In many organizations, the purpose of modeling and reporting is often cited as providing actionable results. But what exactly does that mean? An actionable result is a report or analysis that enables the audience to take clear, decisive action. However, while the term “actionable” is frequently mentioned, it’s rare to see concrete examples or demonstrations of what this looks like in practice. This article aims to address that gap, illustrating how financial reporting can lead to genuine, effective actions.
The Need for Actionable Financial Reporting.
Let’s start with a practical example. Imagine a financial control team responsible for monthly account processing. Their goal is to ensure that the accounts published internally each month are accurate and timely. Accuracy is essential because if there are errors, omissions, or discrepancies, it undermines the confidence of budget holders and management, which can lead to disengagement. The key action required here is for budget holders to review the reported figures in their area and confirm their accuracy.
The finance team needs budget holders to act before the accounts are finalized. Instead of waiting for the accounts to be published and then dealing with a slew of objections about discrepancies, the team wants budget holders to review the figures, provide feedback, and confirm that everything aligns with their view of the business. This process ensures the accounts are accurate and prevents issues post-publication, such as disputes over bonuses or promotions, which are often tied to financial performance.
Overcoming the Common Challenges.
In many organizations, there are ERP systems or accounting software that allow budget holders to access reports. However, it’s often not user-friendly. Budget holders typically don’t navigate these systems daily, and they find it clunky to log in and sift through data to find what they need. As a result, even when they have permission to check their budgets, they don’t do it.
The key to making reporting actionable is to present the information in a format they are already comfortable with, like a profit and loss (P&L) statement. Instead of asking them to navigate an unfamiliar system, give them an Excel sheet that mimics the final report format. This way, they can see everything in context and take action right there.
How Actionable Reporting Works in Practice.
The ideal setup involves an Excel-based Profit and Loss report where budget holders can review the accounts in a format they’re used to. When they see something they want to investigate further, all they need to do is click or double-click on the amount. This action brings up a detailed breakdown of the items that make up that figure, without having to navigate through multiple screens in an ERP system.
If there’s a discrepancy, they can flag it right there on the sheet, add a comment, and click a button to submit their feedback. For instance, if they notice a £20,000 charge for an exhibition that won’t happen for another six months, they can mark it as incorrect and note that the expense should be deferred. There’s no need for separate emails or messages; everything is done directly in the context of the report, making it simple and intuitive.
Ensuring Engagement and Accountability.
With this process, budget holders can easily engage and provide feedback. They can indicate when they have reviewed the report and highlight any issues. As the month-end process progresses, the finance team can track who has reviewed their budgets and who hasn’t. This transparency encourages timely action because no one wants to be the last one holding up the process.
Moreover, the finance team can make adjustments based on this feedback. Once the corrections are made, the accounts are updated, and budget holders can confirm that everything aligns with their expectations. By the time the final accounts are published, there are no surprises because all issues have been addressed, and the budget holders have already approved the numbers.
The Pitfalls of Non-Actionable Reporting.
In many companies, the process described above doesn’t happen. Instead, the accounts are published with errors and omissions, leading to a lack of trust. Over time, budget holders stop looking at the reports because they expect them to be inaccurate. This lack of confidence is a reality I’ve observed repeatedly throughout my 40-year career.
When transparency is lacking, misunderstandings can lead to unnecessary actions. For instance, in my early days working for Richard Desmond, he once sent a memo to the editorial department, scolding them for overspending on magazines. However, he didn’t realize that the charge he was complaining about was actually his own newspaper subscription, coded to the same account. If he had had the transparency to see the breakdown of that figure, the situation could have been avoided.
Transparency and Its Challenges.
While transparency is generally seen as beneficial, it must be managed carefully. In one organization, the shift towards transparency allowed everyone to see detailed budget information. However, this led to unexpected consequences, such as employees looking up how much consultants were being paid, which caused resentment. The organization hadn’t fully considered the impact of this level of openness, and it led to disruptions.
Therefore, it’s important to not only implement transparency but also think through how it will affect different stakeholders. Access rights and security are critical, and with a well-structured system, this can be managed effectively.
Conclusion.
The goal of financial reporting is to provide actionable results. By making reports intuitive and providing budget holders with the tools they need to give timely feedback, organizations can ensure their financial statements are accurate and trusted. This approach enhances engagement, accountability, and ultimately the credibility of financial reporting.
In contrast, a lack of actionable, transparent reporting leads to disengagement, mistrust, and errors that can affect the organization’s performance and decision-making. As companies move towards greater transparency, it’s essential to think ahead about the potential implications and address them proactively.
This is a podcast by Hiran de Silva. Narrated by Bill.
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