Riassunti Accounting Finance and Control

REPORT QUALITY

For report quality we need accuracy, balance, clarity, comparability, reliability, timeliness.

RESOURCE INDICATORS

Indicators of resource state aims at capturing potentialities for enterprise to innovate and grow. They cover both tangible and intangible assets. The objective is finding those resources that make the company sustainable in the long run. There are four types of resources:

• Financial
• Technological
• Human and organizational
• Image and reputation

But this categorization is not mandatory, so depending on the company the indicators could differ (for example, B2C focus on customer relations). In general, with indicators of the state of resources, it is necessary to:

1. Identify critical resources for the company
2. Select the right indicators to analyze the resources focusing on:
   • Quality of resources available
   • Quantity of resources available
   • Accessibility of resources available

Aside you can see an example. So for example, technological resources could...

• from a qualitative point of view by looking at the returns generated by patents,
• from a quantitative point of view the incidence of new product sale,
• from an accessibility point of view the partnership with research centers.

Key Performance Indicators (KPI) is a term used with indicators that deal with current performance, the aim is spot some weak signals in order to anticipate the possible problem that will arise. For example, we use KPIs to discover that we have a high defect rate, this probably in the future will be translated in high return cost or lower revenues due to remanufacturing. So KPIs detect current performance (weak signals) to anticipate the future.

The concept of Key Risk Indicators (KRI) is related but different to KPIs because the KRI spot even

• Completeness depends on the number of chosen indicators meaning that should be enough and a weighted system to weight the importance of each one should be introduced. The weighting system could be implicit if we do not want to let employees know what are our priority; or could be an explicit weighting system association to each indicator an explicit weight in order to let the company create value upon them. The objective is to always have a linear relationship between value drivers and value creation putting effort in what still give value.
• Measurability is good
• Long term orientation is good because the indicators are selected in order to monitor value drivers.
• Timeliness is good because the focus is on non-financial performances, so eliminating the extra time to transform

• Specific responsibilities are good for operational level but not for higher ones because it's difficult evaluate CFO or CEO with these indicators
• Precision is good because there is the link between the value creation and the indicator.

13 PROJECT WORK PILLS: DASHBOARDS

To have a fully overview of company's performance, it is necessary to mix indicators that belong to different families to match strength and weaknesses of different measures. All the three types have advantages and disadvantage. Remember that we have:

• Accounting based indicators also called financial indicators, are the indicators used to perform a financial analysis.
• Value based indicator: DCF techniques, relative valuation and value based proxies
• Value driver: c'è il capitolo che si chiama value driver

And we need to build a good PMS with a mix of indicators. This is the idea of Dashboards they are a set of indicators selected to reflect the

Key performances of a company. Balance scorecards is the most famous type of dashboard and for this reason, even though the balance scorecard is just a type of dashboard, people are used to use the term "balance scorecard" to refers to dashboards. (Penso che indicator scorecards sia equivalente a dashboard) This situation has led several enterprises to build "indicators scorecards", that are groups of different type of indicators that together can answer to all the managerial needs.

Constructing indicators scorecards needs:

• Defining the dashboard format
• Defining the process by which different measures are selected

We will focus on the most used type of dashboard which is the balanced scorecards.

BALANCED SCORECARDS:

The Balanced Scorecard is a set of indicators selected to reflect the key performances of a company. Are divided into four sections that are connected by the vision and the strategy of the company (the starting point). The set of 4 indicators is

1. Financial Perspective: are key figures about the financial performance of the company, there are indicators about profitability, liquidity, market size… In general, is a set that aim to provide a representation of the key financial numbers of the organization.
2. Customer: the aim is to collect indicators to understand how the company is seen by the customers so customer satisfaction level, external defect rate, time to market, market quota… These indicators are customer/market oriented.
3. Internal processes: The indicators analyze how processes are run by the company for example lead time, production costs, internal defect rate, cost of raw materials...
4. Learning and growth: There are typically indicators of the state of resources, that allow to understand the ability of the organization to be sustainable in the future: of image, of reputation, of investment, of composition of HR, of quality of HR, of the network of partners, of patents,

of how much the company is investing in innovation...These four perspectives reflect the ability of the company to create value. The financial perspective monitors revenue and cost and the relative financial effect (accounting based indicators). Then customer perspective focuses on how revenues are generated. Then internal process to analyze how processes are run by the company. Learning and growth perspective looks at indicators of the state of resources that usually aims to explain the Terminal Value. The perspectives are the drivers of the Shareholders Value and this explains the fact that the selection of these indicators is guided by the strategy and the vision of the company. To select indicators, it is necessary to move from the strategy of the company.

BALANCED SCORECARDS AREAS: