KPIs for Each Responsibility Centre increases the power of Responsibility Accounting. Numbers are our best business friend, moreover, KPIs are our best buddies.
Managing a business comes with many responsibilities, including
- Firstly, preparing and analysing financial reports
- Secondly, evaluating investments and growth opportunities
- Thirdly, monitoring profitability.
As a business owner, understanding KPIs for each Responsibility Centre is crucial. For example, here are three essential KPIs for each responsibility center.
Example 1: Cost Reduction Percentage
This measures the percentage of cost reduction compared to the previous year. Calculate it by subtracting the current year’s total cost from the previous year’s total cost and dividing by the previous year’s total cost.
Example 2: Budget Variance
This variance compares the actual cost with the budgeted cost. Calculate it by subtracting the budgeted cost from the actual cost and dividing by the budgeted cost.
Example 3: Employee Productivity
Here we are looking at employee productivity measures the output per employee. Calculate this by dividing the total output by the number of employees.
Example 1: Revenue Growth Rate
This measures the percentage increase or decrease in revenue over a period of time. Calculate this by subtracting the previous period’s revenue from the current period’s revenue, finally divide it by the previous period’s revenue.
Example 2: Sales Conversion Rate
This measures the percentage of customers who make a purchase. Calculate this by dividing the number of customers who make a purchase by the total number of customers.
Example 3: Customer Acquisition Cost
This measures the cost of acquiring a new customer. Calculate this by dividing the total cost of acquisition by the number of new customers.
Example 1: Gross Profit Margin
This measures the percentage of revenue that remains after deducting the cost of goods sold. It is calculated by subtracting the cost of goods sold from total revenue and dividing by total revenue.
Example 2: Operating Profit Margin
This measures the percentage of revenue that remains after deducting operating expenses. Calculate this by subtracting operating expenses from total revenue and dividing by total revenue.
Example 3: Operating Expenses to Sales
This measures the percentage of revenue spent on operating expenses. Calculate this by dividing operating expenses by total revenue.
Example 1: Return on Investment (ROI)
This measures the profitability of your investment. Calculate this by dividing the profit of an investment by the cost of the investment.
Example 2: Cash Conversion Cycle
This measures the time it takes to convert inventory into cash. Calculate it by adding the days of inventory outstanding and the days of sales outstanding, finally subtract the figure for payable days .
Example 3: Residual Income
This measures the profit earned above the required return on investment. Calculate this by subtracting the required return on investment from the actual profit
Responsibility Center Key Performance Indicators are a vital part of your business tool box. Make sure sure your have KPIs for each Responsibility Centre. Furthermore, the I Hate Numbers podcast covers a range of must-know business topics to help you Plan It, Do it, Profit. For example. financial storytelling, and financial performance cash flow management, budgeting, forecasting, tax, accounts, and more! Furthermore, every episode provides actionable advice from me, Business Finance coach, accountant and educator who explains that stuff in an easy and no-nonsense way.
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