DEVELOPING BUDGETS KEY

PERFORMANCE INDICATORS (KPIS)

 DEVELOPING BUDGETS KEY PERFORMANCE
INDICATORS: SAMPLE 1

OVERVIEW

Improving the Process

Performance measures are the "vital signs" of an organization. Quantitative performance measures provide
management with insight into company performance and highlight opportunities for improvement. These
measures provide a company with the information needed to benchmark with another company, compare
performance with industry standards and averages, and track any progress in performance improvement over
time. By using performance measures, managers and workers understand the outcome of their efforts and how
those efforts affect the whole organization.

Specifically, performance measures must be quantified: an act of measurement is required, one that can be
performed reliably and consistently based on fact not opinion. "Good" and "fast" are not adequate performance
measures. "Number of defects" and "time for order processing" are acceptable measures, if they are controllable
– that is, if the people performing the work can affect the outcome. In addition to being quantifiable and
controllable, the following must be true for performance measures to be truly effective:
• Company objectives are aligned.
• Continuous improvement is supported.
• Reports are consistent and prompt.

Performance measures can be cost-based, quality-based or timed-based. Cost-based measures cover the
financial side of performance. Quality-based measures assess how well an organization's products or services
meet customer needs. Time-based measures focus on how quickly the organization can respond to outside
influences, from customer orders to changes in competition. Focusing attention simultaneously on cost, quality
and time can optimize performance for an entire process and ultimately an entire organization.

PERFORMANCE MEASURES

Cost
• Total cost of financial budgeting and planning as a percentage of revenue.
− A higher-than-average ratio may be due to higher compensation to staff involved in preparing and analyzing
the budget, or to excess staffing in the budget process. Other reasons for a higher ratio include a process
that is highly decentralized or one that uses technology that requires updating. Some companies, however,
will have a higher ratio because their revenue is below the benchmark group average. A lower-than-
average ratio may be due to lower compensation rates for budget preparation staff, or a staff that is less
highly skilled; however, a company that uses technology efficiently also will have a lower-than-average
ratio. So will a company with revenue above the benchmark group average.
• Number of full-time equivalent (FTE) staff as a percentage of total staff devoted to budgeting.
− FTE is defined as equal to XX hours.
• Number of budgets produced annually.
− A higher number of budgets indicates that more time and resources are being spent on budgeting.
− Some reasons that a company might have a higher-than-average number of budgets:
○ Different types of budgets for the same financial entity are prepared.
○ Budgets that include too much detail are created.
○ Many revisions of budgets are required.

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 By contrast, a company might have a lower-than-average number of budgets due to factors that include the
following: synchronizing budgets for each entity, simplifying detail required, and providing clear guidelines on
strategies and assumptions, so that less revision is required.

There are other cost measures that companies may want to develop.

• Number of "ad hoc" budgets created each year.

− Creating additional budgets to address special needs adds to the cost of budgeting and points to the
existence of a weak budgeting process.

Quality
• Variances of budgeted-to-actual items as a percentage of the budget.
− Compare a company's actual net income, minus its budgeted net income, divided by the budgeted net
income. If the actual net income is less than budgeted, the variance will be a negative percentage; if
greater; the variance will be a positive percentage.
− A large variance – either positive or negative – may indicate shortcomings in the budgeting process.
Companies with large variances may want to examine how they analyze trends and changes in their
markets, how they identify cost drivers, how they train budget developers, and whether they have
eliminated the need for managers to "pad" budgets.

There are other quality measures that companies may want to develop.

• Gap between targeted and actual key performance measures.

− Improvement in key performance measures may point to a strong link between strategy and budgeting. If
the gap between targeted and actual performance is widening, however, a company may want to examine
its budgeting process to see whether clear communication of goals and measures is taking place and
whether resources are being allocated to the efforts that have the most impact on performance.
• Ratio of expected-to-actual return on capital proposals
• Ratio of failed-to-successful capital proposals
− Tracking these measures can give a company insight into the effectiveness of its capital allocation
procedures.
• Percentage of discretionary spending occurring in the last fiscal quarter.
− A consistent pattern of spending in the last fiscal quarter may mean that budgets are being padded or that
there is a "use it or lose it" mentality among managers.

