4M BG

In many organisations the finance department is the fount of all financial
knowledge. Reports are regularly produced, often referred to anonymously
as, for example, the “Blue Book”. They are published on a set day, such as
six working days after the month end, and crafted by analysts who toil
with their spreadsheet “front ends” to drill down into the database. These
reports are often based on standard templates that have been used for
several years, are only ever added to and are rarely thinned out.
This is fi ne if managers have the skills to assess strengths and weaknesses
and identify appropriate actions that will improve performance.
Unfortunately, it often results in “so what?” being asked and does not help
drive future action or produce change. This is frequently characterised by
management reports presented with content and style that generate more
heat than light.
The defi ciency is often in the quality of the narrative that supports the
report. This can be because a finance department fi nds it easy to mechanise
the tables of data but may not have the business insight to interpret them
in a valuable way. Too often the narrative will suffer from “elevator
syndrome”, simply stating the numbers that are going up, going down or
not moving at all. This information can be obvious from the data, but what
is needed is to understand why the movements are taking place and what
is being done about the numbers that indicate there are problems.
As well as standard monthly reporting, online reporting is becoming
increasingly common as system access in organisations becomes more
widespread. Managers from all functions have access to the accounting
system and can view transactions, monitor budgets and raise purchase
orders. This can reduce, if not eliminate, the need for the printed reports
and instead move the business to providing more tailored information,
which is less cumbersome, more action oriented and allows a more
effi cient use of management time.
To create these reports requires intelligent design and communication.
The reports may be the responsibility of the financial analyst, but it is
also up to the managers who are going to read and use them to provide
feedback on how they can be improved.
The fi rst stage in designing any report is to identify its purpose and/or
the questions that it seeks to answer. Typical questions might be: “What
proportion of the budget has been spent?”; “Which transactions are over
a specifi c amount?”; “Which customer invoices are unpaid after 60 days?”
Once the purpose has been defi ned it is a simple matter to create an
appropriate report for distribution as frequently as required.
Where there are many questions to answer, a type of “dashboard” can
be created which summarises on one page the most important items of
data and performance metrics. The typical metrics are summarised in
Chapter 12 and may be in the form of a balanced business scorecard.
A helpful way to summarise signifi cant amounts of data is through
exception reporting. This is a technique of stripping out data that meets
specifi c acceptance criteria and therefore leaves the items that fail and
require action. An example might be a series of cost-centre account codes
that in month three have overspent their budget. A criterion might be
all areas that have spent more than a quarter of their budget. Even using
this criterion may generate too much information, particularly for areas
that have an uneven spend. Minor overspends can be eliminated by only
reporting areas that have spent more than four-twelfths of the annual
total or are more than, say, $1,000 overspent at the end of month three.
Working with finance
As managers build their financial acumen and experience, they should
see their finance colleagues as “business partners” who are there to help
complete the financial analysis and reports required to support decisions.
For this collaborative approach to work the operational managers need to
have a good relationship with and to communicate effectively with their
finance colleagues. This involves four things:
_ Briefi ng – describing the decision to be made and the analysis
support that is required.
_ Co-inventing – working together on the required analysis so that its
fi ndings can be interpreted and challenged.
_ Implementing – identifying the impact on such business resources
as cash and people, including how they will be sourced.
_ Communicating – presenting the proposed action plans (with
supporting analysis) to more senior management for approval.
This process assumes that the finance team has the capability and
staff numbers to provide the business partner with support. Finance
managers often have limited exposure to or experience in operational
areas. Therefore the co-invention stage really is a joint activity, with the
finance manager providing the finance skills and the operational manager
providing the operational experience.