10 Cures for Performance Reporting Anxiety
- January 23, 2018
If you spend much time creating reports that nobody seems to read, you may be suffering a case of information overload. This post is for you. Here are some common pitfalls and solutions for performance reporting. Solutions simple enough to follow like reducing the size of the report or even focusing on the key objective that best support organizational goals.
Here are some simple solutions to improve the quality of data that goes into performance reports:
Distill the data. Ask how much information different users need. Senior managers should not waste time reading pages of minutia. Use graphs wherever possible to cut the amount of verbiage.
Automate the process. “Periodic reports should be fully automated; only ad hoc analyses should be manually generated,” says Charlie Kyd, president of IncSight, a performance management consultancy and software development company located near Seattle. “Employees’ time is wasted when they have to spend hours each month manually preparing reports with spreadsheets. Moreover, the more a report requires human interaction with the data, the more error-prone it becomes.”
Consolidate information from various sources. Your management database should be able to contain data from virtually any source. Says Kyd, “There are no bounds to the type of information that managers might need, so management and performance-reporting systems must be able to tap and adapt to new data sources.”
Verify the data’s accuracy. Implement an automatic process that looks for inconsistencies in the management database.
Share the wealth of information. All reports should use the same underlying data. Adding a new type of data to one report should automatically make that information available to other reports. Sharing data provides a rich data set for all reports and allows errors in the data to be found and corrected more easily, according to Kyd.
What am I supposed to do with this? That is what managers at many companies end up asking as they flip through thick reports on their business’s performance. The volume of data is so overwhelming and the information so technical that managers have no idea how they are expected to use the reports. How can a finance department that gets this reaction from executives become a font of crucial information that management relies on? By creating user-friendly, to-the-point performance reports. Not only can improved reporting benefit a finance manager’s position within the company, but it can also improve corporate performance.
When Jeff Hall — a winner of the 1998 Business Finance Vision Award for excellence in business performance reporting for his work at Disney’s Contemporary Resort in Lake Buena Vista, Fla. — joined Sonoma, Calif.-based Crescent Spa Resorts, the company’s performance and management reporting were virtually nonexistent. “There were no metrics; no one was tracking anything; and the P&Ls consisted of a 50-page book that came out once a month,” Hall, now the company’s CFO, says. “Initially, I made some quick fixes so people would have some reporting to go by, and eventually I was able to replace the company’s 10-year-old financial system with an automated system.”
Hall defined the metrics for the organization, conducted interviews with managers to understand the business, and implemented a reporting system that cranks out daily reports on those metrics. Since the improvements began, Crescent Spa Resorts has reaped significantly higher profits, much of which Hall attributes to the changes in performance reporting.
The better a company’s performance reports, the more easily employees and managers can evaluate the company’s success in executing its strategic plans. However, many finance managers fall into reporting traps that hinder their ability to collect, analyze and deliver the right information promptly.
Here’s a look at 10 of the most common problems companies face in performance reporting and some possible solutions:
- Too much detail. This is probably the single biggest problem with performance reports. Some finance executives figure that the larger their company, the more information they need to report.
“Most large companies keep huge amounts of historical transaction data, but no manager could ever have an intuitive grasp of what it all means,” says Charlie Kyd, president of IncSight, a performance management consultancy and software development company in the Seattle area. “Plans, budgets, forecasts, and management allocations are often of greater importance to managers than the gigabytes of historical data that the company’s IT department manages so carefully. Few companies have ways that users can create and maintain planning and forecasting data in a shared environment.”
A solution to the information deluge is to report more sparingly and more frequently. Instead of including data on 50 or 100 measures, finance executives should focus on the 10 or 12 that have the greatest impact on their business. Rather than reporting a large amount of data monthly, work toward weekly or even daily delivery of more selective performance information, Hall recommends.
- Overly complex measures. The more intricate the performance metric, the more time it takes reporting on it will take, and the more daunting the report will be for people to understand.
Hall bases the content of his reports on the input he receives from different managers. “I try to get people to focus on the simpler metrics that affect their business,” says Hall. Concentrate on the metrics that I can produce data on more quickly and more often, such as, in our case, the number of rooms occupied.” Including managers in the creation of the metrics makes the managers more likely to take ownership of them, he adds.
- Conflicting reports from different business units. “I have seen situations where revenue generation may measure sales by one group, and another group is measuring for sales profitability,” says Mark Miller, director of the performance management solutions team at Arthur Andersen LLP in Atlanta. “The two disparate measurements are counterproductive.”
To avoid this kind of miscommunication, develop a set of terms to describe companywide metrics. Define the terms in a reference source or dictionary. Tell managers to use this source as a guide in reporting their performance data. Miller says that about 30 percent of the average company’s metrics change from one year to the next, so finance executives need to update the dictionary when a metric is eliminated, added or redefined, and make everyone aware of the change.