Time
• Length of budget cycle
− Longer-than-average cycle times may indicate a lack of standardization in budget guidelines or the use of
too much detail in budget preparation. It also points to the slow resolution of allocation issues or too little
budgeting centralization. A shorter-than-average cycle may indicate the use of standardized guidelines
across business units, a simpler budget format, less forecasting and re-work, and more centralized
budgeting authority.
• Average length of time to approve capital budget
− A company can re-engineer its capital budgeting and management reporting processes by integrating
budgeting with strategic planning and removing excess detail.

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 DEVELOPING BUDGETS KEY PERFORMANCE
INDICATORS: SAMPLE 2

OVERVIEW
A budget is a systematic method of allocating financial, physical and human resources to achieve strategic goals.
Companies develop budgets to monitor progress toward their goals, help control spending, and predict cash flow
and profit.

The central challenge budget developers face is mapping out the future, something that can never be done with
perfect precision. The fast pace of technological change and the complexities of global competition make
developing effective budgets both more difficult and more important.

LEADING PRACTICES
Important benefits of improving the budgeting process include better understanding of companywide strategic
goals, more coordinated support for those goals and an improved ability to respond quickly to competition. A
discussion of leading practices is used by leading companies to develop budgets.

Link Budget Development To Corporate Strategy

Because the budget expresses how resources will be allocated and what measures will be used to evaluate
progress, budget development is more effective when linked to overall corporate strategy. Linking the two gives all
managers and employees a clearer understanding of strategic goals. This understanding, in turn, leads to greater
support for goals, better coordination of tactics and, ultimately, to stronger companywide performance.

But how is such a link created? Companies that apply leading practices find that communication plays an
important role. Top management must take the lead in developing and communicating strategic goals. To develop
those goals, top management needs information about customers; competitors; and economic and technological
change, information that must come from customer contact and support units. Companies that establish effective
channels for communication find it easier to set challenging yet achievable strategic goals.

Setting goals before budgeting begins makes it easier for budget developers at all levels. When this happens,
budget developers create budgets that support strategic goals and that, therefore, need fewer revisions. Budget
development then becomes not only faster and less costly but also far less frustrating.

Design Procedures That Allocate Resources Strategically

Within any company, competition for resources is inevitable. Every function and business unit needs funding for
both capital and operating expenses – usually above the actual resources available. This makes it critically
important for companies to design procedures so that resources are allocated to support key strategies.

Leading companies find that resource allocation is part science, part art. Fortunately, certain leading practices
lead to better results. One practice is coordinating the review of operating and capital budgets. Doing this gives
managers insight into the ways changes in one budget affect the other. Another practice is to develop
sophisticated measures for evaluating proposed budgets. The measures used tend to vary by industry, but most
take into account the company's weighted average cost of capital. Many measures also assess the degree of risk
involved in competing plans of action, the costs or advantages associated with deferring action, as well as factors
such as expected developments in interest rates. By using such measures and by using cross-functional teams to
examine action plans, companies can better select plans whose benefits will produce desired results. Finally, by
monitoring the results of allocation efforts, companies can refine and improve their procedures.

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Tie Incentives to Performance Measures Other Than Meeting Budget Targets
Many companies still evaluate managers primarily on how closely they hit budget targets. While this might seem
logical, in reality, this type of single-dimension evaluation tempts managers to "win" by playing games with budget
targets. Such game playing isn't always in the company's best interest.

At leading-practice companies, meeting budget targets is secondary to other performance measures. Such
companies use a balanced set of performance measures to chart progress toward strategic goals and use the
same measures in their incentive programs. This reinforces the importance of key strategies and communicates
what results will be rewarded.

At many companies, business unit managers are involved in identifying the most relevant measures for their
operations. Typically, some measures are financial, while others track progress in other efforts. For example, an
appropriate nonfinancial measure for one business unit might be product defect rate, for another, speed to market
for new products. Once the measures are identified, higher-level management clarifies what targets each
manager is expected to meet. Managers and employees receive training on the company's incentive program so
that they understand the reason behind the rewards.

Link Cost Management Efforts To Budgeting

By linking cost management efforts to budgeting, companies improve the quality of information available for
managers to use when developing their budgets. Accurate cost information is fundamental to budgeting.
Companies that use accurate cost management techniques and provide budget developers with ready access to
cost information improve both the accuracy and the speed of their budget process.

Standardizing the cost management system companywide is an important step in improving the link between cost
management and budgeting. Many companies also have found activity-based costing (ABC) helpful in identifying
the real cost of producing, selling, and delivering products and services. Even small-to-medium-size companies
are exploring the potential of ABC, as packaged software becomes more widely available and brings down the
cost of engaging in this type of analysis.

