How to measure the performance of your Accounting Department
Many companies are facing difficulties in measuring the performance of support functions within the organization, such as Human Resources, Information Technology, or the Finance and Accounting Department.
What sets apart these functional areas from sales or production, is the difficulty in capturing the outputs, or the impact of their work on the organization. It is a common mistake for companies to focus on measuring what is easy to measure such as $ Sales, % Sales quota attainment, % Market share, # Production cycle time or # Production output.
However, in order to produce the best results for the organization, a performance management system should be aligned across the organization, and not isolated around the key functional areas.
Here are some of the most common KPIs to monitor the performance of your Accounting Department:
Timeliness:
- # Days to close the books and sign off the month
- # Days to close the books and sign off the year
- # Time to process invoices
- # Time to process transaction /payment
- # Time spent correcting documents or input data per week
- # Payroll processing time
- % Financial reports submitted on time
- % Travel expense accounts processed in three days
- # Days in accounts receivable
Quality:
- % Input errors detected
- % Invoices accuracy
- % Accuracy of transactions /payments
- # Factual errors identified in reports
- # Errors reported by outside auditors
- % Audit recommendations implemented
- % Transaction items requiring reconciliation
- % Collection rate of outstanding amounts
Generic KPIs
- # Internal complaints received
- # Internal customer satisfaction index with accounting services
- % Tasks finalized on time
- % Internal procedures updated
- % Processes optimized
- # Accounting employees to FTEs ratio
- # Improvement ideas coming from accounting employees
- # Accounting employees engagement index
Based on the departmental strategy and the objectives formulated, suitable KPIs can be selected to monitor performance.
In the case of larger companies, the accounting department can consist of different teams which manage specific activities: accounts receivable, accounts payable, payroll. In this context, a dashboard can be used to monitor all the key activities, in conjunction with a scorecard, that will comprise the strategic objectives and the KPIs.
Some of the KPIs presented above under the clusters Timeliness and Quality, can also be measured at individual level. For example # Payroll processing time can be different from one accountant to another and an internal SLA (Service Level Agreement) can be established for this activity, while also taking into account the qualitative aspect of work, such as # Payroll errors.
By clarifying the role of the accounting function, and establishing a strategy, it becomes more easily to identify its overall contribution to the organization. Objectives help managers map this contribution, while KPIs keep them focused on what matters the most for the department.
Accounting done right!
Measuring and managing your accounting department’s performance might not be the easiest task in the world, but The KPI Institute is ready to help you successfully complete this task, so that you can always keep track of your finances.
The KPI Institute’s Top 25 Accounting KPIs – 2016 Extended Edition report compiles the most popular 25 KPIs used by global Accounting divisions throughout 2009 and 2015. One of the most important benefits that this report brings is an international perspective on the most popular Accounting KPIs. They provide quantifiable measurement of the main components that lead to a successful implementation of financial strategies.
Accounting services include the provision of accounting, bookkeeping, audit and tax returns services to both private and public organizations. Also, it can include the provision of advisory and assistance with financial and fiscal-related issues. KPIs are used to measure the accountants’ expertise, quality of operations and the impact on the clients’ activities.
If you feel that you need even more information and that the top 25 KPIs are not enough, you can always get a copy of our Accounting KPI Dictionary, which is a comprehensive dictionary, useful for both novices and experts alike who wish to better understand the ins and outs of measuring their accounting department’s performance.
Moreover, if you feel that you’d like to know how to measure and set KPIs for other departments as well, we recommend you get your hands on our KPI Compendium, which contains information on over 20,000 KPIs used in practice.
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Tags: Accounting KPIs, Performance Measurement
