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How to measure your Digital Progress in your AP Automation journey?
Before directly deep diving into the “measurement” of “progress”, I would like you to think about the larger context of which your project is a part of. This is because what you want to measure should be derived from the “program” point of view and not just the “project” or “task.” This is because most of the times “projects” and linked to “programs” and programs are linked to “transformation.”
Once the larger picture is clear to you, then start devising what you want to measure? How you want to measure? Who measures it and reviews it? What is the frequency of measurement? What do you do with the measured results?
Any digital transformation project will have the following Goals which needs to be measured. Source: Harvard Business Review- An Inflection Point for the Data Driven Enterprise, 2018.
All digital transformation projects aren’t successful. Many fail. I believe the most important reason for failure is the lack of management being unable to find the right balance between People, Process, Technology(PPT). Finding the right balance between PPT essentially answers the following questions correctly:
“What to automate?”, means you have identified correctly which process to automate.
“How to automate?”, means you have identified correctly what technology will be used to automate.
“How much to automate?”, means you have identified correctly what people will do and what technology will do in the same value chain.
Now let us look at the parameters(KPIs) which you should be measuring to track progress of your AP Automation Project. It is assumed that “continuous improvement” is there with focussed efforts to improve the current state of the newly automated process. I would like to classify the KPIs to be measured into two categories: Operational KPIs, Tactical KPIs. Below is an infographic illustration before I get into details of each of the KPIs. If you would like to know in details about the Operational KPIs to be tracked in AP Automation check out our Blog on “How Account Payable Automation helps in tracking the critical Process KPIs?”
Ops KPI 1:
Cost Per Invoice Processed
Ops KPI 2:
Average Cycle Time of Invoices Processed
Ops KPI 3:
Early Payment Discount Missed
Ops KPI 4:
Wrong Payments against invoices
Ops KPI 5:
Hardcopy invoices received
Ops KPI 6:
Volume of Invoices Processed
Ops KPI 7:
Supplier Relations
Tact KPI 8:
Return on Investment (ROI)
Tact KPI 8:
User Engagement
Ops KPI #1: Cost Per Invoice Processed
Here you calculate all your costs like people cost, hardware cost, software cost, infrastructure cost and then divide by the total number of invoices processed.
Recommended to review this on a quarterly basis.
Ops KPI #2: Average Cycle Time of Invoice Processed
Here you consider the time span of when an invoice comes into your system till payment is made to the supplier against the invoice. You take an average of this time span of all the invoices which comes in for a specific week, month or quarter.
Recommended to review this on a quarterly basis.
Ops KPI #3: Early Payment Discount Missed
Once you have automated your AP process it is easy for you to electronically access the early payment discount for each of the invoice under process and in some cases it may automatically appear in the console of the AP staff. Hence, if your organization has made a decision to avail the early payment discount, in that case there should not be any missed opportunity. In other words the missed opportunity should be zero.
Recommended to review this on a quarterly basis.
Ops KPI #4: Wrong Payments against invoices
This generally happens by two means- payment against duplicate invoices, more or less payment against invoices. Before AP automation the number of wrong payments done surely existed but after AP automation these cases are expected to reduce significantly.
Recommended to review this on a quarterly basis.
Ops KPI #5: Hardcopy invoices received as a percentage of electronic invoices
Unless we track the source of hardcopy invoices we cannot reduce it eventually. Our data capture will show that some specific suppliers send paper invoices more than others. Work with those specific suppliers to reduce the number of paper invoices in the coming months.
Recommended to review this on a quarterly basis.
Ops KPI #6: Volume of Invoices Processed
One may argue that after automation this may not be important as capacity to process invoice is inherently increased. However, I would agree to it only if the level of automation achieved is close to 100%. Till then this KPI is still important as this will help you in capacity planning.
Recommended to review this on a quarterly basis.
Ops KPI #7: Supplier Relations- Number of supplier enquiries, discrepancies and disputes
AP automation helps you to reduce number of supplier enquiries, discrepancies and disputes. Obviously, the lower this figure, the better.
Handling supplier enquiries, discrepancies and disputes ties up valuable resources which will impact AP efficiency negatively. A research by IDC shows that there is a reduction of 45-50% in the number of questions from suppliers to the AP department post implementation of AP automation. You should track this against this benchmark.
Recommended to review this on a quarterly basis.
Tact KPI 8: Return on Investment (ROI)
When you had made a Business Case for the implementation of AP Automation you might have made the Break Even and also 5 year ROI calculation. If you want to know how to make a detail ROI calculation, visit our Blog, “How to measure your ROI on your AP Automation?”
Recommended to review this on a yearly basis for 5 years.
Tact KPI 9: User Engagement
You might have heard of terms like “User Interface(UI)” and “Employee Engagement”, but here I am tempted to coin a new term “User Engagement.” Of course the Users in the context of AP automation are Employees. I have already stressed upon the importance of finding a right balance between People-Process-Technology(PPT) in successful AP automation earlier in this blog. Here my focus is on the People i.e the Users. Unless the Users accept it and see benefit, the AP automation implementation is going to be slow and sometimes it may fail also.
Keep a track of, are you getting constructive suggestions from Users to improve the current process or you are getting complains about the AP automation. If you are more serious you can conduct a one time anonymous survey to seek critical feedback and then implement those as process improvement.
Recommended to review this on a quarterly basis.
Don’t stop Tracking your Progress
Once you have implemented AP Automation solution in your department, don’t relax. You have to continuously monitor the progress for the following two reasons: Are you continuing to reap the ROI benefits which you had initially envisaged? Is the change which you have brought in by automating your AP processes sustainable?
“The biggest limitation (of digital KPIs) is the lack of a clearly defined digital ambition,” or strategy, says Gartner analyst Paul Proctor. “Having a clear idea of your digital ambition will give you some ideas of what you should be measuring to measure your progress. You can’t measure something you don’t have a measuring stick for.”
Select the right set of parameters which you want to track and review them in a timely manner to measure your progress. Surely success will be yours!
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