Another leading practice in linking cost management to budgeting is the strategic use of variance analysis.
Variance analysis is the study of differences between budgeted and actual costs or the study of costs at one
company, compared to industry averages. By using variance analysis to identify weaknesses, managers can
identify areas where their organization needs to improve its performance. However, managers must focus on the
variances that have a significant impact. Otherwise, decision making and budgeting can become bogged down in
trivial detail.

Reduce Budget Complexity and Cycle Time

Leading-practice companies strive to reduce budget complexity and streamline budgeting procedures. Such
streamlining allows management to collect budget information, make allocation decisions and communicate final
targets in less time at lower cost and with less disruption to the company's core activities.

By controlling the number of needed budgets and by standardizing budgeting methods, companies take important
steps toward streamlining budgeting. Another key step is to minimize the amount of detail included in the reports
used to develop budgets. Also, in their effort to streamline budgeting, leading companies use information
technology to automate budgeting and facilitate workflow. These companies make sure that budget developers
are thoroughly trained in new technologies. This training, together with ongoing companywide information needs
monitoring, helps leading-practice companies deliver the right information to managers, on time and at the right
cost.

Develop Budgets That Accommodate Change

By developing budgets that accommodate change, companies can respond to competitive threats or opportunities
more quickly and with greater precision. They can use resources efficiently to take advantage of the most
promising opportunities. Furthermore, knowing that budgets have some flexibility frees budget developers from
the need to "pad" budgets to cover a wide variety of possible developments. This leads to leaner, more realistic
budgets.

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Companies typically review budgets quarterly, monthly or even weekly. By including changes in business
conditions in these review reports, companies alert managers that new tactics may be necessary if they want to
meet their yearly targets. While it is important to not revise budgets to cover up poor performance or poor
planning, leading-practice companies choose to revise budgets rather than adhere to budgets that do not reflect
current conditions. Some companies rely on "rolling" or "continuous" forecasts rather than on traditional, annual
budgets. The chief difference between such forecasts and traditional budgets is that the forecast is updated with
actual results as the company moves through the year. Figures for three or more subsequent quarters are
projected in decreasing the degree of detail.

One way companies build flexibility into budgets is to prioritize according to strategic importance action plans that
were rejected because of resource limitations. By doing this, they can act swiftly and decisively if additional
resources become available.

Another way leading-practice companies develop budgets that accommodate change is to require managers to
create scenarios based on various assumptions about business conditions. The affordability of powerful
information technology allows for the creation of many "what if?" scenarios. This practice makes it possible for
companies to respond more quickly and effectively if actual conditions follow the pattern of a particular scenario.
Companies also build flexibility into budgets by setting aside funds at the business-unit level to take advantage of
competitive opportunities. Some companies even establish separate subsidiaries to look into promising products
or technologies.

LINK BUDGET DEVELOPMENT TO CORPORATE STRATEGY

Rationale

Why Apply The Practice

Linking budget development to corporate strategy plays a key role in building support for strategies. The budget
expresses, in concrete terms, how resources will be allocated and how progress will be measured. By developing
and then operating within budgets linked to corporate strategy, managers at every level understand how their day-
to-day efforts move the company toward its goals. This understanding leads to better coordination of tactics,
better feedback about both obstacles and opportunities and, ultimately, better performance.

To forge a strong link between budgeting and corporate strategy, leading-practice companies take a series of
steps. First, they clearly define their strategic goals before budgeting begins. Second, they establish and foster
formal and informal channels of communication, so that information and insight about operations and budget
needs can flow horizontally between functions and business units, up toward higher-level managers, down from
top managers to customer-contact staff. (This is sometimes called "four-way" communication.) Third, they improve
procedures and information systems so that information is uniformly reported and universally accessible. And
fourth, top management provides training for budget developers and other employees so that they recognize how
their efforts affect the company's strategy.

What Companies Gain

• The way business-unit goals contribute to corporate strategy is clearly understood.
• Strategic goals receive greater support.
• Business-unit and division tactics are better coordinated.
• Performance is stronger overall.

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Action steps

Improving the Company's Process

Schedule budgeting so that it follows strategy setting.

