How to Use Metrics and KPIs to Improve Your P2P Processes
Brian Rosenberg August 11th, 2022
Metrics Matter. The key to improving what you are doing is understanding where you are. Procure-to-pay operations need access to the right information at the right time – which is when they can still do something to make it better. P2P leaders who embrace a metrics-driven culture of continuous improvement will be well-rewarded with steadily improving outcomes, motivated staff, and happy vendors and internal customers.
However, many organizations struggle to get the right information. Far too often, the technology they use lacks the ability to track the information they need, or to report that information in a useful way. Other organizations are not sure what to track or are tracking numbers that create no value. Effective metrics share several key characteristics:
ACTIONABLE – Actionable means that you are able to take steps to improve the metric. A metric is not useful if the ability to improve that metric is not within your zone of control.
COMPARABLE – Metrics must be able to be compared to prior periods, or to peers, to see if they are getting better or worse.
RELATED TO GOALS – Why measure what doesn’t matter to you? Your selected metrics should be tied to your overall department and organizational goals.
ACCURATE – Do you have a verifiable and consistent source of truth for your metric, so you know that the information you are using to make decisions is correct?
Another challenge with metrics is that far too often they are lagging, meaning that the metric is measured after it is too late to improve. An example in accounts payable is invoices paid late. There is no action you can take to pay these invoices on time, you can only look to reduce late payments in the future. Leading metrics are those that provide you with information about the present, not the past.
For an accounts payable department, measuring backlog is an example of a leading metric – it is an indicator of what is happening now, so that you can take action to prevent issues in the future. Great P2P leaders use a combination of leading and lagging indicators to achieve success.
Metrics should be driven by department goals – and each metric should have a target number. Goals must be SMART (Specific, Measurable, Assignable, Realistic, and Time Based), so it’s clear whether or not they were achieved. Therefore, rather than glancing at numbers each month, you have a clear view of what you are trying to achieve and will know where you met and did not meet targets.
WHAT, WHERE, HOW?
A specific goal is distinct and defines as much of the goal as possible and contains no ambiguous language.
FROM AND TO
A measurement gives feedback and lets one know when the goal is complete.
Goals must be assignable to individual groups.
Realistic goals are challenging yet attainable within the given timeframe.
The timeframe must be aggressive yet realistic.
That is because the key to using metrics is to act. Metrics are only useful if they lead to action that improves future results. The question “why” is a key part of your review of each metric. Ask why it is, what it is, and what you can do to make it better.
Look at where you missed your goals and targets first, but also look at where you did meet targets to see if you can set new, more aggressive targets in the future. Lean Six Sigma is a philosophy of continuous improvement, always measuring results and trying new ideas to improve them.
In Lean Six Sigma, perfection is the goal, but never achieved. The Six Sigma continuous improvement cycle is a constant process of piloting change, always with the goal in mind of improving the quality and accuracy of the process.
What are the right numbers for your metrics? It can be very challenging to find a truly comparable source for benchmarking. Different organizations are in different industries, have different challenges, and differing economies of scale. Start with benchmarking against yourself and establish goals that make sense for your environment.
Many leaders make the mistake of keeping their metrics to themselves! Sharing information is an important aspect of leadership. When you share metrics with those that you report to, add a commentary on why the numbers did or did not meet targets and the steps you will be taking to make further improvements. Volunteer what is working and not working and show them that you are goal-oriented and taking the steps to lead your team to success.
With your team, share department goals and make the metrics visible to them as well. Post goals and rally the team around meeting those objectives. Reward them when they do their part, both individually and collectively. Make metrics a part of your meeting rhythm, both to share progress and to solicit ideas to improve results. Teach your staff continuous improvement concepts and engage them in finding and validating new ways to get work done.
Combining the right information with a continuous improvement philosophy can be a powerful combination. Act today to make sure you have the right information for your role, tied to your goals. Engage your team in working together to achieve those goals, and your AP and P2P departments will be well on their way to success.
BRIAN ROSENBERG, CEO of TRG Consulting
Brian G. Rosenberg, CEO of TRG Consulting, is a leading expert in AP automation and process improvement. He has over 15 years in the design of accounts payable shared service centers, and nearly 20 years of experience with implementation of accounts payable solutions. He has led large scale P2P transformation projects in roles including interim leadership, project manager, change manager, process improvement leader, and system architect. Mr. Rosenberg is a published author, and speaker, on procure-to-pay best practices. He is certified in Kaizen, Six Sigma, Project Management, and Change Management.