Articles

Term Sheet: FP&A Definitions for Common Terms

By Bryan Lapidus, FP&A
Published: 7/21/2017

Reading various product pitches and online articles I find myself wondering whether everyone uses basic FP&A terms consistently, so I decided to refresh my memory.

Let’s start with performance measurement, the collecting of information about your organization for analysis. Performance measurements are generally evaluated over time for trends (direction) or compared to guidelines or benchmarks.

They may also be qualitative or quantitative, leading or lagging, and related to input, process, or output.

Measurement	Discussion	Example
Measures	The most basic of this group, measures are numerical values applied to almost anything that is measured. It is a statement of fact	# of customers Temperature
Metrics	A step more advanced, metrics are derived from measures, often mixing two measures from different data dimensions. Metrics tracks the status of a business process or concept, may begin to tell how well something is doing, or describe attributes	Cost per customer acquisition (CPA) Sales/quarter Average temperature in May in your city
KPI – Key Performance Indicator	Even more specific, KPI’s describe the level of performance required to achieve an objective for your team, department, product, organization, etc. KPI’s will follow the SMART definition: Specific, Measurable, Achievable, Relevant, and Time-based Looking at the specific terms: KEY: relates to a company objective PERFORMANCE: ties to how well the company performs (health and success): # of computers/employee is not performance INDICATOR: quantitative points to direction of the company (improve or decline) One check on whether a metric has risen to the level of a KPI: you would pay money to know the information because it is valuable in driving actions or decisions	Achieve $25 CPA in Q3 No KPI’s around temperature because no action you take can control it
Value Drivers	This is an imprecise term and therefore may be used notionally or specifically. Value drivers are the actions or processes that increases the value (utility) of your product or service in the eyes of your customer. Depending on where you sit and what you provide, your customers may be internal or external.	Retain customers Acquire customers

Another set of terms which benefit from tighter definitions are dashboards and scorecards. Both are trying to provide consolidated and summarized performance information, but speak to different levels on a hierarchy.

Measurement	Discussion	Example
Dashboards	Dashboards display short-term, tactical operational measurements or metrics. The data is intended to be current and changing as it may checked often (daily, intraday). The data may be visually represented and depict comparison to guidelines.	Customers by channel Product profitability Car dashboard
Scorecards	Scorecards are designed from the top-down, starting with the long-term strategic vision, goals and objectives, and displaying KPIs that are reviewed periodically. Data changes over a longer period as the data does not change quickly.	Market share Company profitability Car GPS

While we are clearing the air, let’s review another set of terms—goals and objectives.

Measurement

Discussion

Example

Goals

Goals reflect the “big picture” destination of what you want to achieve. They generally have a long time frame and are crafted to stretch. Goals control objectives.

Become dominant player in segment
2020 earnings of $X
Driving to the beach

Objectives

Objectives are the measurable progress, steps or tactics on your way to goals, and may be set at multiple levels within an organization

Market share
Lifetime value of E-commerce customer > $100
On the road by 7:00am to beat traffic

Bryan Lapidus, FP&A, is the Director of FP&A Practice for the Association for Financial Professionals. Reach him at [email protected].

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