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Practitioner's Diary: KPIs for an accountancy practice
Our West Country general practitioner suggests some KPIs for an accountancy practice.
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30 April - Spent the weekend getting into Ron Baker's previous book, 'Pricing on Purpose - creating and capturing value', where he looks at the theory of value pricing. This one's not so earth shattering if you have read any of Baker's previous stuff. If you haven't, and want somewhere to start, you must get the latest edition of 'The Professional's Guide to Value Pricing', his seminal work. Everything else flows from this. It also comes with a CD-ROM of his value pricing contract templates and lots of other useful Word documents.
Alternatively, visit the Verasage Institute website to read the blogs and background.
I need to spend the next month putting these new KPIs into practice and see what we come up with. Unfortunately, I'll still have to do the WIP, recovery rates and productivity stats from the time and fees system too!
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25 April - I've now finished "Measure what matters to customers", so I now need to answer the burning question - what ARE we going to measure?
1. Taking the airline KPIs I definitely think job turnaround time is a key issue for clients, it's the issue I hear most complaints about. Our workflow system now generates good reports on this.
2. It's not quite a KPI, but it will help to identify what matters to our client: client complaints (both the number and the nature). This is my analogy with lost luggage. We have done client feedback before and it gets few results, so this needs to be coupled with a real drive to get the team to RECORD all the feedback and complaints they hear. Maybe it needs some sort of fun incentive, I'll work on that.
3. The last KPI elicits negative feedback, so the next one takes the opposite tack: number (and quality/value?) of client referrals. If clients like what we do I hope they will refer others to us. We need to actively encourage this and track it effectively. This is my attempt to emulate corporations like HP and 3M who track "innovation sales", i.e the value of sales generated by new products. As we allocate client numers sequentially I can easily get our practice management syatem to give me a report on the value of fees generated in the last 12 months by clients acquired between any given dates.
4. Finally we need to hit the potential accusation that we don't show our clients that we care enough: number and quality of client contacts per week. This will be interesting. Some of our more technical team members like to get stuck into a file and keep away from clients. We need to encourage them to be in contact, meet them, visit them when they can find a reason. We also need to formalise a programme to ensure all our 'A' clients are contacted regularly without fail.
I reckon that will be enough. If KPI #2 shows any theme in complaints we might introduce a new KPI to deal with the issue.
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23 April - Among the academic asides I can identify with Baker’s critique of traditional stats and measures. A principal criticism is that many lagging indicators are simply fixed by employees – they know what you’re measuring and they make sure you get it, come what may.
Reminds me of a former colleague. He always made full recoveries on all his jobs – he just never wrote off any WIP. I think we probably wrote off the equivalent of a year’s chargeable time for the whole office when he retired. If he felt pressurised to get more fees out, he did as asked – and left the rest of us to deal with irate clients and bad debts. If his chargeable hours were a bit down, he had mastered the art of padding out his timesheets with a few hours here and there on other partners’ clients. So all the time he produced exemplary KPIs – and rubbish results. He was effectively managing what we were measuring!
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18 April - I see there's a lot of fuss in the press at the moment with both HMR&C and the American IRS complaining about tax evasion through "offshore vehicles". Been going on down here for centuries - we call them boats!
Smuggling is a way of life for many, but of course not for my clients - after all I have photocopies of their driving licences and utility bills, so they are obviously not money launderers or criminals!
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17 April - Thanks Janet, I was thinking on similar lines. Certainly delivery of jobs against agreed deadlines is going to be the top priority this year. We have traditionally tried to work on a monetary budget for each job, which is a nonsense since the fee is aways based on either a quote or last year's fee! So this year we will work it backwards, converting the fee into a timescale and setting a date for delivery of the accounts, or whatever, to the client.
Client complaints are harder to monitor - I know, we have tried many times to get people to log them - but I think a renewed effort is required to find out what exactly it is clients want (and don't want).
