5 Amazing Performance Management Secrets from the Cockpit

The cockpit of an airplane provides a useful guide in the selection of performance management measures for the development of KPI’s and dashboards. Before jumping into KPI’s and dashboards let me give you a brief context. The use of performance management measures including KPI’s and dashboards have exploded over the past 20 years. What we want to do as FP&A managers is provide senior management with the information they need to run the business.There are a number of important performance management principles illustrated by the cockpit:

1.Real-time and Predictive Analysis: The pilot of an aircraft is not asked to fly blindly and after the ?ight be handed a report to tell him how it went. He is able to monitor the performance of the aircraft in real time. The instrument panel provides real-time insight into the performance of every major system on the aircraft from engine performance to fuel levels, consumption, hydraulics, and landing systems. The cockpit has a number of alerts (?ashing lights or sound alarms) to call the pilot’s attention to potential problems or threats. Just like the instrument panel is essential to the pilot, KPI’s and dashboards are indispensable to the CEO and the CFO. Key performance indicators (KPI’s) are a set of measurable dimensions which measure a company’s overall long-term performance. KPI’s help the senior management determine a company’s strategic, financial, and operational success compared to both historical performance as well as the competition. Dashboard on the other hand is a financial reporting tool used for quick visual comparative analysis of the KPI’s in the form of a series of side-by-side trend diagrams. Dashboards condense a ton of data and summaries it visually on a single slide.

2.High Visual Impact: This pilot does not have to interpret excel spreadsheets to see how things are going. With a quick scan of the instrument panel the pilot can see how every major system is performing and what’s happening in the external environment. He is not ?ying blind, only to then be presented with a 50-page power point presentation or an Excel spread sheets after the plane has landed. Although the instrument panel is complex, but you can be assured that the pilot knows where every dial and reading should be. This illustrates an important concept in Performance Management – described as “data visualization” -transforming important data into visual presentations that allow the user to quickly identify trends, scale, direction, and variances has great utility. The use of graphics and dashboards has greatly increased the e?ectiveness of reviewing business results.

3.Focus on Important Measures: The instruments are measuring what’s important and relevant to the flight mission. The pilot has con?dence that a lot of thought, probably a 100 years of aviation experience, and substantial investment has gone into selecting the measures that are vital to a successful flight mission. Similarly, Dashboard measures what’s important and relevant to the organization goals. The CEO needs to have the con?dence that a lot of thought and years of experience have gone into selecting the measures that are vital to organization’s success.

4.Insights into External Environment: The instrument panel also provides insight about the aircraft’s relationship with the external environment. There is an external radar for potential threats, a navigation system, wind speed and altitude. The pilot can identify storms and alter course. In most airplanes the pilot will be alerted if a potential threat is in its sight. Similarly, the Dashboard provides insights about the company’s position in the external environment. KPI’s and dashboards are organizations external radar which identifies storms so it can alter course.

5.Combination of Experience, Intuition and Observation: Finally, the pilot does not rely on the panel exclusively, but rather combines it with observation, intuition, and experience to complete the flight mission. One of the biggest mistake is to presume that performance measures, dashboards, and other aspects of Performance Management eliminates or replaces the need for executive judgment, decisions, and intuition. Instead, these measures should be utilized to make better inform decisions and, where appropriate, to challenge intuition to ensure that the best possible decisions are made for the benefit of the organization.

Reference: “Financial Planning & Analysis & Performance Management” by Jack Alexander

About the author (Asif Masani): An enthusiastic finance professional with 10 years of experience in FP&A, Audit and Tax. I am an FP&A consultant with RGP presently working on a project with Upjohn (a Pfizer department). In the past i have worked with EY and Citi. My passion for finance can be traced back to my pre-professional days. I have always been managing money from the start whether it be among my friends or being part of various NGOs. The reason - I strongly believe finance plays a vital role in driving any organization forward. Outside of the office, I love creating videos and watching movies (especially super hero movies - Marvel, DC, X Men). I'm currently trying my hand at writing. Connect with me over LinkedIn for networking, career opportunities, or just a casual chat! 

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