Knowledge � Experience � Insight

Communicating Financials:Reporting That Motivates and

Drives Effective Decision Making

Allan North

May 2009

Communicating Financials: Reporting that motivates and driveseffective decision making

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Session outline

1. State of play

2. Identifying and understanding management needs

3. Understanding your reporting process

4. Reporting style and communication

5. Technology

6. Strategies for improvement

7. Concluding comments

Communicating Financials: Reporting that motivates and driveseffective decision making

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Thought for the day

“Out of great complexities, come great simplicities”

Communicating Financials: Reporting that motivates and driveseffective decision making

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Reporting - rule of thumb

Approximately 20% – 50% of your reporting is:� unnecessary� ineffective� does not add value� does not improve decision making

It can and should be eliminated

Communicating Financials: Reporting that motivates and driveseffective decision making

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State of Play

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Influences� Greater demand for information� Speed / accuracy / relevance� Challenge from change� Professions / business models� Increased compliance� Greater accountability� Better educated workforce� Globalisation� Technology� Complexity of business� Competitiveness� Diversity of demand� Knowledge base� Information availability

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Direction of best practice

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Finance’s primary objectives

FinanceProviding theright servicesfor the rightcosts

20%

50%

30%50%

$30%

Insight

Reporting & Control

Transaction Processing

20%

20%

50%

30%50%

$30%

Insight

Reporting & Control

Transaction Processing

20%

Optimisinggovernanceand control

BusinessProcesses

Risk managementSustainableperformance

Financialmanagement

Shareholderinvestmenttime horizon

Current state

Future State

Long term

Short term

Information expectationsFocused Wider

Shareholderinvestmenttime horizon

Current state

Future State

Long term

Short term

Information expectationsFocused Wider

Valuecreation

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Identifying and UnderstandingManagement Needs

Communicating Financials: Reporting that motivates and driveseffective decision making

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Reason for reporting� To inform that something is going to happen / hashappened (information)

� Required by law or other agreement (compliance)

� Organisational choice (operational, strategic, special)

Communicating Financials: Reporting that motivates and driveseffective decision making

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Management reporting demands

� Issues� Ad Hoc� Regular / business reporting� Inform� Investment� Compliance

Each demand requires a different understanding andapproach

Communicating Financials: Reporting that motivates and driveseffective decision making

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Audience focus

FOCUS on NEEDS not WANTS

Too much time and effort is spent on meetingunnecessary wants and not the critical needs of thebusiness

�Less is more – quality over quantity

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Identify your audience

� Who are they?

� What are their needs not their wants?

� What do they understand

� What is the best medium to communicate with youraudience

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Identify your objective

You need to understand:

� What is your idea?

� What do you want your audience to do?

� What is the end objective?

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Level of understanding

What assumptions do you make?

� Purpose of the report

� Financial knowledge vs. business understanding

� Use of terminology

� Financial vs. non-financial measures

� Their communication mechanism

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Developing new reports

Key questions to resolve:

� Is its objective clearly understood?� Who are its intended users?� What is their level of understanding?� Will it lead to action/decision making?� Can an existing report be renovated or replaced?

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Understanding Your ReportingProcess

Communicating Financials: Reporting that motivates and driveseffective decision making

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Reporting focus

� Are we doing the right things� (strategy)

� Are we doing things right� (process)

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Data vs. Information

� What do we mean by data?� How do you use it?� What do we mean by information?� How do you use it?

Beware!

‘Data Swamp’ - Technology drowns you in data /measures

Communicating Financials: Reporting that motivates and driveseffective decision making

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The reporting relationship

Data

Action Analysis

Information

Communicating Financials: Reporting that motivates and driveseffective decision making

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Select Information

Analysis

Identify Needs

Review

CommunicateRecommend

Re-Design

The reporting cycle

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Reporting – Senior Management

Weekly Financials

Weekly Scorecards

Daily Data & KPI Reports

Organisational ScorecardsTeam & Business Scorecards

BusinessReporting:Management& Teams

Forecasts

MonthlyFinancials

Reporting framework

Adhoc/Issues

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Reporting Style andCommunication

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Management receive a variety of information

External

Management

Internal

Vision Customer

satisfaction

SEND RECEIVE

Reporting must support each of these areas, and that data is available

at the right times to support timely management decisions

Industry trends

Macroeconomic

indicators

Indication of

future performance

Current results

and likely outcomeStrategic thrusts

Investment

rationale

Current performance

and forecasts

Risk status

Strategic initiatives

Co-ordination

& comms

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Key considerations

�Style

�Format

� Language

�Clarity

�Quantity� level of detail

�Quality� analysis vs. information vs. data

�Timing

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Implications

� Speed vs. Accuracy� Measure Focus : lead vs. lag� Qualitative vs. Quantitative� Empowerment vs. Control� Ratios – Linkages & Understanding� Graphics / Illustrations vs. Numeric's� Language / terminology

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A Picture Tells a 1,000 Numbers

Communicating Financials: Reporting that motivates and driveseffective decision making

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� Too much used� Knowledge and understanding assumed – far toomuch!

