Wednesday
Sep172008
Report Cards, Progress Reports and Dashboards
Wednesday, September 17, 2008 at 11:58AM
When I was in school as a kid I remember getting report cards every quarter. In between report cards we would get progress reports. And in between progress reports we usually had weekly quizzes and exams. Pre-schoolers even have a minute-by-minute "stop light" that tells them at a glance who is on green (doing good for the day), yellow (not so good) and red (Dad's not going to be happy). Love it or hate it the one thing about going to school was that you always knew where you stood. There was no excuse for being caught off guard or surprised by your grades at the end of the year. It's interesting to me most businesses fail to get the basic feedback available to a kindergartner.
In business our report cards are the annual financial statements while progress reports are analogous to quarterly statements. Neither of these hold much mystery, but I do believe there is ONE "eight hundred pound gorilla" in most companies that keeps them from using this information. More on that in a minute. It is the "stop light" that I am interested in exploring with my clients. Most of the businesses that I meet do not have a mechanism for checking up on the daily health of the business. Over the last ten years there has been a lot of attention given to "dashboards" in mid-level accounting software packages. Twenty years ago they were called "scorecards". Regardless of the terminology this type of reporting has historically been reserved for companies with sales in the $20 million range and up. I believe it has tremendous value for smaller businesses as well.
But before we get into dashboards let's go back to that eight hundred pound gorilla. Most financial statements generated by software packages are not useful because they have a chart of accounts that has been designed by a bean counter rather than a business owner. We routinely encounter clients using Quickbooks with Profit and Loss statements that run three and four PAGES! And the more clients spend on their software the worse the problem seems to get. How on earth is a business owner to get an overview of operations with that volume of information? The accountant wants all that detail because let's face it, accountants like detail. But business owners need something different. They need to see trends, they need an overview, they need concise explanation. If you can't run a one page, monthly comparative profit and loss for the last 12 months you need to address that problem immediately. Your CPA or bookkeeper should be able to fix it for you. If not call us.
On to the stoplight. My wife is a former elementary school teacher, as is my sister. Both had their own methods for letting kids know where they stood on a daily and minute-by-minute basis. If a parent got called or a child got sent to the principal's office it wasn't a surprise and it wasn't for a lack of feedback. Businesses need this same type of feedback. The problem is that it consists of a mix of financial and non-financial information. Business owners are accustomed to delegating tasks so it's easy to say to the accountant "get me last week's financial statements" or "what were last week's cash receipts?" It's also easy to go to production and say "what are the current back orders?" or "how much overtime are you forecasting for next week?" But it's very difficult for a business owner to run around to all the different departments collecting such information while maintaining a manager's perspective on the business. There simply isn't enough time in the day. Here's the approach we use to help business owners build a dashboard to keep tabs on the daily health of their business.
I won't go into a lot of detail on each step, but I will tell you why the steps are arranged this way. First, decide what you need to run the business, not what you can get. If you tackle step two first you'll only end up with the information "YOU THINK" you can get out of your existing system. I've talked to many business owners about what pieces of information they need to manage their business properly and I've heard time and time again "but we can't get that." A little poking, prodding and cajoling with IT and it turns out WE CAN get that, it's just going to take some time and a few changes to restructure things so it's available. Ask first what you need, then worry about how you're going to get it.
Second, someone other than the business owner needs to be responsible for putting the information together. This isn't rocket science so if you find yourself saying "no one's qualified to do that" you've got bigger problems than you think. It's a process...step a, step b, step c...anyone can do it with the right procedure in front of them. What the business owner is usually saying is "I don't want anyone seeing all that SENSITIVE information." Again, if this is your attitude you've got big problems. GET OVER IT. If you want to run things on your own then scale down, curtail your grand plans to takeover the world and stop whining about the lack of qualified people. They are not the problem. You are.