Strategic goals are milestones marking progress toward a company's long-term goals. For example, if a
company's long-term goal is to become the dominant supplier of a particular product within a market sector, an
increase in market share for that product is a strategic goal.

Setting strategic goals before the budgeting process helps managers align their efforts with corporate strategy
from the start. Because business unit managers know what the goals are, they can develop more focused
budgets, which are likely to need fewer revisions. When revisions are needed, higher level managers throughout
the company can make them, keeping strategic goals in mind. This leads to faster budget developments for
subsidiaries, divisions, product lines, and headquarters or staff functions and budgets that all support the same
goals.

When top management takes the lead in creating corporate strategy, a company remains focused on goals
appropriate to its core competencies and the skills or resources through which a company excels. For example,
one company may have developed a distribution system that gives it a competitive advantage over rivals, while
another may have implemented cost and quality controls in its manufacturing processes that give it an advantage.
Over time, companies venture into areas in which they do not excel for various reasons. Because these ventures
use up resources that could be used more effectively elsewhere, it is important that top management continuously
focuses on the company's core competencies and take primary responsibility for strategy setting.

Strategy setting requires planners to examine the external environment for opportunities and risks and the internal
environment for resources and capabilities. When external or internal environments change, a company's strategy
must also change. As long as top management describes the new strategic goals clearly to managers with
budgeting responsibility, the budget process will continuously be focused and effective.

Identify risks and develop strategies to manage them.

Explicitly identifying business risk leads to better risk management and better budgeting. Business risk is the
threat that something will adversely affect a company's ability to carry out its strategies and achieve its goals.
Business risks include a wide range of possible events or actions, such as changes in laws or government
regulations, product or pricing changes by competitors, fluctuations in interest rates or foreign exchange rates,
developments in production technologies, changes in availability or prices for raw materials prices, and the loss of
key personnel or customers. Because companies are operating increasingly on a global level, managing business
risk has become far more complex than in the past. Although the need to integrate risk management across all
functions is widely recognized, efforts to do so are still under development even at leading-practice companies.

However, the impact on budget development is clear. Explicitly identifying risks and risk management strategies
frees managers from the need to pad budgets to protect themselves from a wide variety of risks. By assigning the
responsibility for managing some risks to central corporate units and the responsibility for managing others to
particular business units, top management avoids both duplicating efforts and identifying gaps in risk
management and enables managers to develop cleaner, leaner budgets.

Use balanced measures to mark progress toward goals.

Long-term strategic plans usually call for a set of measures to mark progress toward goals and these measures
need to be expressed as business-unit and divisional goals in a company's budget. In some situations, a
company may focus only on financial measures like profit or return on assets. But leading-practice companies
know that long-term health depends on other factors too. Customer retention, product or service quality, product
development speed, market penetration rate and employee turnover rate are some of the other factors that
contribute to long-term health, and change in these factors can be measured.

To measure changes in a group of factors, companies use a balanced set of performance measures sometimes
called a balanced scorecard. A typical set of balanced performance measures might look at factors of concern to
investors, customers, employees and the local community. By taking these measures, managers can identify

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gaps between desired and existing levels of performance and develop tactics for closing the gaps. If gaps are
wide or require coordinated efforts between business units or divisions, modification to company strategy may be
needed.

Foster communication to develop and strengthen strategy.

Communication plays an important role in developing and strengthening support and, ultimately, corporate
strategy implementation. Managers and employees who understand how goals are set and how progress is
measured and who have a voice in setting strategy are more committed to implementing it.

The most effective communication is both top-down and bottom-up. When a company sets its strategic goals and
then develops budgets to support them, communication first flows down to the business-unit level. As budgets are
submitted for approval, communication flows up as managers defend their resource requests, and down as they
explain the reason for changes to original budget submissions. Companies that manage the budget process to
allow time for such communication find much stronger support for strategic goals; even if budget requests are
radically changed or denied, and budget developers understand why.

Four-Way Communication in Budgeting

Top Management

Division Management

Business Unit Business Unit Business Unit

Strategy Guiding Budgeting

Actual Results Guiding Strategy Formation

Communication also plays an important role in developing strategy, and for this purpose, it must move
horizontally among business units as well as upward and downward. To develop strategies, top management
needs the most up-to-date information available about both external and internal environments. Business units in
sales, production, distribution, product development and billing all need to share insights on customer needs,
competitive trends, costs, technologies, performance and more. Insights from business units need to move
upward so that divisional and top management can set realistic goals.

