Posted by Rakesh Shukla on Thu, Jul 30, 2009 @ 12:46 PM
12 months or so ago when I was approached to do an AP Blog for 170 Systems, my initial reaction was, "Who would want to read a Blog about AP???" After all, what could be said in a blog that is not already being said in newsletters, webinars, e-mail alerts and updates, etc.?
But then we realized that a blog allows us to take a fresh approach (and a few risks) highlighting key AP issues in a fun, creative and more personal way. The blog takes some very different perspectives on critical AP matters ... and is anything but boring -- at least according to the feedback we have received.
To my pleasant surprise, our thought-provoking posts have generated thousands and thousands of visits. To date, here are the 10 most popular:
- A Cell Phone for an 11-year-old?
- What is the NFL''s 2nd Highest-Paid Position? The Immensely Important Role of Accounts Payable
- The Best Excuse Ever ... Babysitting Invoice Approvals
- A plague o'' both your houses! The Ancient Feud of AP vs. Procurement
- A Tale of 2 Grocery Lines ... Understanding AP Bottlenecks
- The #1 Accounts Payable Headache is ...
- Segregation of AP Duties, What''s the Best Approach?
- Lies, Damn Lies and Stupid AP Metrics
- How to Earn 37% on AP Invoice Discounts ... Despite the Lowest Interest Rates Ever ...
- 5 Reasons E-Invoicing & Supplier Portals Have Failed
Please let me know what you think by posting a comment.
-Rakesh Shukla
@rakesh170
Posted by Steve Wilcox on Mon, May 18, 2009 @ 08:41 AM
There is no question that effective AP metrics can address an organization's key pressures and challenges by increasing the efficiency and effectiveness of critical processes.
BUT ...as I explained in my last blog entry, poorly designed metrics can drive bad behavior. Poor metrics also have other significant problems. As outlined in Jon Casher's white paper titled 10 Must-Have Metrics, here are the 7 biggest problems when it comes to metrics:
- Too many metrics: When an organization has more than 20 or 30 metrics, it is likely that some of them are not useful and some may be lost in the clutter and overlooked. In some instances, a metric may have been developed to measure the effectiveness of a procedural change. At some point in time, that measure may no longer be needed yet the information is still collected and the metric continues to be reported. Some metrics may be redundant - e.g. having too many metrics to measure productivity.
- Metrics are not actionable: A metric such as the number of invoices processed is often reported as a key metric in many Accounts Payable departments. While it may be important to monitor such a number to help determine if there is adequate staffing, it is probably the wrong thing to track. Since every Accounts Payable department is responsible for processing all invoices, it is far more useful to develop and use metrics that help you understand what invoices are not being processed or are not processed efficiently and why.
- Metrics are not timely: Information should be collected and analyzed so that actions can be taken in an appropriate time frame. Real-time feedback can be very helpful for managing the processing of invoices as it allows for immediate actions to be taken to reassign work. However, real-time feedback is not as important for developing long-term staffing plans and requirements.
- Best practices for others may not be best for you: What may be a best practice for one organization may not be appropriate or even feasible for another. Practices that work well within a company with one location may not be usable in a geographically dispersed company operating in multiple languages, multiple currencies and many time zones. Limitations of an organization's systems and regulatory issues often restrict or even prohibit certain practices. Effective metrics are aligned with an organization's goals, vision and mission and address key pressures and challenges. Metrics may be needed to address problems or issues unique to an organization. The Accounts Payable department of a manufacturing firm usually has metrics that focus on the accuracy of Purchase Orders and on receiving documents associated with Evaluated Receipts Settlement (ERS) transactions as there are no invoices for these. A company that does not use ERS might not need such metrics.
- What is being measured is unclear or ill-defined: A metric can cause rather than resolve problems if poorly defined. This is especially true if the data that needs to be captured is poorly specified, or if the results that are reported may be interpreted differently. Number of invoices processed is a metric that is commonly used in many Accounts Payable departments to assess employee productivity. However, the effort associated with processing an invoice may vary greatly depending on whether or not it is against a Purchase Order, the number of line items on the invoice, whether the charges on the invoice have to be allocated to many departments, and other factors. An employee who deals with complex invoices may appear to be far less productive than an employee who only processes invoices with no Purchase Order, a single line item, and charged to a single account. In such situations, the number of each type of invoice processed may have to be defined rather than the single metric.
