Communicating Financials: Reporting That Motivates and ... · Communicating Financials: Reporting...
Transcript of Communicating Financials: Reporting That Motivates and ... · Communicating Financials: Reporting...
Knowledge � Experience � Insight
Communicating Financials:Reporting That Motivates and
Drives Effective Decision Making
Allan North
May 2009
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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
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Thought for the day
“Out of great complexities, come great simplicities”
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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
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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
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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)
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Management reporting demands
� Issues� Ad Hoc� Regular / business reporting� Inform� Investment� Compliance
Each demand requires a different understanding andapproach
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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
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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
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The reporting relationship
Data
Action Analysis
Information
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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
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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
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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
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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
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Reporting review cycle
Analise
Recommend
/ Discuss
Change
Update Collect
Data
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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