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Managing performance through famine and feast - Performance management capability - EY - Global

Managing performance through famine and feast

What building a performance management capability means for you

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Step 1. Identify the most critical decision points that drive economic performance

Finance is the best-positioned function with an overview on economic return cause-and-effect to be able to identify where marginal contribution can be maximized to deliver profitable growth.

Finance must be able to provide insight on the decisions that create or protect marginal contribution right across the value chain; assessing the organizations’ fixed and variable costs, then identifying and measuring how and where growth in sales translates to growth in profits, and, where applicable, how reduction in costs can maintain revenues while improving profit contribution.

Critical enabler: Strategic business understanding within the Finance function

Step 2. Establish a clear, forward looking line of sight on relevant data for critical decision points

Finance must have access to a robust data set, built around the decisions that drive most economic value in the organization.

This demands trust in, and accuracy of, the underlying data and its sourcing. It also requires understanding of how the data relates to the value chain decisions; however, it does not necessarily mean a large investment in systems or business intelligence tools designed to report, analyze and present data.

Critical enabler: Embedded data quality and governance in management information

Step 3. Develop aligned performance management processes that drive rational decisions

Finance must be able to translate this insight and understanding into the desired end product – rational decisions that maximize the desired economic return.

Achieving this means that planning, budgeting, forecasting and reporting processes must be aligned to the right measures; and incentive programs must be linked to targeted economic outcomes. Changes to these processes should be linked to sustainability of cost reduction, or margin improvement exercises: they should not be approached as one-off CEO/COO sponsored projects with a short-term focus.

Aligning traditional resource allocation processes to the executive objectives helps ensure repeatability and change to the culture and sustainability of the organization, through the on-going discipline of challenging resource allocation decisions to ensure optimization of marginal contribution.

Critical enabler: Aligned planning, budgeting, and forecasting process closely linked to employee reward and recognition processes

Step 4. Ensure compliance and make sure that Finance’s voice is heard

Finance must be the guardian of performance management, checking that agreed processes are followed so that the desired outcomes can be achieved.

The CFO and Finance function must be positioned appropriately within the organization to be able to influence decision-making and action; additionally, Finance professionals must have an advanced level of communication and influencing skills to ensure that their voice is heard and their advice is valued and acted upon.

Critical enabler: Communication and influencing skills within the Finance function

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