- Metrics may drive the wrong behavior: "Gaming the system" can happen when the wrong metrics are used or metrics are used inappropriately. One company based part of individual compensation on "number of invoices processed." First one and then all of the Accounts Payable staff stopped processing complex invoices in order to increase output. Invoices from several key suppliers were not being processed. As a consequence, some suppliers stopped shipping critical raw materials and others raised their prices.
- Data collection effort is excessive: The amount of time being spent on collecting data may exceed its potential value. One company concerned about the quality of Accounts Payable's customer service instituted a 30 day test to capture extensive information about each transaction that needed interaction with a supervisor, employee outside of A/P or a vendor. The effort was so time consuming that the backlog of unprocessed transactions more than tripled. That backlog not only reduced productivity, it increased the number of calls and emails to A/P asking about the status of unpaid invoices and expense reports.
In my next blog entry, I will start to explore the a framework for developing metrics that addresses these pitfalls.
-Rakesh Shukla
@rakesh170
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Posted by Steve Wilcox on Fri, May 08, 2009 @ 03:39 PM
In this past week's webcast titled, 10 Must-Have Metrics, Jon Casher, president of Casher & Associates, made a great point about how you need to be very mindful about how certain AP metrics can drive the wrong behavior.
Here was his example. A company based its bonus on a seemingly very simple metric - the number of invoices processed. This is a flawed metric. Here's why -- a very clever AP Specialist realized that if she arrived before everyone else and hand picked the "easiest" invoices such as the simple ones with one line item, she could process more invoices per day. Soon her associates started doing the same thing. Nobody wanted to process the complicated invoices from the "challenging" suppliers.
What ended up happening was that the suppliers who sent in not-so-easy invoices to process weren't being paid! This caused all kinds of problems as you can imagine.
So the lesson learned is that you need to consider the unintended consequences of your metrics - even if the metrics appear innocent.
In the webcast, Jon outlined a complete framework for developing metrics that should prevent these types of problems:
- What should be measured
- Why it should be measured
- When it should be measured
- How it should be measured
-Rakesh Shukla
@rakesh170
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Posted by Steve Wilcox on Thu, Apr 02, 2009 @ 01:39 PM
As any quality expert knows, "that which gets measured gets improved."
So if you DO NOT want to improve the quality of your AP processes then ... don't measure anything.
On the other hand, if you DO want to improve your AP processes, then you need to start tracking key metrics and performance indicators through Quality Programs.
But what Quality Programs have proven track records and what exactly needs to be measured?
In yesterday's webcast, Penny S. Weller, PhD, CMA, Senior Business Advisor, at The Hackett Group explained how the following Quality Programs can improve, energize and turbocharge your AP processes:
- The "Green Room"
- Activity-based Management
- Balanced Scorecard
- Six Sigma
- Hackett Benchmarking
In a very easy-to-understand manner, Penny walked through how each of these Quality Programs can be implemented in your AP Department in a practical way, and showed that organizations with formal Quality Programs have lower AP costs.
How much lower?
38% lower costs to be specific ...
-Rakesh Shukla
@rakesh170
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Posted by Steve Wilcox on Wed, Nov 19, 2008 @ 11:04 AM
Ok, I'll admit that the functional requirements for a critical financial function such as AP dwarf the functional requirements for an iPod or a search engine but the point is clear ... ERP AP products are complex. The installation, maintenance and upgrades are complex. The user interface for AP products is especially complex.
And yet, AP touches so many other business functions and business users outside of AP from line-of-business users that need to approve & code invoices, to procurement that needs to help resolve PO holds, to finance managers who want to track key metrics, to suppliers who want status information on their payments. The dilemma is that you just can't expect these users to sit down and figure out how to navigate complex ERP AP screens. The learning curve is just too steep. If you want the most efficient and accurate AP process, you NEED to seamlessly include these users.
And this is one of the major flaws of AP Automation products including imaging and workflow products. For non-AP users that need to approve invoices, help resolve PO holds, provide account coding information for NON-PO invoices, track & manage metrics and trends, retrieve payment status information in a self-service fashion etc. ... these users need something simple ... really simple.
A good AP Automation solution should provide a simple, intuitive, web-based interface for approvals, coding & hold resolution, an intuitive "at-a-glance" AP dashboard for managing day-to-day operations and a simple supplier portal for payment status inquiries.
When you see an approval interface, an AP dashboard or a supplier portal ... ask yourself this critical question:
How simple is this to learn and use?