But what about lost luggage? I'm not sure there's a direct equivalent in our profession. We track client records religiously, and I can't remeber ever losing any. In fact, as I mentioned earlier, our main problem is getting rid of the records we have finished with! Missed filing deadlines would be closer, the occasional £100 late filing penalty we have had to stump up. The problem with this sort of KPI is that it tends to be partner-focused, it's not a KPI that will motivate everyone in the office.
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15 April – Managed a few more chapters in between essential outdoor activities in the last few days. Baker has been proposing a new business equation:
Profitability = Intellectual Capital x Price x Effectiveness
He explores a number of academic aspects of this and then looks at the process of developing KPIs to help firms achieve increased profitability, as defined. He argues that a Key Performance Indicator is simply a lagging indicator or measurement. But a Key Predictive Indicator is “a measurement supported by a theory, which can be tested and refined, in order to explain, prescribe, or predict behaviour.” You can test the latter, see if it works, and if not replace it with a better one.
The example Baker quotes is from Continental Airlines. To turn round this ailing company the management focussed on three Key Predictive Indicators. It would be good to take a moment to guess what they might have been – profit margin? – ROCE? – number of tickets sold? – etc.
I’m guessing that you weren’t even close! The KPIs they chose were:
- On time arrival;
- Lost luggage; and
- Customer complaints.
Two things jumped out at me when I read this chapter. Firstly, we are at last talking about measuring success the same way the customer or client does. I am 100% sure my clients don’t care about my WIP recovery rate or chargeable hours, but historically that is the sort of thing accounting firms have been focussed on.
The second revelation was that these are measures that can engage and involve everyone in the organisation. With KPIs like this you can energise your team members to work towards the goals of the firm – which happen to be the same as the clients’ goals. It is very difficult to motivate a team with statistics such as recovery rates or monthly billing targets, because most of them have absolutely no influence over these. OK, so the more junior people can monitor their chargeable hours and individual job budgets, be they all know that it’s partners and managers who ultimately screw up recoveries on jobs. And they all know very well that the partners’ and managers’ timesheets are a work of fiction, so what’s the point?
The challenge now is to come up with some KPIs for the office which match Baker’s definition. With any luck he’s going to make some suggestions in the next chapters.
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11 April - I have been following Robin Tidd’s series on KPIs (or key performance indicators) with interest. Quite a few hits logged, but no-one has posted a comment on either of the first two articles yet! Do they all agree, or maybe they don’t understand them? Coincidentally I have started reading Ron Baker’s latest publication, “Measure what matters most to customers”, which is subtitled “using key predictive indicators”. This is the second in his ‘Intellectual Capitalism Series’.
Why the different terminology, you might well ask. The change to “predictive” as the P in KPI is a reminder that traditional KPIs tend to be lagging indicators, they tell you where you have been and what happened in the past. Baker argues that KPIs should tell you where you are heading so you have time to fix things that are going wrong.
Baker’s thesis is that the McKinsey maxim that we have all grown up with – “what you can measure you can manage” – is wrong. It just encourages us bean counters to measure all the wrong things. The first part of the book looks at the history of cost plus pricing and the variety of measurements and so-called key performance indicators that it has spawned. He highlights in particular the fallacy of pursuing efficiency when what the customer/client really wants (and hence your business/practice really needs) is effectiveness. The trick is to find measures – KPIs – that show you how effective you are. Efficiency is easy to measure – how many bricks have you laid, how many widgets have you made, how many hours have you charged, etc? But how do you measure effectiveness?
Don’t ask me just yet, but I’ll let you know as I read on!
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5 April - To celebrate the last day of the tax year we have been clearing out the client records cupboard in readiness for the impending influx of new work. The trouble is, we are still holding a pile of boxes from last year! I think it must be down to our zeal in getting accounts out to clients, which we often do by post for the smaller cases so we don't always see the client at the time. And the clients don't have any real interest in getting their old records back, so we end up stockpiling them.
