Mismatches between financial and operational KPIs

Tracking only financial KPIs, even if correct and timely, is insufficient as it provides a limited view of the business. Financial KPIs show what has happened, but not why it happened or how to improve.

Operational KPIs offer insights into the processes driving financial outcomes, providing the detailed, actionable insightsneeded for informed decision-making and performance optimization.

However, often, the KPIs tracked by finance teams and operators do not match. This disconnect creates challenges in accurately assessing performance, identifying issues, and implementing effective improvements. 

Examples of KPIs mismatch:

COGS in the manufacturing industry

• Finance team:

  • Frequence and granularity: quarterly on the overall production line

  • Purpose: understanding profitability

• Operations Team:

  • Frequence and granularity: per production batch

  • Purpose: production efficiency

• Consequences of the mismatch: The finance team may report low COGS overall, suggesting cost efficiency, but the operations team might identify high costs in specific production batches that indicate inefficiencies, waste, or quality control issues that require addressing

Customer Lifetime Value (CLV) in a tech company

• Finance team:

  • Frequence and granularity: annually on the average customer

  • Purpose: long-term revenue projection

• Operations Team:

  • Frequence and granularity: monthly per customer segment

  • Purpose: customer-specific marketing strategies

• Consequences of the mismatch: The finance team might project high CLV for the year, indicating a strong customer base, while the marketing team might find that certain segments are declining in value monthly due to ineffective campaigns or shifting customer preferences, necessitating immediate intervention to retain these customers

Consultant Utilization Rate in the consulting industry

• Finance team:

  • Frequence and granularity: quarterly, average utilization rate, billable and non-billable hours

  • Purpose: overall profitability of the manpower assessment

• Operations Team:

  • Frequence and granularity: weekly utilization rates per consultant and per project on billable hours

  • Purpose: manage workload and project profitability

• Consequences of the mismatch: The finance team might see a high quarterly utilization rate, indicating strong financial performance, while project managers might overlook non-billable hours