-Rakesh Shukla
@rakesh170
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Posted by Steve Wilcox on Fri, Nov 14, 2008 @ 02:59 PM
This past Wednesday, we had an excellent webcast with Nat Goodman, a well-known AP industry expert, titled "AP Benchmarking: 12 Critical Issues."
It was a very good webcast with some very positive feedback. Here are the 12 Critical Issues that Nat discusses:
- Use Benchmarking to Commit to Continuous Improvement
- Balance Your Scorecard
- Broaden But Don't Overdo Metrics
- Participate in Benchmarking Studies
- Build Professionals Relationships
- Recognize Accounting and Organizational Disparties
- Focus on the Technology Drivers for Success
- Examine Performance Gaps
- Determine Costs vs. Benefits
- Apply Internally as well as Externally
- Motivate Associates with Compelling Data
- Track and Continously Improve with Dashboards
As I wrote in my last blog entry, when the topic of AP Benchmarking comes up, there is usually a lot of discussion about "cost per invoice." And yet this metric is just not a very good metric.
Why?
Here's what Nat had to say:
"There are a lot of accounting differences and cost differences. One example - when I worked at Sears, we didn't have a large AP operation, and I was processing about 1,000 FedEx invoices per month. They were very simple, and the cost to process each invoice was smaller than average. To simplify this process, I converted those 1,000 invoices to one summary invoice and reduced my total number of invoices by 999. But what did that do to my metrics and cost per invoice analysis? It actually increased it. While my overall AP costs went down, my cost per invoice went up. Even if your cost per invoice is low, you might still be processing too many invoices."
Rakesh Shukla
@rakesh170
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Posted by Steve Wilcox on Mon, Aug 18, 2008 @ 03:02 PM
"There are three kinds of lies: lies, damn lies, and government statistics."
Variously attributed to Mark Twain,
Benjamin Disraeli,
Alfred Marshall
and several other dead people.
Anyone who has worked with numbers knows the end results can be manipulated if one tortures the numbers long enough. Washington's smoke-and-mirrors number crunchers are infamous for this type of hocus pocus. As the cost of everyday items like gas, food, medical expenses, education, etc continues to rise rapidly, do the Government's sanitized statistics for CPI, GDP and unemployment really make sense? Of course not!!! Very few people understand that the government formulas used to calculate economic statistics are constantly changing! Yup, every year the government changes the formulas ... usually in a way to make themselves look good. I won't get into the details of hedonics and other statistical trickery but if you were to use the government formulas from 20 or 30 years ago to calculate CPI, GDP and unemployment, you would get very different and very disturbing numbers. John Williams (http://www.shadowstats.com/) contends there is rampant data distortion - the real unemployment rate is 4-7% higher than what Washington claims, inflation is 5-9% higher and the GDP is actually 5-6% lower (which would put us in a recession).
But it is not just the public sector which distorts the numbers; it is also quite common in the private sector -- specifically, corporate finance. The pressure to make the numbers and threats from bosses can result in exotic number massaging and some very creative accounting. Even with SOX, this nonsense continues. CFO.com recently published an article titled An Anatomy of a CFO's Agony which is a case study of one CFO's relentless, exhausting pressure to hit the numbers and the accounting cartwheels required to make ends meet.
Within Finance, potential skullduggery does not stop with accounting but also includes metrics -- the act of collecting data about systems and processes - and then reporting them in dashboards. Metrics allow you to track progress toward top goals, alleviate key pressures, and solve key challenges ... BUT figuring out which metrics to gather and how to gather them accurately is crucial despite Dogbert's consulting advice:
DILBERT: © Scott Adams/Dist. by United Feature Syndicate, Inc
Even worse than pointy-headed bean counters gathering metrics just for the sake of gathering metrics is gathering stupid metrics that can drive unintended behavior. Let me give you a great example in Accounts Payable - a true story of a really dumb AP productivity metric that led to unintended consequences.
I was at a company a few years ago where they actually measured productivity using a ruler. The dreaded ruler was used to measure the size of paper stacks on employees' desktops. The thinking was that if the stack was small, the employee was being very efficient. What was the unintended consequence of this metric? AP Clerks learned that if you store invoices in your desk drawer ... you become a lot more efficient. The "ruler" productivity metric was just a stupid lie and led to all sorts of visibility issues where invoices kept getting "lost" in desks, payments were late, discounts were lost, procurement and suppliers were unhappy, etc.
So what are the AP metrics that should be measured to promote the right behavior? And how and when should these metrics be gathered?
-Rakesh Shukla
@rakesh170
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