Not all of a company’s assets are found on the balance sheet. Identifying and understanding nonfinancial key performance indicators (KPIs), from employee turnover to social media engagement, can give companies a real edge over the competition.
Improved forecasting is just the beginning
A 2016 FSN survey found that CFOs who make better use of nonfinancial data were roughly twice as likely to forecast earnings within 5%. The survey found that tracking nonfinancial KPIs also doubled the odds that a CFO would look confidently beyond the twelve-month time horizon, as well as feeling prepared to respond to market change.
Our own study reveals that while nonfinancial metrics comprised just 10% of KPIs two years ago, CFOs expect that number to reach up to 30% on average two years from now. In fact, nearly half (41%) of the respondents said they expected nonfinancial KPIs to comprise 30% or more of their metrics by 2018.
Against that backdrop, here are three business benefits gained by keeping a close eye on nonfinancial metrics that we presented in a recent webinar:
Benefit #1: Counting what counts
Putting too much emphasis on financial data can give you a lopsided view of your business. “One of the best ways for an organization to improve its performance management environment is to have the CFO partner with the rest of the business in the development of more-balanced metrics,” Jason Balogh, a principal in The Hackett Group’s enterprise performance management transformation practice, recently told CFO.com.
To determine which nonfinancial KPIs will help provide a more complete picture, schedule time to meet with leaders from across departments. Work with them to select metrics that can be tracked and steer clear from KPIs that are vague or require too much manpower to measure.
Metrics that track aspects of the company’s sales funnel are often a good place to start. For example, you might want to track market size because it determines your potential customer base. And tracking media exposure can help you understand how well you’re reaching your target market.
Benefit #2: Better data integrity
Getting more departments involved can also inspire a company to centralize its data—and streamline reporting. According to Adaptive Insights’ CFO Indicator Report Q4 2016, 60% of CFOs said their companies house operational and financial data separately, which makes it tough to track performance holistically.
Plus, more than half of CFOs (54%) said they generate reports by exporting data out of their ERP systems and into a Microsoft Office® application, which means data has a high chance of being compromised while it’s being analyzed and shared. As files are copied and different departments make edits, it can be tough to know which version, if any, is completely up-to-date.
A user-friendly system that’s accessible to all key employees increases the likelihood the data reviewed and discussed at weekly, monthly, or quarterly metrics meetings is high quality data.
Benefit #3: Strategic focus
Today, too many CFOs waste a lot of time gathering data, confirming its accuracy and consistency, and formatting reports. According to the Adaptive Insights survey, CFOs report they’re spending just 17% of their time on strategic tasks. While the CFOs and their teams can remain keepers of the data, they must be able to rely on other departments to uncover the meaning behind the numbers. This will not only free up the CFO’s time, but also solidify a sense of ownership within each team.
Including nonfinancial metrics in performance reviews can help elevate the conversation, encouraging leaders to focus on strategic goals—not just profit margins. And making reporting a team effort has the added benefit of freeing up CFOs to focus on more strategic initiatives.
Nonfinancial KPIs allow companies to look beyond profit margins to see the trends that are driving those results—and potentially uncover important business opportunities.