It kind of adds insult to injury to pay for packaging and postage to send them back, but I am tempted. We could try to charge for storage, but at this late stage I think that's more trouble than it's worth. The best option is for team members to take records back to clients who live near them or near their route to work. The others will get a phone call asking them to collect their papers asap.
And a dozen or so boxes which are over seven years old and belong to ex-clients will go for shredding!
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4 April - The message is getting through. Two of my team members have asked clients for payment up front for new work. Both clients have a record of being poor payers, and one has massive tax arrears. Very happy to forego the privilege of working for these clients this year if they don't want to show us the colour of their money in advance!
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2 April - A good response, I think everyone appreciates that fees banked = money to pay salaries, so they can see the logic in being more business-like. What we really need now are some good motivating KPIs against which we can measure and reward performance. How do I recognise the good work done by a junior when the senior has flogged the budget and turned in a huge write off on WIP? OK, so I could analyse the WIP on every job and break down the profit/loss between team members - if I had nothing else to do all month!!
There must be a better way. Any suggestions?
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1 April - Right then, this is it. The new financial year starts here and the message from today (well, OK tomorrow) is that we have a business to run. Not a charity. Not a public service. Not a wing of HMRC. We sell accountancy services to our clients.
That means that what we do is to earn fees for the work we do. It follows therefore that what we all have to do is deliver services to our clients that they WANT to pay for. I'm not interested any more in arguing about fees, or spending hours on worthy-looking advice which a client doesn't want - and oesn't want to pay for.
So it's a wake up time for my team. I think this week's team meeting will challenge a few people's comfort zones.
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Last month ended with our practitioner's 2007 Budget thoughts - why do more and more of his clients want to pay MORE tax?.
Number of comments: 5
AccountingWEB.co.uk 30-Apr-2007
Categories: Management Reporting Features, Practice Features, Practitioner's Diary
Times read: 16420
How about recording time spent between advising clients on the past compared to helping them create a better future? My guess is that 95% of a traditional accountants time (and the clients) money goes on sorting out last year.
I am sure a turnaround time is part of the value perception driver. I am sure a firm that produces draft accounts in a month will be perceived as better than one that takes four months, but is this that important?
What about finding out from clients how they felt they were treated during the process? For example, are clients called to book work in and do you call clients giving them a progress report? Are clients expectation set and managed? A turnaround of eight weeks can appear better than four if communication is good.
Treat late paid invoices as a complaint. Call clients and explain your new customer service approach that late payment is a sign of someone not being happy. Have a form on your Website so clients can log complaints. Publish these live with your replies and be open.
How about tracking your client’s service profit? You can review the perceived service value annually and compare this to your charges. Guarantee a minimum of £2,000 of service profit or refund 50% of the fee.
Regular contact is great and can be enhanced if it is relevant. Give points to different types of contact. Maybe 5 points for a call to see how the client is, 10 points if you send the client an interesting article and 30 points if you refer a client to them. Perhaps have a target of 50 points a year for every £1,000 of fees.
Just some ideas
I've picked up some great lifestyle tips here - tremendous stuff. I'm also very pleased to see that the mighty Ron Baker maintains his strong following. For those that would just love to get near enough to 'touch the cloak' I'm happy to advertise the fact that Ron is the headline speaker at the forthcoming CIMA Members in Practice conference 22nd/23rd June at Heythrop Park - two days in a stately home and Ron Baker for under £300 - amazing! The author of the articles mentioned, Robin Tidd will also be there if Ron wasn't enough! All welcome, phone CIMA on 020 8849 2244
To correspond with the suggested KPI's, how about:
1. Meeting the deadlines for all compliance work (= arriving on time)
2. Number of mistakes made by us (= lost luggage)
3. Complaints by the client
In which case congratulations.
I have "pinned" the first paragraph to my screen and only hope that more firms follow your lead.
My only concern is that if we're only delivering services which clients WANT to pay for will we have anything to do?
