Best Practices for Financial KPI Design - Wellesley Information ...

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Best Practices for 

Financial KPI Design 

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Anand Jha 

Deloitte 

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© 2012 Wellesley Information Services. All rights reserved. 

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In This Session … 

• Understand the changing business environment and the need for 

KPI-driven decision making 

• Approach on identifying and defining business KPIs 

 

Guiding principles 

i • Best practices for KPI design in SAP BI 

Pros and cons 

Step-by-step KPI design creation in SAP NetWeaver ® BW 

Using hierarchies in SAP to define reusable KPI definition 

across the organization 

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1 

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What We’ll Cover … 

• Business requirements and challenges in financial reporting 

• Approach for defining financial KPIs 

• Designing financial KPIs in an SAP BI environment 

• Wrap-up 

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Keys to Success in Today’s Business Environment 

Marketing 

Strategy 

Operational 

Improvement 

Profit 

Maximization 

• Which markets should we be focusing on? 

• With growing complexity in channels-to-market, which are my best 

ones? 

• How can we rationalize our product range? 

• Which customers are most profitable? 

Cost 

Optimization 

• How can I make my planning more responsive to workload? 

• Do we have resources in the right place? 

• What is the difference if I outsource or offshore my processes? 

• How can I gain a better understanding of my shared service centers? 

• How can we increase profits? 

• Are products making the right margins? 

• Should the current operating model be changed to improve 

efficiencies (including costs)? 

• What do we have to do to manage cost better? 

• What is driving cost in the business? 

• If we have to cut costs, how can we be sure we have done it 

without damaging the business? 

• Are products correctly costed to bear accurate materials and 

activity costs? 

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Need for Insightful Information: Business Intelligence and 

Analytics Is the Key 

• Today’s business pains underscore the importance of consistent, 

reliable, and timely information for sound decision making 

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As market pressures increase, 

businesses across industries are 

realizing they need to leverage 

information to drive the direction of 

their business and gain a 

competitive edge 

• Enabling them to capture and rationalize disparate data into an 

organization-wide view of information 

• Measuring performance where business strategy is linked to 

goals and objectives, which are then monitored via KPIs 

• Slicing and dicing information in many ways to provide a 

deeper understanding of future competitive implications 

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Analytics (Business Intelligence) 

• Delivers the right information to the right person at the right time 

• Provides data consumers with interactive tools to drill into measures by various attributes, 

resulting in visibility into retention and attrition trends 

• Incorporates external information for a more complete view of customers and competition 

• Provides the ability to measure agent contact rates, cycle times, and policy conversion rates 

• Increases transparency to the financial data, which allows for better regulatory and compliance 

reporting, resulting in better analysis and an accelerated close process 

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• Wrap-up 

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What Defines KPIs? 

• Key Performance Indicators (KPIs) are used to assess the present state of business and to prescribe 

the course of action 

Must reflect the organization’s mid- to long-term goals; they must be key to its success 

Must have a target – Have clear goals/performance requirements for the business processes 

Must be measurable – Have a quantitative/qualitative measurement of the results and compare 

with set goals 

Must have long-term considerations 

The goals for a particular KPI may change as the organization’s goals change, or as it gets closer 

to achieving a goal 

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Aligning KPIs with organization goals using Enterprise Value Map 

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Reporting Areas for Finance Data 

Core Financial Reporting 

• Income statement 

• Balance sheet 

• Cash flow 

• Realized/unrealized gains/losses 

• Fixed asset roll-forward 

• Comprehensive income 

• Net investment income 

Regulatory Reporting 

• Industry-specific regulatory reports 

• Sample insurance sector reports 

Net investment income 

Premium and losses by states 

Medical malpractice premiums 

Non-admitted assets 

Management Reporting 

• P&L by profit centers 

• Management P&L 

• Cost studies on general operating 

expenses 

• Internal order analysis 

• Cost analysis for sending and 

receiving cost centers 

• Plan vs. Actual variance reporting 

Key Stakeholders Key Stakeholders Key Stakeholders 

• Regulators 

• Shareholders 

• Analysts 

• Regulators 

• CFO 

• Head of Functions 

• Analysts 

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KPI Guiding Principles (Leading Practice) 

• Define major business KPIs and identify supporting metrics 

• Key difference between a KPI and a metric: 

A metric is a data point (i.e., revenue amount) – It does not 

inherently have meaning 

A KPI applies meaning to the metric (i.e., revenue growth 

year over year) 

It immediately provides a measure which can be assessed 

(positive revenue growth is good; negative growth is bad) 

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KPI Guiding Principles (Leading Practice) (cont.) 

