How Firm Scorecards and KPIs Drive Profit

by Andrea Morhardt, Akseshen LLC – November 7, 2018
How Firm Scorecards and KPIs Drive Profit

There is no shortage of information in CPA firms’ time and billing systems. As firms amass this data, it’s only natural that the term KPI is ever-present in conversation. And it should be: key performance indicators (KPIs) help align performance with long-term strategic objectives. If utilized properly, KPIs function much like a compass: determining if your firm is moving in the right direction.  Sounds straight-forward. The challenge, however, is to find the right information at the right time and present it in a clear and compelling way that enables decision makers to easily act on this information. 

Find the Right Info at the Right Time

You’ve probably been working with the industry’s “usual KPI suspects:” Realization, Utilization, etc. A thorough review of those KPIs and time spent considering a new approach will pay big dividends. KPIs should be relevant to your firm’s strategic objectives and adjusted as the firm and the industry grow and change. Effective KPIs uncover insights you’d otherwise miss.

Traditionally, firms have focused KPI efforts around utilization, a metric that is linked to staff burnout.  As the landscape of the accounting profession changes, firms should rethink their KPIs. Firms can experience significant gains in employee satisfaction and retention by moving away from basic quantitative metrics like utilization toward qualitative metrics such as proper engagement staffing by talent and experience.

Introducing growth-focused KPIs like geographic indicators; segment and industry-based profits; and proper engagement staffing metrics will allow firms to uncover areas at risk of missing strategic objectives and identify opportunities to redeploy resources to create efficiencies and drive profitability. However, generating numbers is just the starting point.

Imagine if consulting work, which typically benefits from value-based pricing, trended down as audit, which tends to be less profitable due to fee pressure, trended up. A simple trend analysis like this can help firms quickly adjust strategic direction to pursue more profitable work. Profitability can be driven even further by better understanding geographic concentrations of industries and aligning office locations, service line mix, and resource coverage for clients with positive trends. 

Present Information in a Way that Makes Sense 

To track KPIs, most firms use a Balanced Scorecard, a strategic management tool that highlights the most critical KPIs and provides a framework to manage resources. When utilized properly, Balanced Scorecards improve internal processes and drive gains in operating efficiency, which leads to increased client satisfaction and profitability.

Once appropriate KPIs and Balanced Scorecards are in place, frequency and consistency of review by key decision makers improve, which makes aligning strategic focus, catching errors and uncovering opportunities significantly easier. 

  • Align strategic focus. Firms often design fantastic strategies, but encounter problems achieving them due to siloed efforts. Frame your KPIs so their impact cascades throughout the organization, thereby aligning strategic focus and broader firm objectives among individual realms of responsibility.
  • Catch errors. One firm recaptured $60,000 in missed billings by upgrading from an annual to monthly Balanced Scorecard process. The cause was simple: staff rates had not been updated to reflect promotions. Without Scorecards and a timely and consistent review, this oversight would have gone undetected.
  • Uncover opportunities. Balanced Scorecards align important benchmarks, provide a 360-degree view of results and uncover areas at risk of missing strategic objectives. More specifically, if Balanced Scorecards can help manage engagements more efficiently, the firm can reap countless benefits including improved client and staff satisfaction, prevention of scope creep, increased profitability and identification of opportunities for additional service offerings.

How Can Firms Get Started?

Revitalizing KPI review and implementing Balanced Scorecards are not as expensive, or as complicated, as you may think. The phrase “the price of light is less than the cost of darkness” is a good way to think about it. 

Remember: simplify analysis and seek to produce meaningful results that create tangible action steps. Ensure goals of the organization align and strive to identify profitability drivers and gaps. If done properly, a firm can move from descriptively reporting past results to predictive reporting that uncovers drivers of future results. A future-focused action plan is the goal.

Firms likely have the correct systems capturing the correct information. However, the missing piece to the puzzle is developing within your firm the skills to generate accurate data for the calculation of the correct KPIs. Well-designed KPIs spark constructive dialogue and encourage everyone to challenge stale assumptions. At the end of the day, the most important question is not can you afford to invest in generating meaningful KPIs, but rather — can you afford not to?


Andrea Morhardt

Andrea Morhardt is the general manager of Akseshen, LLC, a data analytics consulting company dedicated to helping accounting firms make sense of their data landscape and develop strategies that uncover insights, drive efficiency and lead to increased service offerings.