FP&A Best Practice Principle 7: Hold people accountable to reach better financial results and link them to financial incentives
18 April 2018
This is the seventh 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 7: The best performing companies do a better job of holding people accountable for delivering financial results and linking them to financial incentives.
The best performing organizations translate strategy into actionable initiatives, and then further refine those initiatives into specific projects. They hold people accountable for delivering financial targets, but go a step further by linking those results to financial incentives. So “being accountable” in these organizations takes on deeper and more personal meaning than simply being called out for failing to deliver on a commitment, or publicly praised for achieving one.
It’s important to note here that accountability means responsibility for leading the way to reaching financial targets. Those given this responsibility should be in the best position to enable the organization to reach the goals and, if they are not achieved, be most knowledgeable about what happened and why.
One CEO who really understood that point made a significant change to monthly business reviews by changing who explained the monthly financial results. In most companies Finance presents the financial performance and explains the variance to plan, prior year or latest forecast. This CEO instead made it a rotation each month to different VPs. While he had tried to convey in the past that VPs were ultimately accountable for Financial results (while the Accounting department was accountable for their accuracy) nothing seemed quite as effective as having the VPs present to their peers their financial performance. That meant that they had to understand what budgets or forecasts were really based on, as well as what was behind the actual results. It elevated their “Financial IQ” as he put it, but it also made them more accountable.
It is critical that incentives avoid “gamesmanship,” or motivating managers to optimize their own performance at the expense of the organization. To avoid this environment, incentives should include both individual and company-wide metrics. Best performing companies avoid “blaming” people but instead foster a culture where those who are accountable feel free to report what really happened, with the objective collaborating to help the enterprise reach its goals.
From a technology perspective, having the ability to drill-down or roll-up financial results (both targeted and actual) is key. To really instill accountability, people outside of Finance not only need access, they need to results to be presented in an easy to understand way. They also need to be able to easily interact with the data – to see different views of the data by Geography or Business Unit or Channel or Location for example. Lastly, my experience has been what one company finds “easy to use” can be very different from another company. So the look & feel of the system needs to be highly configurable to meet unique needs. Put another way, ease-of-use drives user adoption and engagement.
In this blog post we focused on holding people accountable for financial results, in the next blog post we’ll focus on accountability for operational results.
- 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
- FP&A Best Practice Principle #6: Cascade both Financial and Operational Goals down to more Specific Targets
- FP&A Best Practice Principle #8: Link Financial Incentives to Operational Goals
- FP&A Best Practice Principle #9: Identify what drives success in your business and develop measures for those drivers
- FP&A Best Practice Principle #10: Establish short and longer term targets for business drivers
- FP&A Best Practice Principle #11: Develop initiatives and projects to achieve business targets
- FP&A Best Practice Principle #12: Monitor business results and tie them to incentives
- The 12 Principles of Best Practice FP&A: How does it all come together for effective Financial Planning and Analysis