• Keep the number of KPIs small so as to focus everyone on 

achieving the same KPIs 

Have three to five enterprise-wide KPIs 

 

Have three to five for each department/process t/ area that 

t 

can be “rolled up” into overall KPIs 

• Consistent measurement of KPIs will be required to have correct 

results 

• Design SAP NetWeaver Business Warehouse (SAP NetWeaver 

BW) to allow slice-and-dice analysis of KPIs and associated 

metrics 

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Executive KPIs — Strategic (Top-Down) Approach 

Top-Down 

Approach 

Strategic 

Goals/ 

Drivers 

Define/Map KPIs and 

supporting metrics 

Design SAP NetWeaver BW to allow 

slice-and-dice analysis of KPIs 

Develop reports, metrics, and dashboards 

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Top-Down KPI Requirements Gathering 

• Focus on strategic approach and reflect executives’ vision 

• Aligns with organizational visions and goals 

 

 

Pros 

Effective when strategic goals change 

Allows organization to explore its capabilities 

Takes organization to the next level financially and 

to the next level of maturity 

Helps company to emerge into new era 

Cons 

Getting buy-in from lower levels in the organization 

More implementation effort 

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Operational KPIs — Tactical (Bottom-Up) Approach 

Bottom-Up 

Approach 

Strategic 

Goals/ 

Drivers 

Define/Map KPIs and 

supporting metrics 

Design SAP NetWeaver ® BW to allow 

slice-and-dice analysis of KPIs 

Develop reports, metrics, and dashboards 

Executive 

KPIs 

Define 

operational 

KPIs, 

metrics, and 

reports 

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Bottom-Up KPI Requirements Gathering 

• Focus on tactical and operational activities 

• Not necessarily aligned with strategic goals and vision 

• Assist organization to improve operations 

• Improve on what the organization does best 

• Pros 

Effective with great business model 

Allows organization to have a controlled growth 

Takes organization to the next level of operations 

• Cons 

Business is slow to react to ever-changing market 

Might become less competitive 

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KPIs: Three-Dimensional Alignment 

Goal 1 

Goal 2 

Goal 3 

Goal 4 

Market to 

Sales 

Strategic goals 

Post to 

Close 

Revenue 

growth 

KPI groupings 

and categories 

Quote to 

Cash 

Shareholder value 

Operating 

Margin 

Asset 

Efficiency 

Enterprise Value Maps 

Request 

to Service 

Expectations 

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KPIs Alignment to Goals and Categories 

Market to 

Sales 

Post to 

Close 

Quote to 

Cash 

Request 

to Service 

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Goal 1 

Rev venue 

gr rowth 

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Goal 2 

Goal 3 

Goal 4 

Communication Channels 


Operating 

Margin 

Asset 

Effi ciency 

Expectations 

Shareholder valu ue 

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Additional KPI Selection Considerations 

• The KPIs should meet the needs of the key stakeholders by 

ensuring progress in a number of key areas 

Available 

How complete is the dataset t behind your key metrics? 

How accessible are all needed data sources? 

How easily can you create customized reports for ad hoc 

analysis? 

What additional information would you like/need to see 

including information from other functions? 

Timely 

Are metrics/KPIs delivered with appropriate frequency? 

Do the metrics/KPIs cover the right amount of time? (i.e., Is 

weekly rather than monthly data needed?) 

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Additional KPI Selection Considerations (cont.) 


ensuring progress in a number of key areas (cont.) 

Consistent 

Do metrics/KPIs have universally understood d meaning 

across the organization? (i.e., Does everyone understand 

what “gross margin” means on all reports?) 