- No links between performance data and targets. Merely recording the past performance of a company has little meaning unless those facts and figures are tied to specific targets and goals. Unfortunately, many companies neglect this link. One reason is that their targets are poorly defined.
Nathan B. Richards, director of planning at Texaco Inc. in White Plains, N.Y., creates different scenarios for the company’s various business units. Each scenario helps the managers of the business unit decide what targets to set and what metrics to put in place to hit those targets.
“The scenarios are based on global macroeconomic forecasts of gas and crude oil prices,” says Richards. “Based on each of these scenarios, the business units develop performance targets. The idea is to say to ourselves, in whatever type of price environment we are in, ‘What’s the potential performance of our business likely to be?’ Even if we are facing the worst-case scenario, the question is ‘Can we still do business, and if so, what targets should we set, and what metrics should we put in place to measure our progress toward those targets?’ “
- Use of a paper-based system. Using paper to report performance creates several problems. One is security. “When performance is put on paper, there’s always the chance that the paper could fall into the wrong hands; for example, a competitor may get hold of it,” says Hall. “Secondly, if something changes in the report or you need to revise, you have to send out that revised paper report and tell managers to throw out the earlier report, which can get confusing for everyone.”
Paperless reporting systems save managers from having to lock up reports in file cabinets for security, and updating the reports is simple — managers can see the changes on their computer screens.
- Disparate sources of data. Most companies have pockets of data sprinkled throughout their departments and business units. They have a general ledger, mainframe systems and, perhaps, several database systems. “But they do not have a way to generate automated reports that can combine these various data sources, because no single analytical or reporting tool can access these disparate systems,” says IncSight’s Kyd.
Technology can bring together different data sources. “I use an add-on to Excel, called F9, which pulls data right out of my databases and into Excel, so I have one source of data rather than some isolated ones,” says Hall. “For example, the number of occupied rooms is not a normal financial measure, but that data is keyed into my general database, which I can access through F9 and Excel.”
At a global conglomerate such as Texaco, the need for consolidating numerous data sources is paramount. Therefore, Richards uses data warehousing to cleanse data the company captures and focuses on a critical few sources of information for the company’s performance reports.
- Failure to customize. Too often, all the managers within an organization end up reading the same set of reports, wading through reams of data to find the information that’s pertinent to them. Even many companies that use the Balanced Scorecard approach show the same report to everyone, instead of producing some Balanced Scorecards, each tailored to a specific area such as procurement, marketing or operations, according to Miller.
“For instance, a vice president of procurement usually wouldn’t be interested in a report on the company’s working capital, but would be interested in seeing what his or her inventory carrying costs are,” Miller says. “If you know what type of information is necessary for each user, then the reporting usually takes care of itself.”
Hall adds that today’s technological tools make report customization relatively easy. He can customize reports for each manager. “Customizing the report is how you get action from managers,” he says.
- Too much reliance on IT people. Finance executives who rely on their information technology (IT) department to generate performance and management reports are asking for trouble. Some IT departments take so long to prepare reports that by the time the reports are ready, they are no longer useful to anyone, according to Kyd.
“Management reporting is a creative process best done by the people who understand the substance of the report, and IT typically isn’t qualified in this area,” says Kyd, who believes that external information, such as benchmarking facts, data about competitors and knowledge of the industry, is particularly difficult for IT to handle. “That is why I love the Excel spreadsheet because you or your staff can refine the reporting process much more quickly and inexpensively.”
- Inconsistent data from managers. A company’s reporting system is only as good as the information it receives. If one manager offers reams of data about his or her operation while another provides only a few scraps, creating a consistent level of reporting across departments and business units will be problematic.
Executives need to give managers a common framework for sending data to finance. For example, Hall gives every manager a profit/loss statement to use for reporting. “Everyone understands the P&L, and that forms the basis for our reporting,” he says.
- Confusing charts and graphs. A manager trying to read a report may see a sales chart on one page or computer screen, a research and development chart on the next page or screen, and a per-product profitability chart on the third. The story the charts tell may be important, but placing each image on its page or screen makes readers work to understand what one chart has to do with the next.
“Your point or story can be made a lot more clearly by putting those three or four charts all on the same page or screen, along with a description from start to finish about how one relates to the next,” says Kyd. “Another technique is to have a reporting system that’s flexible enough to allow users like senior management to make changes in the report right on their screen, showing you how they would prefer to receive certain information by adding or subtracting a column or adding more information to one area.”
How many of the above problems characterize your business’s performance reporting? If you struggle with some of these difficulties, take heart. By cutting down the size of reports and focusing on the key facts and figures that support organizational objectives, you may be able to spend less time preparing the reports, and people may start to spend more time reading them.
Michele Y. Thompson is an author, contributing writer on MyStock911 and MortgageExpertGuide , commercial mortgage broker, entrepreneur, and finance coach. The culmination of her work in mortgage banker finance, global investor services, real estate, and debt consulting; along with her advanced degrees has driven her to help new and existing businesses reach their goals for over 20 years.