How to Define Effective Financial Management Reporting and Metrics

Financial management and reporting are crucial to a professional services organization’s success. Unfortunately, it can either be overlooked as the powerful tool that it is or, worse, can be set up so that the reporting isn’t helpful, resulting in it being ignored.

Not only is financial reporting an essential element in your organizational management today, but it can be an important tool for success and growth going forward.

However, to realize these benefits, professional service organizations need to invest time to understand the elements that lead to good reporting, what questions to ask, and how to get the right metrics and key performance indicators that are meaningful and useful.

The Elements of Effective Reporting

The objective of reporting is to predict where you are going based on where you have been to get to where you want to go. To be predictive, reports need to encompass several elements to be successful.

First, your reporting should be developed around three key assets:

• People
• Service offerings
• Earnings 

By looking at metrics with these three assets in mind, your reporting will guide you to better enabling and fulfilling them, but only if your reporting focuses on the right elements.

At Top Step, we’ve found that the companies we’ve worked with that have been most successful with their financial reporting,  create reports that share four critical attributes. Those attributes are:

• Measured: The reporting is numeric, goal-oriented, meaningful to the viewer, and realistic.
• Trending: The key information being reported is time driven.
• Predictive: The information is directional, and you can make predictions from the information.
• Proactive: The reporting is decision-focused and forward-looking.

At this point, we’re not yet talking about your key performance indicators (KPIs). Instead, you should be focusing on effective reporting so that your KPIs are meaningful and directive. Otherwise, they can become a measure that becomes largely ignored. 

Ask the Right Questions to Get to the Right Reporting

With these four attributes in mind, you can begin to set a path toward creating meaningful reports. As you consider which reports to create, it can help to chart out what assets and what elements the report encompasses. We show an example of a chart like this in our recent webinar, Financial Management Reporting and Metrics in NetSuite OpenAir.

Your reporting should be able to answer the questions that are most important to your organization and its goals. You should answer core questions that will get you the information you need and lead you to the appropriate KPIs.

Start with reviewing the earnings of your current services.

• What services are driving earnings?
• What types of resources are driving earnings?

Also, look at your offerings.

• What was quoted for projects, and what was delivered?
• What types of resources staffed your projects?

You’ll also want a deeper understanding of your resources and their impact on your financial performance.

• Where is the resource time spent? Are they billable? What amount of time is billable?
• What skills are among the team? And what skills are driving revenue?

Getting to Good KPIs (and What to Do With Them)

Once you have the answers to those questions, you can begin to define a base set of KPIs. It’s unrealistic to set metrics against where you want to be if you don’t know yet where you are. By answering these questions first, you’ll avoid falling into the trap of creating arbitrary KPIs.

Having a corporate culture committed to creating and reviewing these reports against your KPIs is one of the keys to success. Don’t merely implement reporting and define KPIs. Define a cadence for reviews and encourage adoption while pointing to why these metrics are essential to the organization. To be used effectively, your team must care about what the numbers say.

One way to cultivate that kind of culture is to focus on developing the right reports and doing consistent metric reviews. Investing in technology, like a professional services automation tool (PSA), can make measuring and reviewing the data across the organization much more effortless.

Lastly, the organization needs to take action based on what the data is indicating. Ask questions based on the measures, and look at the data from different angles. Action may mean making changes, but it could also only mean that it’s time to take a deeper dive and get more detailed reporting to understand better what you’re seeing.

Creating the right reports and defining the right metrics may spur you into refreshing your current financial reporting or might push you to get started in the right direction. Either way, these tips will help you create top-down reviews of your performance in an easy to digest and actionable way. To see examples of reports that can be useful, and get a deeper dive into the subject, check out our webinar, Financial Management Reporting and Metrics in NetSuite OpenAir.

If you’re looking for guidance in getting your reporting on the right track, Top Step can help. We’ve guided professional services organizations to better use their data and tools to improve their performance, meet their goals, and improve their bottom line. Reach out to us today to discuss how we can help you, too.