How confident are you in the calculated metrics/KPIs? What 

reporting metrics tend to be the most controversial or least 

trusted? 

Are metrics/KPIs consistently calculated across the 

organization? 

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Additional KPI Selection Considerations (cont.) 


ensuring progress in a number of key areas (cont.) 

Actionable 

Is enough context t provided d with KPIs so that t you fully 

understand the situation? (i.e., To review results, what else, if 

anything, is needed besides a comparison to LY, Plan, and 

Forecast?) 

Is each key metric/KPI clearly assigned to a function that is 

accountable for its performance? (i.e., Is there a group where 

“the buck ultimately t l stops” for each metric?) 

If all reports arrived simultaneously, which report/KPI would 

you look at first? Why? 

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KPI Profile — Sample 

KPI Title – Revenue Growth Trend 

KPI ID: KPI_PTC_T001 Owner: XYZ 

Department: Executives 

Type: Strategic 

KPI Definition/Calculation: 

Net Revenue (Rev less Discounts) growth trend, $, # of Units 

Usage/Benefit: 

• Provides revenue growth trend over a period of time 

• Compare actual revenue growth to forecast and Planning 

Refresh 

Frequency: 

Daily 

Supporting 

KPI/Metrics: 

$ Revenue posted, 

Forecast, Plan 

# Qty Billed 

Dimensions: 

Division, Business Unit, Product Line, 

Revenue category hierarchy, and 

Territory (Sales Organization) 

Data Source(s): 

SAP FI 

Baseline: 

200 million 

Goal/Objectives: Consistently achieve 

revenue growth and 

operating income 

History: 

3 years 

Target: 

500 million 

Comparison: 

MTD 

YTD 

Actual, Forecast, 

Plan 

Security: 

Executive 

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KPI Definition Approach Summary 

Inputs Working Sessions Outputs 

Meeting Minutes 

• Summary of 

interview 

meeting 

• Requirements 

• Related strategic 

goals 

SAP KPIs 

• Documents 

created by SAP 

relevant to 

specific industry 

• Reporting list 

from standard 

business content 

• Enterprise Value 

Map (EVM) 

• KPI for specific 

industry 

KPI Alignment 

Dashboard Mockup 

• Dashboard floor plan with 

mock-up samples 

Development & Test 

KPI Profile 

• List of executive 

and operational 

KPI profiles 

KPI List 

• List of Executive 


• List of 

Operational KPIs 

Functional/Tech 

Specifications 

• Specifications 

Reports/ 

Dashboard 

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• Wrap-up 

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Designing Financial KPIs in an SAP BI Environment 

• Components of a KPI definition 

Traditional/Shortest route 

• Best practice approach to KPI design 

Reporting data dimensions 

Code block definition 

KPI matrix 

• Design of KPI using hierarchies – Flexibility, types, pros, and 

cons 

Financial statement version 

BI reporting hierarchies 

Hierarchy sets 

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Components of a KPI Definition in BI 

• Key components for a KPI include 

Metric/Measures 

Characteristics/Data Dimensions 

Restrictions/Filters 

• Traditional KPI design/development approach 

Hard code the KPI’s restrictions through front-end queries – value type, 

company code, G/L accounts, profit centers, etc. 

Restrictions on individual/multiple/range of G/L account is being done 

through restriction on hierarchy nodes 

• Typical pain points 

Changes impact multiple localized KPIs in multiple reports as filters were 

localized to the reports 

Tracking the where used list and updating changes required is manual and a 

considerable effort and some time may be spent 

Transport in upstream systems (QA, Prod) in the landscape may be needed 

for the KPI realignment after the changes 

Longer time to deploy changed KPIs in production 

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Best Practice Approach to KPI Design 

• Reporting data dimension 

Identify reporting dimensions involved 

• Code block elements 

Ascertain reporting/summarizing elements/dimensions 

• KPI matrix 

Log all KPIs needed across all reports and define them using 

the code block elements 

• Key figure development strategy 

 

Globalize designs, apt use of hierarchies Road to flexibility, 

sustainability, and manageability 

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Reporting Data Dimensions and KPI Definition 