Many leading-practice companies, after reviewing what the organization considers realistic, then use top-down
communication to set very challenging and strategic goals. They reason that rising to the challenge forces
managers to show the kind of collaboration and resourcefulness that makes entrepreneurial companies succeed
and entrepreneurial companies are the model that even large, well-established companies are following.

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Train budget developers in strategic goal setting.

Managers who are trained in judging projects and budget items according to their strategic impact are much better
equipped to prepare plans that support strategic resource allocation. Controllers and chief financial officers,
because they are familiar with the tools of financial analysis, can take the lead in designing the training of other
managers. However, budget development should not be "owned" by the finance function.

One important benefit of such training is that it moves ownership of the budget out of the finance department and
into the business units, where the support of company strategy is critically important.

Measures Of Success

Benchmarking Company Performance

Changing the way a company performs a business process generally requires both human and financial
resources dedicated to the task over a time period. Few companies are willing to continue to dedicate resources
to the task without evidence of significant, worthwhile results from the effort. The measures of success listed
below help track the results of applying this leading practice.

Tracking results begins with selecting one or more ways to measure success and then setting realistic yet
ambitious performance targets. The next step is to measure the company's starting point, that is, the company's
level of performance before applying this leading practice. As the company continues to measure its level of
performance at regular intervals, the initial measurement provides a baseline for charting the company's progress
toward its targets.
• Gaps between targeted and actual performance on key measures are identified.
• The percentage of full-time equivalent (FTE) staff working on current-year budgeting is compared to prior
years.

DESIGN PROCEDURES THAT STRATEGICALLY ALLOCATE RESOURCES

Rationale

Why Apply the Practice?

Since any company's resources are finite, companies must develop procedures to allocate resources – cash,
facilities, equipment and personnel to support key strategies. Since the budget expresses all resources in financial
terms, resource allocation is expressed in financial terms as well.

Leading-practice companies establish consistent guidelines for resource allocation and equitable ways to resolve
competing needs. By doing this, leading-practice companies save time in making resource allocations. They also
fund the projects and operations that most effectively support strategy. Another benefit is that by designing
efficient and equitable procedures, companies communicate strategy clearly and strengthen companywide
commitment.

Finance function managers should have a background in financial analysis to lead in designing allocation
procedures. By taking on this role, finance managers can ensure that sufficiently sophisticated measures are used
and that they are used consistently throughout the organization. Finance, by doing this, strengthens its
partnership with business units.

What Companies Gain

• Faster and more effective management of competing needs
• Greater focus on actual capital costs of projects
• Improved capital efficiency

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Action Steps

Improving the Company's Process

Coordinate a review of operating and capital budgets.

When companies coordinate the review of their operating and capital budgets, they enable managers to look at
the company as a whole and see how capital and operating budgets play off each other. For example, capital
invested in modernizing a plant may lead to greater productivity and capacity, requiring an increase in staffing and
the operating budget for sales. Another initiative is to improve customer satisfaction by trimming product delivery
time, which may call for re-organizing shipping and warehousing functions in such a way that new or different
facilities or equipment are needed, affecting the capital budget.

Companies with heavy demands for capital investment or long product-development cycles must plan five, 10 or
even 20 years ahead in making capital investments. It is particularly important that these companies coordinate
the review of capital and operating budgets since the effect of changes will not immediately be apparent.

Use balanced measures to evaluate proposals.

The performance measures used to mark progress toward strategic goals also play a role in evaluating major
proposals. Lower-level managers make several types of proposals or suggested action plans during the
budgeting process. Some affect the company's operating budget (an example of this would be a proposal to
increase or decrease staffing in a particular area). Other proposals affect specialized budgets, including the
research and development budget and the capital budget. By using balanced measures, rather than purely
financial ones, a company is more likely to select proposals that improve its long-term health and improving long-
term health is the ultimate objective of company strategy.

The particular measures a company takes to evaluate proposals are based on the kind of value the company tries
to give its customers. Some companies promise customers reliable products or services at the best possible
price. Such companies tend to emphasize the effect on cost efficiencies and defect rates when evaluating
proposals. Other companies emphasize innovation rather than low prices. These companies tend to rank
proposals based on how they will affect the number of new product introductions, cycle time of product
development and the rate of market penetration. The third type is to be a total solution provider and tends to
measure factors such as account retention and customer satisfaction.

