An objective and key result (OKR) is a system of creating milestones for your organization. More specifically, finance OKRs are milestones used by the finance team of companies. We are going to explore what are finance OKRs, how to set finance OKRs, and common examples of finance OKRs.
The finance department can be the biggest ally for founders, business owners, and CEOs. At the end of the day, all business decisions are made based on the capital and time available.
The OKR framework tells us to create a single objective and then a set of 3-5 related key results. For instance, your objective is to grow revenue by 25%. Meanwhile, you get there through your key results. Three key results may be increasing pricing 10%, converting more site visitors to purchasers, and expanding your product lineup.
At Alluxo, we look at finance OKRs having a direct impact on the financial health of a business. In our eyes, a finance OKR needs to directly tie to revenue, expenses, cash balance, or cash flow.
We think of finance OKRs as a series of stages to unlock. For example, someone might set an objective to "Get better at closing the books". This is OK. While it is well-meaning, this Objective lacks a definite end and it is not tied to an outcome.
A better objective would be to "Close the accounting books in 10 days". This objective is clear and concise. In addition, we can expand on what we can do with that extra time.
By closing the books faster, we can take time to analyze gross or net profit margin. Notice how this finance OKR does two things at once: (1) it gets information available faster and (2) it allows for more time to spend analyzing data, instead of simply preparing it.
The Alluxo team also recommends picking simple key results.
If you are looking to increase profitability, this can happen in a few ways. First, you can generate more revenue; second, you can increase your gross profit margin, so you have more contribution to expenses; and third, you can cut expenses. While it might be tempting to set a key result of "Cutting expenses by 50%", it may also be unfeasible.
Instead, if your objective is "Increase profit margin from 5% to 10%", then we recommend setting 3 key results, one related to revenue growth, one related to margin growth, and one related to cutting expenses. It is unlikely that your expenses are 50% too high, but there are always improvements that can be found by looking at the details.
We would also like to mention that finance OKRs should be specific. Setting a goal of increasing profitability works well for a small business, but may be too vague and too difficult to impelement at large corporations. You want to make sure you have the right ability to execute and meet key results.
Here are a list of objectives and key results for finance teams:
When creating an OKR, or any performance metric, it is important to consider the audience. A revenue metric for a controller or staff accoutant is very different than a metric directed for the CEO or Chair of the Board of Directors.
Below, we are going to explore how you should think about creating objectives and key results based on the position within the organization.
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