• Maps BI reporting data requirements against various dimensions, 

including KPIs and characteristics 

• Benefits 

 

The RDD document eliminates i all redundant d dimension i and key 

figures across reports and presents a consolidated view 

Extent of impact on existing BI reports for any change in 

dimension of KF can be easily tracked 

New dimension or Key Figure can be easily added and mapped 

against an existing or a new report 

• Limitations 

A process flow should be in place to continuously update the 

document as further changes are missed after initial finalization 

of the RDD document 

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Sample Reporting Data Dimensions 

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1 

2 

1 

Column for data 

dimensions 

2 Column for reports 

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3 

4 

3 Data element 

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4 Data element used 

in a report – “X” 

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What Defines Code Block? 

• Code block is an integrated set of dimensions, values, and 

mapping rules that provides common, consistent, and reliable 

views of enterprise information throughout the company 

• Maintain code block at global/corporate level to have a common 

financial language throughout the company to discuss financial 

results across segments/BUs 

• The global code block will be used across the global enterprise 

and will set in place a common financial language that supports 

the standardization of master data definitions, accounting 

processes, and reporting processes 

• Facilitates the mapping of data between all relevant systems by 

providing standard definitions and usage, standard values and 

hierarchies, and standard metadata 

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Guiding Principles for Code Block Elements 

• Financial and Regulatory Reporting 

Key Elements that are necessary for Financial and Regulatory 

Reporting out of General Ledger 

These elements include both the standard SAP elements, as well as 

any user defined “custom” fields, e.g., Company Code and G/L 

account 

• Financial data Integration 

Elements that are necessary to allow walk backs from one system to 

another, or aggregation from one level to the next 

This also includes key fields used for summarizing into a common 

financial system with other FI systems 

• Management Accounting and Reporting 

Key elements that are necessary for Management Accounting and 

reporting 

These elements include both the standard SAP elements, as well as 

any user defined “custom” fields, e.g., Profit Center and Cost Center 

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Benefits of Code Block Approach for KPI Definition 

• Improve transparency in reporting, leading to ease in preparation 

of global consolidated financial statements 

• Code block contains elements such as Company code, Segment, 

Profit Center on which legal reporting can be done 

• These elements have consistent meaning across the organization 

that mitigates change management, retraining, mistakes, etc., for 

end users 

• It creates a viable foundation for future SAP projects for the 

organization 

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Sample Code Block Element Summary 

Company Code 

G/L Account 

Branch 

Trading Partner 

Document Type 

Profit Center 

Segment 

Cost Center 

Description 

Legally independent company that is within one country, linked to one 

language, uses one local currency, and uses one global chart of accounts 

Supports the items included on external financial statements, as well as 

key management reports 

Branch will represent the location or grouping of locations that is identified 

for taking credit for the revenue and product-related expenses 

A dimension used to consolidate individual companies and track intercompany 

transactions 

Classifies the Business transaction and is saved in the document header 

when a document is posted 

Profit Center is a management reporting dimension that can produce a 

financial balance sheet and income statement for internal reporting 

purposes 

Segment field is used to produce external financial statements. The values 

are defined based on Segment reporting requirements. 

Cost Center is an area of responsibility within a company where costs are 

measured, analyzed, allocated, planned, and reported 

Regulatory 

Reporting 

Criteria 

Financial 

Reporting 

Management 

Reporting 

X X X 

X 

X 

X 

X 

X 

X X X 

X 

X X X 

X 

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KPI Matrix — Key Figure Rationalization 

• Document all KPIs – all KPIs are garnered per the reporting 

requirements – per report intended 

• Classify KPIs – Global vs. Local – per usage across reports 

• Define KPIs from a code block element with lowest granularity to 

the one with highest granularity (> usage of lower granular code 

block elements, better definition) 

• Globalize KPIs that can be defined with repetitive code block 

elements across reports, and localize KPIs that used less 

repetitive code block elements 

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KPI Matrix 

1 KPI 2 3 4 5 Code Block Elements 6 

Report 7 

KPI used in a report – X 

1 2 3 4 5 6 

7 

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Design of KPI Using Hierarchies 

