Step 10: Bridging the GAAP

The first picture in Step 10 is the transaction map, which lays out a simplified picture of the progression by which transactions in a business accumulate and feed into the accounting and financial statements. Key performance indicators (KPIs) -- also called key numbers or critical numbers -- impact one or more of the 12 drivers shown on the Kremer Hood Performance Measures Assessment (KHPMA). These 12 drivers are the mathematical basis for the results as measured by the three bottom lines – operating cash flow, net profit and return on assets. KPIs are the tools by which to benchmark behavior and influence the key drivers, thereby causing financial results more predictably as learning where to focus gets further refined.

KPIs are defined on the KHPMA as any critical number that gives a metric for focusing on workflow, and how that workflow relates to both the customer and overall financial results. Each of the 12 key drivers can be influenced in the right direction by the improvements in indicators that have been demonstrated by testing to both focus activities and improve decision-making. Chuck Kremer, who created three-bottom-line performance, authored Managing by the Numbers and created the Financial Scoreboard, noticed that all business results could be generated and monitored by just a few indicators if they are the right ones. This is the fundamental challenge of growing a business -- continuously improving by doing more work with less relative effort and fewer resources through an objective score.

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