Monthly Performance Reviews:
Keep Your Team On Pace Without Losing A Step!
Last issue, this space shared some high-level thinking about zero-based budgeting, a tool that provides management with much greater control over budget creep and expenses previously categorized as “uncontrollable.” Of course, the casualty in a traditional budget process is the default notion, common in business, that “this is the way it has always been done.”
Now, try adding another tool to your kit: the monthly financial performance review. It requires a sound and simple discipline. This is a scheduled team forum held on a monthly basis with the sole purpose of proactive business management. The agenda is simple: compare the month’s results to both the budget and the prior year, identify key opportunity and risk areas in the business, establish action plans that hold team members accountable to pursue the key opportunities and address the key risks, and refine the full year forecast to enable better financial visibility and planning.
Monthly financial performance reviews need not take much time and even when used alone, they can produce consistent results. However, when used in concert with the zero-based budgeting tool, the monthly financial performance review is a sure way to drive team accountability, promote a more proactive – and less reactive! – management style, improve cross-functional team communication and increase both profitability and growth.
It’s not difficult to see why this is so.
Reviewing financial performance on a monthly basis rather than quarterly or annually fosters a more collaborative environment among team members. Because the forum is regularly scheduled, your managers are better able to keep their preparation current. The atmosphere is more apt to be mutually supportive as members discuss both positive and negative variances from budgeted results monthly and year-over-year.
Monthly transparency is a more effective driver of personal accountability. When each department head knows he or she will be held accountable for monthly variances vis-à-vis the planned budget and prior action plan commitments, he or she is more disposed to enlist assistance, whether through cross-functional resources or by having the team collectively address key risk factors. In addition, new opportunities can be brought up in these sessions and addressed as a team rather than individually. Your team gets stronger in the process.
All great executives seek a more proactive stance from their team. Monthly financial performance reviews are one way to achieve it.
“Throughout the MPR process, our management team and I were actively engaged– from building the annual budget to discussing key variances and determining ways to proactively redirect resources on a monthly basis,” said Kerry Fowler, CFO of Iron City Workplace Services. “Performance Matters’ process and ongoing support have been more successful in helping us meet company goals than our traditional “top down” approach by empowering direct involvement throughout the organization, management buy-in, cross-functional communication and individual accountability. Implementing MPR was and continues to be a very positive complement to our existing processes and procedures.”
Require each department head to develop an action plan – not another strategic plan, but true action steps – that successfully comes to grips with the real budgetary issues, both risks and opportunities, in their respective area of the business. Amazing things will happen. When this is done on a monthly basis, the tenor of the discussion moves from “Why did this happen?” to the more important questions that signal a cultural shift. Questions such as: “Who is resolving this issue? When? How? What steps can be implemented to ensure more positive results in the future?”
This is where dovetailing with the cost-control dynamic of zero-based budgeting really comes into play. That particular tool instills in your team a dynamic we call Cost- Redirect – Win, whereby team members:
- commit to squeezing unnecessary costs out of your processes through rigorous examination;
- identify areas of the business that need investment to help drive revenue growth; and
- realize a return on invested funds through improved customer satisfaction and market share.
The Cost – Redirect – Win cycle is both a powerful and proven dynamic. The monthly performance review instills this kind of thinking on an ongoing, rather than periodic, basis – in other words, a mindset and culture shift. Your management team will identify and capture the “non-working money” (costs that don’t add value to the customer) in its overall cost envelope and redeploy it as “working money” (investments that do add value to the customer).
Finally, the monthly performance review transforms the one thing people are reluctant to talk about – their budget – into the one in which they all have an interest — namely, profitability. The monthly process drives continuous improvement by consistently identifying unused or poorly-used funds, as well as providing greater control over un-budgeted funds. It can be a critically important tool for redirecting the former to more productive uses.
Through monthly financial performance reviews, team members are motivated to proactively achieve the budget they, themselves, created. Because they jointly set the budget, they know intuitively what key levers will deliver the most impact on monthly results. In each other’s presence, they’re more inclined to quickly develop action steps to address the real risks and opportunities.
Holding team members accountable is a critical element of this process. Establishing and tying in personal incentives to budget progress keeps all team members motivated and achieves the “buy-in” you are looking for.
Your company must create marginal dollars to increase service quality, make capital improvements, train and/or upgrade personnel, fund sales and marketing activities and boost sustainable revenue growth.
Monthly financial performance reviews that reinforce the Cost— Redirect — Win cycle are a profoundly important tool to enable you and your team to achieve your company objectives.
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