Furthermore, leading-practice companies recognize that within their organization there may exist operations of
quite different types; accordingly, they judge different operations by different standards. For example, one division
might be in the early stage of developing products with fast-growth potential while a second might have mature
products with established market share. Company expectations in terms of gain in market share or return on
invested capital, for example – would be somewhat different for two such different divisions.

A measure like "payback," which shows how quickly an investment pays back the principal invested, is generally
not adequate to the task of evaluating proposals. For one, payback does not reflect the time value of money.
Other methods, such as net present value (NPV) and internal rate of return (IRR), do discount future cash flows
based on assumptions about interest rates and other factors.

Many leading-practice companies use measures like economic value added (EVA) to evaluate the impact a
project or operation has on a company's overall performance. EVA factors in the total cost of capital, including
both debt and equity, are subtracted from earnings before taxes. This calculation gives management a uniform
measure to compare the effectiveness of proposals whether they affect the capital or the operating budget.
However, even this method does not account for all the dimensions of performance that managers must evaluate
today. Leading-practice companies use discounted cash flow techniques and measures like EVA in conjunction
with risk management and with a broader view of company performance.

Use consistent review procedures to evaluate proposals.

Effective review procedures enable companies to make faster and fairer resource allocations. Consistency is
important when reviewing procedures, ensuring that all proposals receive the examination they need and that
results can be monitored.

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Some proposals – those mandated by government regulations or those required to maintain operations at current
levels – may not require intense examination since rejecting such proposals is not an option. More time and effort,
at leading practices companies, is spent on proposals that have the potential to support strategic goals. Since
there are often more proposals than resources to meet goals, companies develop review procedures.

Some companies require business units to compete with each other, presenting and defending divisional plans to
top management or managers of other divisions. Others, instead of competition, employ negotiation to final
budget approval. Other companies use portfolio-management techniques when allocating resources. For this type
of review, managers submit a list of prioritized projects that meet specific rates of return established by top
management. Instead of individually reviewing each project, the entire package is analyzed according to its
collective impact on performance.

Each approach has advantages and disadvantages: Fostering competition may mean losing opportunities to save
in research and development costs or in sharing other resources. Negotiation without rigorous direction can tend
toward traditional budget politicking. And with portfolio management, some strategically effective projects may be
turned down if the business unit sponsoring them already has its quota of projects approved. Leading-practice
companies select a method that most closely meets their needs and leads to better decision making. And they
require quick turnaround on decisions (five days to a week is typical).

Use cross-functional teams to evaluate proposals.

To avoid overstating a proposal's benefits, some leading-practice companies use cross-functional teams when
evaluating major proposals. This helps identify the proposal's effects on other functions or divisions and more
accurately gauges its rate of return.

Monitor results and modify procedures as needed.

By monitoring results and modifying allocation procedures as needed, a company puts its hard-won experience to
work. Review boards can evaluate new proposals by comparing them with those already proven successful,
looking for similar characteristics. They can also make comparisons to proposals that did not meet their goals and
avoid repeating past mistakes. Furthermore, managers at all levels have more confidence in the allocation
process knowing that it is monitored.

Some companies stipulate that the proposing person or business unit follows it through implementation and result
generation. This is another way to develop a knowledge base about the cross-functional impact of proposals,
outlining knowledge that can be valuable in making future resource allocation decisions.

Tips and Tools

Staying on Track
To calculate EVA, a company must make several adjustments to the income it reports using traditional accounting
methods, including capitalizing and amortizing research and development expenses. Therefore, one company's
EVA is a little different from another's. Other measures like EVA include SVA (shareholder value added), MVA
(market value added) and CFROI (cash flow return on investment).

Measures of Success

Benchmarking Company Performance

Changing the way a company performs a business process generally requires both human and financial
resources dedicated to the task over a period. Few companies are willing to continue to dedicate resources to the
task without evidence of significant, worthwhile results from the effort. The measures of success listed below help
track the results of applying this leading practice.

Tracking results begins with selecting one or more ways to measure success and then setting realistic yet
ambitious performance targets. The next step is to measure the company's starting point, which is the company's
level of performance before applying this leading practice. As the company continues to measure its performance

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levels at regular intervals, the initial measurement provides a baseline for charting the company's progress toward
its targets.
• The average length of time to approve proposals.
• The ratio of expected return to actual return on capital proposals.
• The ratio of failed to successful capital proposals.

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