Key performance indicators for accounting and finance departments

Key performance indicators are usually associated with organizational departments or units with highly visible outputs (sales, customer services, production, etc.). However, accounting and finance departments also have stakeholders to whom they provide services. It makes sense then to have KPIs for accounting and finance departments to measure and increase their performance.

1. Key performance indicators in finance and accounting departments

Key performance indicators (KPIs) and dashboards play a vital role in managing a department or organization.  Typically, when we talk about KPIs, we think about departments with highly visible outputs; for instance, sales, manufacturing and operations, or customer support.  When the time comes to talk about KPIs for accounting and finance departments, it is usually hard to pinpoint what KPIs can be used.

A good way to start identifying KPI and building an accounting dashboard is to think about accounting and finance departments as service units within an organization that have external and internal stakeholders.  Such stakeholders include vendors and customers as well as other departments in the organization (management, sales, marketing, operations, and so forth).  Once these stakeholders are identified and analyzed, KPIs can be established to achieve goals related to them.

Some best practices for establishing KPIs overall and for accounting and finance departments specifically are:

  • Quantity: Stick to a handful of meaningful KPIs instead of tracking a lot of KPIs.  Specific, targeted KPIs should naturally flow from broader, more strategic goals of the department or the company.  For example, if one of the goals is to maintain a reliable network of suppliers of quality products and services, KPIs can track performance of services provided by the accounting and finance department to suppliers.  Such KPIs can include days of payables outstanding (i.e., how long it takes to pay suppliers) or number of unresolved billing issues with suppliers.
  • Benchmarks: KPIs without benchmarks do not provide much value as it is hard to assess how the company or department are doing if such KPIs are analyzed in vacuum.  Establishing realistic benchmarks for selected KPIs will be important because unrealistic benchmarks are not achievable and thus, may not motivate action and hence performance. For activities or processes that represent the core advantage of the organization, the best-in-class benchmarks can be used to sustain that advantage. For less important processes, regional, industry, or even organizational-level benchmarks can be sufficient to improve performance.
  • Communication: KPIs should be clearly communicated throughout the company or the accounting and finance department.  Such communication and the ongoing maintenance of such communication are key in empowering employees and managers so they can meet or exceed established benchmarks for selected KPIs.
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