Most organisations experience seasonality in their operations. It may be just holiday times or varying days in the management reporting calendar, but with some it can be more extreme, for example, firework manufacturers, ice cream producers, winter weather, Christmas or ‘Black Friday’. How do you reflect this in your performance measures? 

Take the financial reports produced every month (or whichever other period you utilise), in these cases each management account (MA) will report the month's result and the year to date. The month concerned may, or may not, be benefiting from seasonality, and the cumulative result will cover a different period every month (from one to 12 months as the financial year progresses). How do your managers draw meaningful conclusions each month from this inconsistent information? You may be tempted to say comparisons with budgets, but we all know how long the detail of a budget remains relevant, many are out of date even before a financial year begins, let alone 12 months in. In addition. as the year progresses, the only line on a budget that remains relevant to stakeholders is the final result; do your senior managers not first turn to the bottom line when you present them with the monthly P&L? Nor will budget comparisons at the end of each month tell you whether your figures are improving or not, and they certainly do not consider all the varying unforeseen factors and interactions that have affected the organisation since the budget was prepared. 

Many non-financial measures (NFPIs) are not immune to this seasonality problem either. NFPIs came into their own during the era of Kaizen (some may call it Continuous Improvement) two or three decades ago. Kaizen is an approach to work that systematically seeks to achieve small, incremental changes in processes in order to improve efficiency, quality and costs. NFPIs must therefore also show whether the subject of the measure is getting better or worse and, where appropriate, should pay attention to seasonality. 

It is not difficult to reflect seasonality in your measures, just present them in the form of a 12 month rolling total or an average. Not only will this provide a seasonally adjusted measure, it will tell you whether profits are getting better or worse, and identify the rate at which this is happening. Include your budgets and forecasts/targets on any graphical representation of the measure and all will be seasonally adjusted and offer a complete picture, literally, of where you have been and where you are going. Once you have done this, you will come to realise that your monthly result is no guide to your success or failure and that ‘Only Trends Matter’.

  • 2015-02-17 11:35:11
  • David Willcox
  • management, accounting, financial reporting , budgeting, forecasting