Page 138 - Finance for Non-Financial Managers

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Critical Performance Factors
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ed to development timetables and costs. Since CPFs are short-
term metrics, they primarily relate to improvements desired and
controls needed in the current year. Longer-term goals are best
set forth in a company’s business plan (see Chapter 9) and built
into CPFs only for the current year of the long-range plan.
However, the name really says it all. They should be critical to
the business and they should relate to performance. Here are
some areas to consider for such a report:
• Sales trends—number of orders received, dollar volume of
orders received, backlog changes, RFPs responded to,
sales per whatever (customer, employee, square foot of
floor space, and so forth), sales staff in the field, volume
of orders shipped, etc.
• Operations trends—average days to ship an order, over-
time or premium hours paid (manufacturers), percent of
jobs proceeding on time (job shops), number of orders
shipped on time or late, etc.
• Financial trends—DSO for receivables, average payout for
payables, cash balances, bank credit line status, invoicing
timeliness, financial reporting timeliness, discounts taken
vs. available, etc.
While trend reports are most compact if presented in a tabu-
lar format, they are often more easily readable by non-financial
managers if presented in a graphic format—charts, curves, and
lines convey powerful visual images of trends in ways that
tables of numbers typically can’t. In order to keep such reports
to a single page, which is recommended, management may
need to choose between a longer list of CPFs to track in tabular
format and a shorter list in graphic format.

Manager’s Checklist for Chapter 7
❏ Critical performance factors (CPFs) are tools for tracking
key indicators of success in a business. They’re best
accompanied by a benchmark or standard against which
they are measured. They must be computed separately,