� Intimidates� Complicates and confuses

Terminology

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Financial relevance• Accounting is about the collection, presentation andinterpretation of data

� A Key financial measure is the Balance Sheet – AStatic Measure

� Profit is an opinion, rather than an established fact� Accrual vs. Cash

� Is it the language in the business?

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Written reports

�Purpose

�Audience

� Impact wanted

�Frequency

�No. of messages

�Level of understanding

�Level of creativity

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Useful financial information

�Material�Relevant�Reliable & Credible�Comparable�Understandable

Source: CIMA Performance reporting to Boards – A Guide To Good Practice

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Technology

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Reporting tools

Selection is endless, covering the range of:� ERP and other financial reporting systems (e.g SAP andOracle)

� Specialised data and reporting tools (e.g Cognos)� Specialised analytical software (e.g. Strategic Focus)

� Specialised BPR/other software being adapted formanagement reporting (e.g. Metasoft)

� Specialised Performance Reporting (e.g. 20/20)

� Specialised Analytical Databases (e.g. TM1)� Spreadsheets and Databases (e.g. Excel & Access)

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Caution� Technology is only a tool not the solution – your reporting shouldnot be a slave to it

� If you do not address the fundamentals correctly, technology willnot solve it

� Careful on the use of spreadsheets – if you are a heavier user foryour reporting you show look at more analytical software to deliverit

� Reporting should be simple, easy to read and lead to decisionmaking

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Beware dashboard issues

Communicating Financials: Reporting that motivates and driveseffective decision making

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Communicating Financials: Reporting that motivates and driveseffective decision making

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Communicating Financials: Reporting that motivates and driveseffective decision making

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Communicating Financials: Reporting that motivates and driveseffective decision making

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Communicating Financials: Reporting that motivates and driveseffective decision making

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Communicating Financials: Reporting that motivates and driveseffective decision making

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Strategies for Improvement

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Strategies - 1

1. Identify your audience� Discuss and understand their needs (vs. wants)� Get their input & feedback

2. Match your reporting format to the level ofunderstanding

� Limit the use of terminology� Do not assume level of knowledge / understanding� Use the language that is right for the audience & culture

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Strategies - 23. Mix and Match reporting styles (graphical/numeric/analysisetc.)

� Be consistent – format / timing� Be error free� Be concise� Do not compromise integrity of the data

4. Combine both financial and non-financials, strategic andoperational

5. Limit size of reports

6. Do not delay for detail– Limit frequency– Less is more

Communicating Financials: Reporting that motivates and driveseffective decision making

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Strategies - 37. Eliminate duplicate reports

� Consolidate where possible� Regularly review the need for reports to remain in use

8. Implement a process for new report development

9. Develop a report DNA database

10. Focus on action taking place, on a timely basis, in theright direction

11. Focus on exceptions not the norm

12. If using estimates, articulate clearly

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Strategies - 413. Information not data

14. Give analysis & recommendations – not description

15. Focus on forward trends/projections than past

16. Educate your audience on how to use your reports

17.Regularly

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Implement a reporting review� Ensure consistency of information� Improve decision making capability� Improve discipline of your reporting process� Increased understanding and knowledge� To reduce build-up of unnecessary reports� To reflect changes occurring in:

� Market place� Organisation� Regulations

Communicating Financials: Reporting that motivates and driveseffective decision making

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Reporting review cycle

Analise

Recommend

/ Discuss

Change

Update Collect

Data

Communicating Financials: Reporting that motivates and driveseffective decision making

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Concluding Comments

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Concluding comments

� Focus on what you users need to know vis-a-vis wantto know

– Continually reassess if your reporting is satisfying youraudience needs

� Monitor and control your reporting process� Keep reporting simple but effective� Focus on quality not quantity� Be innovative and adaptable, always looking toimprove

Knowledge � Experience � Insight

THANK YOU

Allan North

0407 486 158

anorth@moorestone.com.au