Blog, Narrative Performance Reporting

(Part 1) Narrative Performance Reporting: The Story Behind Finance’s Numbers

Part one of a two part series

Written by: Colin Vamplew, Director of EMEA Solution Engineering, Disclosure Management

Back when Colin worked in Finance he remembers overhearing a heated corridor conversation between a business unit manager and a senior finance executive. They had just left a Board performance review meeting – somewhat under a cloud – and the business manager could not help himself from venting “Those aren’t my words. I didn’t mean that!” when referring to some contentious variance commentary. The words stuck with Colin and all these years later he thinks he may have a solution to the underlying lack of buy-in. He shares his thoughts on how Finance can persuade the business to tell the story behind the numbers.

Playing The Game

Finance professionals often tell me they are conflicted when it comes to writing performance reports. As business advisors, we like to think we know what is going on around us. But when it comes to writing variance commentaries our instincts tell us that those who “own” plans, budgets and forecasts should be documenting their own reasons for adverse or favourable outcomes.

The approach taken within individual organisations will depend upon the size and culture of the company as well as the tenure and past experiences of individual budget holders. But no matter what the backdrop, the finance professionals I meet tend to agree that budget holders remain wary of harsh judgement if they contribute to performance reports in the way we hope they would. Consequently – at one end of the scale – they sometimes window-dress their words and end up writing what they think the Board or Finance want to hear, in some cases, purely from a sense of self-preservation. At the other end of the scale, they will often have competing operational priorities that either keep them from what they perceive as a time-consuming chore or prevent them from hitting Finance submission deadlines altogether. On the whole, they are far happier to let the Finance team write their performance reports for them. At least then, if executives react to the commentary in a less than positive way, they can say, “Those aren’t my words. I didn’t mean that!”

Of course, budget holders will never tell you this is the case. They will say that they work closely with their colleagues in Finance and that playing mind-games is dysfunctional. However, we do need to bear in mind that playing the game can be totally understandable human behaviour. This is especially true where Finance may have gained a reputation for organisational snooping or, more worryingly, may not have allowed budget holders to truly own their top-down plans or fully commit to bottom-up forecasts. Trust is a two-way street.

Best Practice

In response to this somewhat perplexing situation, Finance managers tend to take the high ground and talk about best practice. They portray themselves as guardian angels and point out that the business leaders for whom the reports are written want:

  1. Performance reports to be business-owned and actionable.
    Executives need the real story behind the numbers to make better decisions and the real story only bubbles up from the bottom of the business when individual managers own their explanations.
  2. The material they are reading to be produced in a highly participative and collaborative environment.
    Executives want to read about performance based on alignment, commitment and accountability. Involving more people in an integrated way drives consensus and improves report quality.
  3. High frequency and shorter reporting cycles that focus on current, imminent and future outcomes.
    The value of information diminishes over time and the way we do business is constantly changing. Cutting cycle times produces faster feedback from those in the know, improving accuracy and business response time.

Finance managers already know these best practices will deliver business value. The result of their application can be seen within other process-oriented financial disciplines such as group consolidation, tax and treasury management and the above-mentioned planning, budgeting and forecasting activities. So, the real question is:

How can Finance get the management buy-in that the business needs when it comes to writing internal financial performance reports?

Building Management Buy-In

One answer could be recommending that business users access the same software platform their Finance colleagues use when they want to write their own departmental business reports. They could literally use the same platform as Finance – leveraging on-site IT infrastructure – or they could use their own separate departmental applications on the cloud.

All lines of business and business support units create narrative-based documents on a regular basis to meet their own functional needs. These routine internal reports are written quarterly, monthly, weekly and, in some cases, daily across all industry and market sectors including the public sector. They cover a wide variety of non-financial disciplines, e.g., sales, marketing, business development, merchandising, procurement, production, logistics, inventory control, customer services, R&D, capital projects, facilities management, IT and systems, human resources, legal and company secretarial, and many, many more. A list of individual departmental (and inter-departmental) documents would be endless and ever-changing but, irrespective of the line of business and type of report, they do share common characteristics and suffer from common production problems. This commonality can be used to promote and develop inter-departmental collaboration and trust. At the very least sharing good ideas should help break down any unwanted departmental stereotyping.

So, let’s look at some common characteristics of existing document production processes. We need to understand the day-to-day reality all departmental teams share before we can understand why organisations can benefit from a common narrative reporting platform. We also need to understand why business users from different departments might bond with a common solution before we can help management buy into financial performance reporting.

Common Document Production Problems

These days those involved in regular document production cycles access a wide variety of corporate systems, applications and data sources and can therefore produce relevant, structured, numerical information fairly quickly. But incorporating the data into their internal narrative reports takes them back to the Dark Ages. For the most part they find themselves importing, copying, pasting and even re-keying data into Microsoft Excel, Word and PowerPoint. At that point, each document becomes a skunkworks project with department members falling over themselves as they try to interact with the data and with each other. This disconnected manual production process reflects organised chaos and relies upon patient, professional attitudes and long hours of work to succeed. It is labour-intensive and error-prone for contributors and time-consuming and inefficient for reviewers. There is an over-reliance on email. And the most proactive people often find themselves working at the pace of the slowest team member. Multiple validation checks take place throughout the production cycle but there are still several forensic reviews needed at the end.

Day-To-Day Challenges

The following day-to-day challenges are encountered by most departments when preparing regular narrative reports:

  • There is little document uniformity when information is collated. Different geographies, business units or service departments may use different document structures, font sizes and formats and then change them whenever they need to spin a message a different way.
  • Compressed deadlines mean it may not be possible to compile all contributions in the time available. Even if timely compilation was possible, multi-layer or matrix-based review would take forever. Late nights increase the potential for human error and staff dissatisfaction.
  • Data validation issues occur when data sources are not synchronised and system cut-off errors are introduced between reports over time.
  • Production bottlenecks – or even a broken process – may remain hidden for years, especially in large organisations. Even in smaller organisations, there is little process transparency.
  • A summary total in one part of a report may not tie out with the breakdown of the same number in another part of the report or a different report.
  • Even if the numbers do tie out, problems tracking low-level changes can lead to irritating discussions about who is using the most up-to-date language. “Why does the text still say greater when the number has decreased?” “Don’t worry– I corrected that this morning.” “Well, it’s still wrong in my copy of the report.Version control nightmares such as these are all too common and can lead to a lack of confidence in both the process and the output.
  • Every instance of a number must be changed when it changes at source no matter where the number occurs in the narrative. The same KPI may be repeated dozens of times in one document, increasing the impact of human error.
  • Highly-paid people end up performing low-value clerical tasks to preserve personal reputations.
  • The same fire-drill has to be repeated each reporting period. Such a process is simply not sustainable as businesses grow and change.

Read Part 2 of this blog series to learn how many Finance departments have successfully met these day-to-day document production challenges by implementing a collaborative reporting solution like Certent. You will see how implementing reporting best practices with Certent can deliver business value at operational, tactical and strategic levels both within Finance and across the organisation.

To learn more, download Management Reporting; Let's Stop Reinventing the Wheel.

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