A conversation with the King of KPIs – David Parmenter

DAVID PARMENTER

Two winters ago, I traveled to Prague to speak at a large conference about Performance Management. As the taxi approached the hotel which was set beneath the breath-taking castle, I felt a sense of excitement: I was just minutes away from meeting a king for dinner. Not any king. Not a member of the scandal-ridden European royalty houses. No, I was about the meet a true thought-leader in the performance management community. His nickname is ‘The King of KPIs’. I am of course talking about the management guru and author, David Parmenter. David was one of the other speakers at the conference and we had the opportunity to exchange some thoughts ahead of the conference.

For those of you who do not know David Parmenter, you are really missing out. David has authored a number of bestselling books like ‘Key Performance Indicators – developing, implementing and using winning KPIs’ and the ‘Pareto’s 80/20 Rule for Corporate Accountants’. He is also a great speaker who truly knows how to inspire his audience.

Earlier this week, I had the great opportunity to re-connect with David Parmenter. He is about to publish a new book called ‘Winning CFOs: Implementing and Applying Better Practices’.

Christoph Papenfuss: David, your new book focuses on providing CFOs with hands-on advice for increasing the performance of their companies. What prompted you to write this book?

David Parmenter: I have been increasingly aware that many CFOs are not finding enough time to keep abreast of best practice.  They are spending a disproportionate amount of their time putting out fires. The “winning CFOs” book is an update of the Pareto book including additional material that a CFO would need to know in order to be a leader and business partner.

Christoph Papenfuss: In the past, CFOs spent a lot of time on developing a detailed annual budgets. But the increasing volatility has shifted the focus away from fixed budgets towards flexible plans and forecasts. Why should CFOs consider moving towards a more flexible forecasting approach?

David Parmenter: As I say in the book, “The standard annual planning process takes too long, is not focused on performance drivers, is not linked to strategic outcomes or critical success factors, leads to dysfunctional behavior, builds silos, and is a major barrier to success. By 2020 there will be few progressive organizations using the annual planning process to allocate resources. Quarterly rolling planning will be embedded and we will; all look back and wonder why we ever did annual planning.  As a CFO you need to be abreast of this change and ensure you are not one of the doubters who claim the “world is flat”.

Christoph Papenfuss: Many business managers are literally afraid to submit a realistic forecast as they fear repercussions in the form of higher targets or poor performance reviews. As a result, we find that many organizations submit forecasts that mirror the plan. What can CFOs do to encourage objective and honest forecasts?

David Parmenter: There has to be a major shift in the way we set up performance based remuneration, away from rewarding progress against a future target to measuring performance retrospectively based on relative measures. Secondly there needs to be a paradigm shift in the way we forecast.  There needs to be a separation of targets from forecasts and a rule that a forecast should tell the truth and not what we want to hear.  Both of these issues are discussed, at length, in the book.

Christoph Papenfuss: Even today many finance organizations are highly dependent on spreadsheets for compiling their monthly forecasts and reports. What is your opinion on that and how do you see this changing in the future.

David Parmenter: Being an expert in Excel is career limiting and should be removed from your CV.  It is like applying for a job as a test driver at Ferrari and having on your CV a gold medal for driving a horse and carriage.  All accountants, including CFOs, need to have on their CV, a statement to the effect that they have a working knowledge of a forecasting software.

Christoph Papenfuss: Many thanks for taking the time, David. We are all looking forward to reading your new book.

You can learn more about David Parmenter and his work on his home page. His new book is scheduled for release on April 5th, 2011.