FP&A Best Practice Principle 6: Cascade both Financial and Operational Goals down to more Specific Targets
9 March 2018
This is the sixth of a 12-part blog series appropriately called The 12 Principles of Best Practice FP&A. These Principles are based on global research conducted with more than 700 organizations worldwide.
Principle 6: The best performing companies cascade both financial and operational goals down the organization to ever more specific targets.
One theme we’ve seen throughout this series is that the best performing organizations have integrated financial and operational planning. This extends to the cascading of goals down through the organization. This means that higher level goals (such as growing sales by 100K units) is broken down into incrementally smaller goals, potentially down to an individual level. For example, the 100K unit sales growth will cascade down into regions, districts, and sales people. Cascading of goals is a critical element of building accountability. While many companies cascade financial targets, the best performing organizations stand apart for cascading operational targets as well.
An interesting finding from our global research of more than 700 organizations is that public companies were more likely to cascade financial goals than privately held companies or Not-For-Profits. However, public companies are no more likely than anyone else to cascade operational targets. One reason could be that public companies have and especially high need to reach financial goals for stockholders and analysts, and that consumes all of their bandwidth.
Now most people are familiar with the concept of cascading financial goals. Typically, something like a revenue target will cascade from the enterprise to a business unit to a region to a district or Sales Representative. What makes the best performing organizations different is they also cascade operational targets; and hold people accountable for delivering them.
Keep in mind that the best run companies have explicitly linked operational metrics & goals with financial performance (they understand and leverage the relationships). So it would make perfect sense for these organizations to cascade operational goals to drive accountability for results; knowing that without that their financial goals are at risk.
From a technology perspective, scorecards/dashboards that effectively communicate key financial and non-financial measures is key. This means being able to “zip and unzip” targets -- to have a line of sight from a high level vantage point down to an individual’s goals.
Accountability can be manifested in many ways, from job security, to a pat on the back, to public praise. In the next post, we want to address the most obvious means to drive accountability – pay for performance.
- 12 Best Practices in Financial Planning and Analysis - Teaser post
- FP&A Best Practice Principle #1: Translate Strategy into Actionable Plans
- FP&A Best Practice Principle #2: Identify and Gain Budget Approval for Required Resources
- FP&A Best Practice Principle #3: Connect Operations and the Financials
- FP&A Best Practice Principle #4: Analyze The Variance And Get The Story Behind The Numbers
- FP&A Best Practice Principle #5: Take Action when you fall behind on your Financial or Operational Goals