Having looked at a fair old number of Management Information ("MI") systems and monthly reporting formats, what strikes me is that some of the prettiest, most eye catching and most clearly laid out are often the most ineffective. We all love a graph and there is nothing more pleasing than a multi-coloured pie-chart, but are these displays of wizardry actually useful? Most are not, for one simple reason: these reporting formats lack a key ingredient – they do not produce "calls to action".
Only rarely do we see a commentary attached to the numbers and this is vital.
- If sales have risen month on month by 20%, is that good news? Well, not if all they are doing is returning to trend and not if the business is cyclical and monthly sales are actually 15% down on the same month last year.
- Sales are 5% down on budget, so that's bad news? Well, no, it isn't if they were 20% up on this time last year and the budget was simply unrealistic.
Unless someone has gone through the figures and really put the results in context, then there is little point in looking at the numbers. And by the way, if the commentary reads "Turnover is up because sales increased" then fire the person who wrote it and replace them with someone more intelligent.
Good MI needs to be timely. That does not just mean monthly rather than quarterly. It means they must be delivered quickly after the period end and also at a frequency that actually allows you to take action, to learn from the results and improve things. If you run a people-based business that bills out their time, then run productivity reports for hours worked on a weekly or even a daily basis. Such "flash reports" will allow you to take action before the end of the month to claw back a shortfall if you start falling behind. They should be simple and quick to put together and then studied so that problems and blockages can be dealt with immediately. They can often contain rough estimates (no prize for accuracy here!) produced within 48 hours of the month end and therefore able to foreshadow the main P&L account reports which come out 20 days later. Of course the logical extension of timely reporting is to deliver a continuous flow of data in real-time. Nevertheless the latest cloud-based systems still can fall into the trap of delivering too much information in a format that does not lead to better management.
Doing your homework
High value MI reports are those which are produced with absolute regularity and delivered to participants at least 48 hours before the meeting at which they are discussed. I have attended too many meetings when reports are read at the meeting for the first time and the allotted time is spent merely explaining the information. That process should have taken place already. The precious time during which key people have got together can then be devoted to discussing solutions that were prompted by the calls to action listed in the narrative of the MI.
The other hallmark of excellent MI is the dashboard – constructed with KPIs1 that allow the reader at a glance to understand whether the business model is functioning at an optimal level and the machine is running "in balance" and that it is giving the customers what they want. Traffic light systems are also an excellent technique for business owners that can spare only a cursory glance at the reports – if all the KPIs are green, there is no need to fix anything. If green changes to amber then that has to be accompanied by a concise assessment of any pending risk and the consequence of not returning to green. Red will demand the team's urgent attention.
And one further plea, as an accountant! Never look at a P&L account or a cash flow forecast unless it is accompanied by a balance sheet that ties the two together.
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