• Hierarchies represent a parent-child relationship within a single or multiple 

data dimensions 

• Hierarchy Design approach 

Global KPIs could be defined using hierarchies 

Hierarchies hide the changes in G/L accounts or changes in the 

hierarchical organization (done in the source system) from the 

reports, and the report nodes adjust themselves after the changed 

hierarchy is loaded to SAP NetWeaver BW 

Hierarchies – Standard or can be custom extracted from source system 

Flexible reporting structure minimizing maintenance effort 

Reporting hierarchy nodes can be used across multiple reporting 

projects if similarity il it exists 

• Types of Hierarchies in SAP BI 

Standard FSV – Financial Statement Version (G/L account only) 

BI Reporting hierarchies 


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Standard FSV Hierarchy Nodes 

• Financial Statement Versions form the basis for creating financial 

statements. They are extracted in the BI and reports can be built 

on them. 

 

Standard G/L master data hierarchy and extractors: FSE3 

 

BW G/L Extractor: FSV 

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Standard FSV Hierarchy Nodes (cont.) 

• Benefits 

Level of detail can be varied in the FSV. For example, 

consolidated view – rolled up at highest level; operational view 

– lowest level. 

Several financial statement versions can be created if financial 

statements use different formats 

For example, different balance sheet formats can be set up 

according to various criteria, such as for tax, statutory, or 

management reporting 


A report using an FSV hierarchy cannot pick and choose 

accounts under a node if partial information needs to be shown 

Order of the accounts cannot be changed within a report if user 

wants to view information in a different way 

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BI Reporting Hierarchies 

• Reporting through hierarchy is a BI functionality through which reports 

are built flexibly using any Financial Statement Version hierarchy. It also 

helps to minimize the maintenance effort. In this scenario, BI reporting 

hierarchies, nodes, or accounts will be mapped to lines of each report. 

• As individual id BI reporting hierarchy h nodes are linked to the Financial i Statement Version nodes, any changes in the grouping of G/L accounts 

under a node will be automatically reflected on the report. This approach 

will prevent changes on individual reports. 

• There are two types of BI reporting, one is FSV linked and one is a 

completely independent custom hierarchy directly maintained in SAP 

NetWeaver BW 

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BI Reporting Hierarchies (cont.) 

• Benefits 

This approach eliminates the inflexibility of the FSV by providing an 

option to select and group nodes and accounts as per reporting 

requirements 

Duplicate dimensional values can be used on the reporting hierarchy 

on multiple nodes; FSV can’t have duplicate value 

Reporting hierarchy nodes can be used across multiple reporting 

projects if similarity exists 

Unit testing effort of the reports can be accelerated, as developers can 

create reporting nodes in the hierarchy, and need not wait for Financial 

Statement Version (FSV) for testing 

• Limitationsit ti 

Hierarchy maintenance is not automated and may result in 

discrepancies between source and BI systems 

Needs an additional effort in BI to map reporting requirements to 

reporting hierarchy. If a report needs additional node or value 

restriction, then reporting hierarchy also needs to be changed. 

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BI Reporting Hierarchy Creation 

Step 1: First, the standard ECC G/L account-based hierarchy for a Financial 

Statement Version will be extracted into BI 

Step 2: Next, BI report-specific sections are appended in the standard G/L 

hierarchy 

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BI Reporting Hierarchy Creation (cont.) 

Step 3: BI report-specific section nodes are linked to standard G/L hierarchy nodes 

Hierarchy node 

USGP64 in reporting 

section is linked to 

USGP64 node in ECC 

standard G/L 

hierarchy 

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G/L Accounts for Reporting 

Step 4: Individual report lines can be mapped directly to BI report-specific 

section node in the hierarchy 

Multiple G/L 

accounts are 

rolled up to the 

hierarchy node 

USGP64 

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Account with Report Position Mapping 

ECC 

Journal 

G/L Account Amount 

1600300100 26738 USD 

… 

BI Reporting Hierarchy 

BI Report 

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Hierarchy Sets 

• Reporting through hierarchy sets is a functionality where reports 

are built using hierarchies created on various characteristics, 

such as G/L account, Trading Partner, Transaction Type, etc. 

