For 50 years or more managers have endured numeric, tabular, management accounts without any significant changes in their format, yet research amongst managers finds that a very high percentage of them considered graphical reports/charts easier to understand than numeric tables; some managers even confessed they “were blinded by columns of numbers” others said “it took too much time to decipher numeric tables”. Most said that the management accounts they saw did not provide appreciable help to them in managing their departments and they were often consigned to being "too little too late".
This is an indictment of management accountants, one of whose major objectives is to provide financial reports and information to help managers do a better job. It is time that accountants start to think more about how they PRESENT information to achieve this objective.
Winston Churchill said “The farther back you can look the further forward you are likely to see” At most, typical management accounts look back less than twelve months IE the current financial year. But these accounts don’t show a manager whether seasonally adjusted performance is improving or deteriorating. Of course current day management accounts make no attempt to look forward because they don’t contain forecasts and the historic results of the current financial year are of no help in seeing what is going to happen next year. This practice isn’t good enough in the fast moving World we live and work in today.
Managers must be provided with information that directs their attention to the future, not reports that just dwell in the past. It is not rocket science to present management accounts graphically and when they are they can incorporate seasonally adjusted trends of actual performance which immediately indicate whether a manager's performance is getting better or worse and which, with a little extra effort, can be turned into forecast trends too.
Management accounts, in today's organisations, are like a glass door covered with condensation. You can look behind you and see where you have been but you can’t see what's behind the door ahead of you. Adding forecasts to your management accounts is like wiping the condensation away; in one swipe of your hand your future journey and its perils are revealed. Seeing past and future results expressed as a trend, graphically, immediately reveals the feasibility of achieving your budget for the year and assists the accuracy of your forecast.
You will soon learn that it usually takes several months to turn a trend so if any forecast indicates sharp changes of direction on the graph it must immediately be suspect.
This significantly enhances the value of the reports to managers; they can now see the forecast results of their current actions AND have the time to correct them. Try doing this with a typical set of numeric, tabular management accounts.
Once experienced you will see your management accounts promoted to the vanguard of regular reports and soon conclude that "Only Trends Matter".
Register for FSN's 'Future of the Finance Function' Conference by 30th June using earlybird20 and you will get a 20% discount for you and your team.