Public vs. Private Sector Metrics: A CFO’s PerspectivePosted on Mar 30, 2015 12:00:00 AM
I had an opportunity to speak recently with an individual that has CFO experiences in both the private and public sectors. The private sector resume includes Fortune 500 experiences and the public sector experience was in one of the largest public school systems in the country.
After discussing some of the major differences between the sectors, the conversation moved towards the role of the CFO and the organizational use of analytics and key performance indicators (KPIs). My broad question was this…”As a corporate CFO, what were the metrics that you were most focused on to measure organizational performance and growth opportunities?” Thinking about that question, and in terms of a corollary to the public sector, she offered two main areas of analytic focus.
Customer information and demographics.
For the private sector business, understanding the customer base is crucial and will drive several aspects of forecasted revenue, expense and profit. Some of the basic and key questions to be considered with customer information:
1. Who is our customer and how many will we serve in a market?
2. What are the trends within this market in terms of demographics and growth potential?
3. What does this customer data portend in terms of our potential revenues and expenses?
From the CFO perspective, her point was that knowing the customer was critical to be able to make any type of informed budgetary decisions or resource allocations.
Obviously, local governments are not profit driven organizations and have fundamental differences in revenue sources…so how does customer data translate to the public sector CFO? Here are a few of my ideas and questions that public sector CFO’s can ask of the data:
1. How many people do we currently serve? What are the trends in total population in our service area?
2. If we can drill into our customer data, how are the underlying demographics changing?
3. Based on the underlying trends, will we need to adjust our services and staffing?
The public sector is a service business and it is human resource intensive. Thus, to make strategic and data informed decisions on future staffing, it is critical to know as much as possible about the people being served and the services that they will require.
Market share and market position.
Our discussion then moved to metrics to measure organizational performance. Her corporate observation was that some of the most analyzed metrics and KPIs related to market share. The corporate world equates market share to performance, just as a school district might focus on test scores and academic achievement. Some of the corporate perspectives on market share are:
• What is our total market share (our overall performance within the market we are serving)?
• Is our market share (our performance) growing or declining?
• Within sub-categories of our market, can we identify significant trends?
• Does our performance, as measured by market share, match up with our business goals and objectives?
While it is not common to talk about measuring success in the public sector with a “market share” metric, I really appreciated the corollary. Local governments can identify their equivalent performance indicators and use them for both internal measurement and external communications. And, in fact, in many cases the public sector has an advantage of being able to compare performance with relevant benchmark peers based because of the availability of detailed public data – which is not necessarily as easy to collect in the private sector.
To be clear, there are fundamental differences between the two sectors and I am not suggesting that every technique or strategy from the private sector is worth replicating in the public sector. However, rather than focusing on the differences, is there an opportunity to find commonalities, especially with techniques and strategies that have proven to be successful? The profit orientation of corporations is a driver of performance and growth…and, a key reason why private sector CFOs have adopted analytics and performance benchmarking as an essential component of their day-to-day workflow.
As technology and thought leadership evolve in the area of public sector analytics, there are great opportunities to learn from some of the most successful businesses in the country. Let’s take some of those proven analytical frameworks and apply them to serve communities and students – with the goals of sustainability and increasing performance.
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Mike English is a founder and the CEO/President of Forecast5 Analytics, Inc. – a technology company focused on software development and data analytics for the public sector. Mike has spent his entire career concentrating on the development of financial and strategic solutions for schools and municipalities. Forecast5 is headquartered in Naperville, Illinois – a suburb 30 miles west of Chicago.