 

These hierarchy sets are built in ECC and extracted into BI 

through customized extractors 

• The nodes on the hierarchies can be mapped to various lines of 

a report 

• Benefits 

It inherits all the benefits of the “Reporting Hierarchies;” 

moreover, it eliminates any maintenance effort in BI, as 

hierarchies are maintained in ECC 

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Hierarchy Sets (cont.) 

• Benefits (cont.) 

A combination of hierarchy sets on multiple dimensions can be 

used to build structures that are necessary for some regulatory 

reporting requirements 

There is no requirement of slice-and-dice or drill-down 

capability on such reports 

Reports in both ECC and SAP NetWeaver BW can use same 

hierarchy sets 


A customized extractor needs to be built to extract hierarchy 

sets, as standard extractors are not available 

Sign flipping needs to be consistent for an account across all 

hierarchy sets 

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Hierarchy Set Creation 

• Create Hierarchy sets in GS03 and custom extractors 

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Hierarchy Set Creation (cont.) 

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Hierarchy Set Creation (cont.) 

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Hierarchy Set Use: Report 

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Hierarchy Set Extractor — Custom (Function Module) 

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The Right Fit 

Features FSV Hierarchy BI Reporting 

Hierarchy 

Usage 

Standard FSV nodes Multiple FSV nodes 

can be used 

are needed repeatedly 

in single/multiple KPIs 

across multiple reports 

Hierarchy Sets 

Same leaf nodes are 

needed across 

multiple parents 

Code block element On G/L account only On any BW object On any characteristic 

in source system 

Extractor Standard extract Manual maintenance Custom extract 

Time dependency Time-dependent Time-dependent Time-independent 

hierarchy possible hierarchy possible (history lost unless is 

manually fed in 

different hierarchies in 

SAP NetWeaver BW) 

Flexibility and 

automation 

High flexibility and fully 

automated 

High flexibility and 

semi-automated 

Very high flexibility and 

automated 

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Reporting and Hierarchy Usage in SAP BusinessObjects 

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*Source SAP 

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Reporting and Hierarchy Usage in SAP BusinessObjects 

(cont.) 

* Metadata Support for BEx Queries 

*Source SAP 

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• Wrap-up 

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Additional Resources 

• Sample Enterprise Value Map 

http://public.deloitte.com/media/0268/enterprise_value_map_2_ 

0.pdf 

• Seng Kee Tan, “Practical Advice for Planning a Successful SAP 

CRM Executive Dashboard Implementation” (SAPinsider CRM 

Conference, Orlando, 2009). 

• Best Practices for SAP BusinessObjects 4.0 in combination with 

SAP NetWeaver 

www.sdn.sap.com/irj/boc/bi-solution-architecture 

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7 Key Points to Take Home 

• Best practice approach to defining KPIs includes strategy, data, 

and technology aspects 

• KPI definitions are measurable, have a target, and are meaningful 

• Top-down KPI requirements collection focuses on strategic 

t approach and reflects executives’ vision 

• Bottom-up KPI requirements collection focuses on tactical and 

operational goals 

• Code block elements – Improve transparency in reporting, leading 

to ease in preparation of global consolidated reports 

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7 Key Points to Take Home (cont.) 

• Hierarchies hide the changes in G/L accounts or changes in the 

hierarchical organization (done in the source system) from the 

reports and the report nodes adjust themselves after the changed 

hierarchy is loaded to SAP NetWeaver BW 

• Reporting through hierarchy sets is a functionality where reports 

are built using hierarchies created on various characteristics 

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Your Turn! 

How to contact me: 

Anand Jha 

ajha@deloitte.com 

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Disclaimer 

SAP, R/3, mySAP, mySAP.com, SAP NetWeaver ® , Duet ® , PartnerEdge, and other SAP products and services mentioned herein as well as their 

respective logos are trademarks or registered trademarks of SAP AG in Germany and in several other countries all over the world. All other product 

and service names mentioned are the trademarks of their respective companies. Wellesley Information Services is neither owned nor controlled by 

SAP. 

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