Look closer at the process and see more

• Aid the psychological ‘attitude to change’ process

• Enhance, reinforce and accelerate the learning process and

therefore the quality of the process improvements which actually happen

• Give time for re-adjustment when off plan, therefore creating

prevention

(example sales visits and filling coleslaw)

• Short interval control principles relate both to

– provision of KPIs and to

– review meeting

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A great culture has….

• Right figures, correct figures, remove fear

• Scientific, better decision making

• Honesty, openness and dealing in facts

• Efficiency in collecting information, reduced investigations and reduced ‘ad hoc’-ery

• Direction and purpose… targets lined up with strategy

• Learning and improvement throughout the organisation

• Empowerment, involvement

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“When the only tool you have is a hammer its amazing how many things start to look like a nail.”

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Levels of Acceptance

PHYSICAL

LOGICAL

EMOTIONAL

Acceptance of Change = Learning

The Process of Change

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‘Full on’ KPIs

What we mean by ‘Full-On KPI’s’ is:-

• every area of the business has its high level and low level KPIs being produced automatically

• at the ideal intervals

• being reviewed with the people in the process

• against improvement targets

• regularly

• in a fixed hierarchy of well run Action Review Meetings

• being quantified in financial terms (££ per unit or per cent of out put, resource, waste etc.)

• going into a high level dashboard

• which is also reviewed regularly

• allowing top management to see that managers are

controlling their processes

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THANK YOU

Robin Tidd

M 07973 713574

E-mail robin.tidd@btinternet.com

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Outcome costing & budgeting project

Dr Alasdair Macnab FCMA, CGMA

Saturday 25 April 2015

CIMA Conference: Essential management accounting tools

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Macnab Consulting Ltd

OUTCOME COSTING/COST

-EFFECTIVENESS and INTEGRATED REPORTING in the PUBLIC SECTOR

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Purpose of this Element of the Presentation

To provide some thoughts on:

• How outcome costing in public sector organisations can

assist:

•Resource allocations

•Strategy execution

•To determine cost-effectiveness/value for money

•Contribute to Integrated Reporting/Management

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Public Sector

Presents significant challenges:

• Performance seldom confined to a single formal

organisation:

• Government is often an intermediary in process of

prioritisation and resource allocation

• PM system should include the organisation, numerous stakeholders & resources providers

• Need to balance divergent views and consensus

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Strategy vs Structure

In public/not-for-profit sectors:

• Structures set up for administrative reasons

• Staff carry out functions in cross-cutting ways

29

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RBGE High

Level Structure

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Frameworks

• Alternative system required to measure/manage

organisational performance

• Frameworks incorporate non-financial measures which:

• Provides balance to financial measures to:

• Overcome potential for divergent activity

• Encourages:

• Discussions on organisational strategy

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Importance of KPI Selection

to:

• Align institutional effort to goals

• Make the right causal linkages

• Assess progress towards those goals

1 KIPA – Key Impact Progress Assessment - A qualitative assessment of progress of an objective that has not reached a conclusion due to its long-term nature but which has seen effort expended (Macnab & Mitchell 2014).

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RELEVANT PUBLICATIONS

The Strategic Objective Costing (SOC) model: Macnab, Mitchell & Carr (2010) & Macnab and Mitchell (2012);

Outcome Budgeting in the Public Sector: Challenges and Solutions An Exploratory Empirical Study (Macnab

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ALLOCATING STAFF AND

NON-SALARY EXPENDITURE

TO OBJECTIVES

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SCIENCE DIVISION

SB (Conservation & Genetics) A XXX

CENTRE SF XXXXX

STRATEGIC OBJECTIVES BIODIVERSITYA01 COLLECTIONS A02

MANAGEMENT

A03 VISITOR ATTRACTION STAFF TIME (%) TIME (%) TIME (%)

TOTAL COST ON OBJECTIVE BY SF bbbb XXXXX XXXXX

TOTAL COSTS FOR EACH OBJECTIVE aaaa+bbbb XXXXXX XXXXXX

COST ALLOCATIONS

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OUTCOME COSTING MODEL

Total general ledger quantum of cost

Direct resource 1 Direct resource 2 Direct resource 3 Direct resource 4

Overheads applied

to resources based

on ABC

Activity 1 Activity 2 Activity 2 Activity 3 Activity 3

Outcome 1 Outcome 2 Outcome 3

Outcome measures

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RBGE

Model

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EXAMPLES OF OBJECTIVE COSTING – RBGE – Apr – Dec 14

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Visitor Attraction Activity Costs – October – December 2014

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3 Outcome budgeting allows government

spending to be identified with desired national outcomes

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Scottish Government Requires Value for Money

Public Services: “are high quality, continually improving, efficient and

responsive to local people's needs”:

“The quality of public services and the way in which they are

delivered has a major impact on Scottish society and the overall performance of the Scottish economy.

Better and more efficient public services enhance our quality of life, support sustainable economic growth and assure those that fund and rely on them that their public services are responsive, provide value for money and are continually improving.”

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NAO – VFM Model

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How do we Assess Effectiveness and Economy?

Effectiveness: assess - KPIs, KRIs, and KIPAs

• Attainment represents the desired outcome - proxy

for value

Economy (cost)

• Use outcome costing as the basis for deriving

relevant costs

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Outcome Cost- Effectiveness Analysis

• “rate of change of costs c/w rate of change in outcomes”

• If outcome delivery (indicators) increases at faster rate than cost of resources allocated,

• or if resources cost decreases at faster rate than

outcomes delivery reduces,

• then cost-effectiveness increases

• Obviously, the converse is true

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Year 1 Year 2 Year 3 Year 4 Year 5 KRI 1 Herbarium Specimen Record Downloads 206,860 210,000 270,000 320,000 375,000 KRI 2 Number of Herbarium Specimens Digitised and online 247531 275000 295000 315000 335000 KRI 3 Percentage of Library Collection available digitally 1 2 5 10 10 KRI 4 Number of Gold Standard samples in the DNA bank 0 96 192 384 576 cost National Collections Cost 2,555,530 2,597,160 2,664,780 2,565,650 2,597,850

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average of all KRI Normalised scores Outcome cost effectiveness score = -

normalised outcome cost score

Calculation of the C-E Score

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OUTCOME COST EFFECTIVENESS SCORE

of our National Collections and Tourism & Recreation KRIs

National Collections

Visitor Attraction

Comparison of Cost-Effectiveness Scores of Two Outcomes

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<INTEGRATED REPORTING>

“A concise communication about how an organisation’s strategy, governance, performance and prospects… lead to the creation of value over the short, medium and long term” (IIRC)

• Periodic - part of an existing communication – e.g Annual Report

• Concise – filtered to include ONLY material financial and non-financial disclosures

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• Of how value is created – internally and

externally

• Succinctly – wins trust/secures reputation

• Encourages better relationships with

stakeholders

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Involves employees

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• Plays a role in external stewardship-oriented reporting

• Valuable in making assessments of how an entity has been managed and whether VFM is being attained

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Outcome Cost-Effectiveness Analysis

• Assesses the relative use of scarce resources,

• Improves public sector value for money,

• If appropriate management action is taken

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Lunch Please return for start at 1.50pm

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