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When I completed my dissertation in my MBA “Implementing a Balanced Scorecard at a Group of GE Capital businesses” I was struck by a comment made by one of the Accounting professors. “Consider the word accounting and what it means to you. To many people it means to count things, to me it means so much more, it means to give an account of and be accountable for what is happening.”
I wholeheartedly agree with those comments and when completing due diligence I sought to link financial and non-financial measures in order to give an account of what had happened and more importantly to form a basis of understanding the risks and opportunities to the forecasts. A T Consulting uses these principles in the design of management reporting and KPI packages. In my experience the best reporting has the following characteristics:
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1. Focused on the key measures and not overly complex or detailed. I have seen a 300 page monthly management reports: to say this lacked focus would be an under-statement! •
2. Draw together a balance of financial and non-financial indicators and include appropriate narrative to draw together the linkages and give an account of what is going on. •
3. Involves an analysis (usually graphical) of historical trends and how these line up against forecast trends – particularly important when looking at sales, margin percentages and components of working capital. •
4. Bridges the variance between actual and budgeted / prior year performance, particularly looking at gross margin drivers taking into account changes in volume, price and efficiency. |
The direct benefits of SMART management reporting are well documented and reasonably obvious, what is less obvious is how the culture of a company can change dramatically as a result. Case study:
A T Consulting was engaged to design and implement a suite of management and board reports for a company which had recently undergone a change in ownership and a deepening of the management pool.
Under the previous owners the business was managed in silos with information not shared across the management team. The consequences of particular actions of one department were not immediately apparent on other areas of the business: in fact, there were no formal management meetings. Sceptics were won over by the new reporting and the management team found the depth and focus of the analysis a valuable contributor to the understanding of the business with its commercial and forward looking focus providing insights assisting in the development of the company’s strategic direction. |
