Magazine article Business Credit

How Do You Know Where You're Going If You Don't Know Where You Are?

Magazine article Business Credit

How Do You Know Where You're Going If You Don't Know Where You Are?

Article excerpt

Managing a successful credit organization is a complex task. The management team has a number of crucial areas to supervise and monitor in order to ensure a successful and profitable operation that meets the demands of internal and external customers. Of greatest importance in the management of customer receivables is ensuring a high level of profitability while maximizing sales. So how do you know how you are doing?

Key Performance Indicators (or KPIs) are used to measure an organization's performance or its performance relationship to its own historical data or to other organizations' data. KPIs are used to determine the degree of change from where the relationship stands today, to where it was in the past, and to where the performance will need to be in the future. A KPI is often an established target, associated with a date and a path for improvement used in setting objectives or goals.

Without meaningful performance metrics, managers find it difficult to evaluate organizations, departments, processes and individuals. However, organizations that measure and manage performance are much more likely to achieve operational and financial goals. Your ability to identify your organization's Key Performance Indicators is the first step in improving the overall performance of your credit and collections or revenue chain. Obviously, without the proper KPIs, it is nearly impossible to support continuous operational improvement.

Using Key Performance Indicators will allow you to manage by achieving of the following:

* Immediate feedback up and down the operating staff

* Information for preventive and corrective actions

* Facilitation of ongoing process improvement

* Identification of trends and alarms

* Improved communication between different management levels

Why Use Performance Measures?

"Tell me how I'm being measured, and I'll tell you what lily focus is."--An anonymous employee.

It is now clear that organizations that manage performance through measurement do better than those that don't--several recent studies confirm this. If people throughout an organization are well informed about their current and likely future levels of performance, and the factors that have contributed to those results, they can make more confident and more effective decisions. Measurement-based management that is focused on objectives, issues and decision-making leads to success. Major benefits of performance management include:

* Better achievement of objectives. (Often objectives are exceeded.)

* Better and quicker decision-making. (Action is encouraged.)

* All staff are aligned to common goals and rewards. (Creating teamwork.)

* Managers and staff have greater confidence and motivation. (How do you know where you're going if you don't know where you are?)

Business performance management ensures a management style that plans and acts to achieve strategic and operational objectives by measuring and monitoring outcomes and drivers. However, not all measurement is good. Many organizations are in chaos because of a flood of mismanaged data that is irrelevant, too detailed, poorly integrated, difficult to access and of little value in making decisions. Too much data is just confusing! Some measures bear little relationship to what the organization is trying to achieve--they are not relevant to objectives. Other measures are misleading because their meanings are poorly understood, unclear or ambiguous. Irrelevant or misleading measures lead to poor, or even disastrous, decisions. As an example, DSO, for all its popularity, is one of the most improperly used metrics in business.

There are dozens of KPIs that are used to monitor sales, credit and collections, order activity and product distribution activities. Clearly illustrated in CRF's publication Management Reports, nearly 20 sample performance reports and their use are demonstrated. …

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