Is your accounting department loafing?

IS YOUR ACCOUNTING DEPARTMENT LOAFING?

Financial executives love the quantifiable. Give a CFO a cleanly sliced pie chart over a well-written executive summary anyday. That's why, if the executive works for a service firm, measuring his or her staff's productivity is often painful, because the quality of work doesn't translate smoothly into numbers.

John Y. Lee, professor of accounting and chairman of the accounting department at California State University in Los Angeles, thinks he's devised a better yardstick. He's come up with a grid for measuring the productivity of accounting departments, especially those that operate within the service industry. It's based on an objectives matrix developed by the Oregon Productivity Center.

"Productivity should focus on a service firm's overall capabilities," explains Lee, "rather than on labor expenses alone. . . . Relate productivity to all the strategies you identify as elements of your company's success."

To do this, skip the "theoretically elegant models," he advises, and opt for a meaningful and easy-to-understand formula, such as the one described below, that requires neither middle-man interpretation by an economist nor sophisticated computing equipment to apply. According to Lee, all you need is access to a calculator or, better yet, a personal computer with simple spread-sheet software.

To set up your own matrix measurement system (see a sample matrix at right), first identify the most important objectives for your accounting staff. Lee suggests selecting three to seven criteria. These are some possibilities that other service firms use to measure their accounting departments' productivity:

* Work is done correctly. * The department deals well with nonrepetitive and new types of work. * It exercises good cost control over projects. * Its work has increased revenues. * The department is innovative. * Due dates are met. * The department maintains good communication with clients and coworkers.

Here's Lee's approach summarized:

After you've selected the criteria most important to you, decide what's a normal performance level for your department for each criterion. In some instances, you can translate the normal level into an easy-to-understand number. For example, if you know your accounting department routinely spends 25 hours each month correcting errors, then use 25 as the norm.

On the 11-point grid (remember it runs from a low performance-level ranking of zero to a high of ten), place the number 25 in a slot in the middle of the range, in the third, fourth, fifth, or sixth spot. "Where you put the normal level of performance will reflect how ambitious you want to be in motivating people," says Lee. (In the sample matrix, the executive selected line 4 as the normal level of performance for his staff.)

When you can't easily quantify a function, such as the relationship between the accounting department and other departments, use a scale from 1 to 10. If, for instance, your accounting department normally interacts well with non-accounting coworkers, assign the criterion a 7 or 8 and place this number on your "normal" line.

Next, for every criterion, decide the best and the worst you can expect. Place those numbers at the two extremes of the grid - in the tenth and zero positions, respectively - and fill in the numbers between at your discretion.

After each measurement period, add a line to the grid that shows the actual performance. For instance, if the department spent only 21 hours correcting errors this period, instead of the normal 25, write down 21 and circle the number on the matrix that comes closest to that measure. (Again, in the sample matrix, the closest number is 20.) Add a line at the bottom that represents the "score," or the number of the line on which the circle appears, for that period's productivity for each criterion.

Finally, assign each criterion a weight, based on the relative importance you place on the function. (When added together, these weights must equal 1.0.) Multiply the score by the weight for each criterion, and then add all of these values to arrive at the productivity index for your accounting department for that period.

Sound complicated? The key to measuring your department using these criteria, says Lee, is to be flexible and remain unbiased when assigning scores and weights and identifying your measurement criteria.

One problem is collecting the information to load into the matrix. Lee explains: "Service professionals - consultants, doctors, designers, lawyers, accountants - resist any measurement of their work. It's not that they fear being measured; they fear being measured in the wrong way." But, he continues, if these professionals can be sure the measurement is quantifiable and objective, which Lee promises is achievable with the matrix, then resistance subsides.

Who's using the matrix? Lee cites Northern Telecom as the best-known firm to apply the approach to measure the productivity of small departments. For the last several years, the company has been using the tool to increase its employees' awareness about productivity, says Lee, one of the side benefits of implementing the plan.

Table : Measuring productivity - a sample accounting department

Productivity criteria selected by the executive: * #1. Assignments are done correctly. * #2. Work is done on a timely basis. * #3. Relations with staff and other departments are good. * #4. Performance is innovative.

Criteria #1 #2 #3 #4

Scores for the actual level of performance

Performance      10    0    0   10   10
level ranking     9    3    1    9    9
                  8    7    3    8    8
                  7   10    5    7    7
                  6   15    7    6    6
                  5   20   10    5    5
               (*)4   25   12    4    4
                  3   30   15    3    3
                  2   40   20    2    2
                  1   60   25    1    1
                  0   80   30    0    0
Actual performance    21     12      4      2
Score                  5      4      4      2
Weight                 0.3    0.3    0.2    0.2
Value                  1.50   1.20   0.80   0.40=3.9

Overall productivity index (the sum of the four values) is 3.9, or slightly below the normal level.

(*) The executive chose line 4 as the normal level of performance for his accounting department, leaving six levels for improvement.