Last, get people to use it. Make it relevant to your business. Not one of my clients is using the original dashboard that we created for their business. They've all undergone tweaks, revisions and sometimes major changes. After using it for just a few days you will find out some things need to be changed. After a few weeks you will have hammered out the format that addresses your goals for the business. Eventually you will need to change it again but usually only when there is a change in your goals or the strategic direction of the business. What keeps business owners from adopting dashboards is usually their inability to hold people accountable. They feel bad about pointing out a number that is below expectation. They don't want to confront a manager who fails to contribute to the dashboard or use it to manage their side of the business. Once again, if this describes you then you have big problems and we need to work on those. Accountability is the key to making dashboards work for your business. Without it you'll have a pretty report that has cost you a lot of time and money and isn't worth the paper it is printed on.
For businesses who take up the challenge to get their financial reporting in order and build a concise and informative dashboard the returns are great. People are more effective, surprises occur less often, morale improves because of better feedback. But the biggest payoff usually occurs because the business owner starts getting a full night's sleep once again. Please feel free to share your stories about using dashboards to help run your business.
In business our report cards are the annual financial statements while progress reports are analogous to quarterly statements. Neither of these hold much mystery, but I do believe there is ONE "eight hundred pound gorilla" in most companies that keeps them from using this information. More on that in a minute. It is the "stop light" that I am interested in exploring with my clients. Most of the businesses that I meet do not have a mechanism for checking up on the daily health of the business. Over the last ten years there has been a lot of attention given to "dashboards" in mid-level accounting software packages. Twenty years ago they were called "scorecards". Regardless of the terminology this type of reporting has historically been reserved for companies with sales in the $20 million range and up. I believe it has tremendous value for smaller businesses as well.
But before we get into dashboards let's go back to that eight hundred pound gorilla. Most financial statements generated by software packages are not useful because they have a chart of accounts that has been designed by a bean counter rather than a business owner. We routinely encounter clients using Quickbooks with Profit and Loss statements that run three and four PAGES! And the more clients spend on their software the worse the problem seems to get. How on earth is a business owner to get an overview of operations with that volume of information? The accountant wants all that detail because let's face it, accountants like detail. But business owners need something different. They need to see trends, they need an overview, they need concise explanation. If you can't run a one page, monthly comparative profit and loss for the last 12 months you need to address that problem immediately. Your CPA or bookkeeper should be able to fix it for you. If not call us.
On to the stoplight. My wife is a former elementary school teacher, as is my sister. Both had their own methods for letting kids know where they stood on a daily and minute-by-minute basis. If a parent got called or a child got sent to the principal's office it wasn't a surprise and it wasn't for a lack of feedback. Businesses need this same type of feedback. The problem is that it consists of a mix of financial and non-financial information. Business owners are accustomed to delegating tasks so it's easy to say to the accountant "get me last week's financial statements" or "what were last week's cash receipts?" It's also easy to go to production and say "what are the current back orders?" or "how much overtime are you forecasting for next week?" But it's very difficult for a business owner to run around to all the different departments collecting such information while maintaining a manager's perspective on the business. There simply isn't enough time in the day. Here's the approach we use to help business owners build a dashboard to keep tabs on the daily health of their business.
- Step One: Decide which information you need.
- Step Two: Determine whether you can get that information from your existing system.
- Step Three: Appoint a "consolidator" to collect and assemble the information, every day.
- Step Four: Get people to use it, every day.
I won't go into a lot of detail on each step, but I will tell you why the steps are arranged this way. First, decide what you need to run the business, not what you can get. If you tackle step two first you'll only end up with the information "YOU THINK" you can get out of your existing system. I've talked to many business owners about what pieces of information they need to manage their business properly and I've heard time and time again "but we can't get that." A little poking, prodding and cajoling with IT and it turns out WE CAN get that, it's just going to take some time and a few changes to restructure things so it's available. Ask first what you need, then worry about how you're going to get it.
Second, someone other than the business owner needs to be responsible for putting the information together. This isn't rocket science so if you find yourself saying "no one's qualified to do that" you've got bigger problems than you think. It's a process...step a, step b, step c...anyone can do it with the right procedure in front of them. What the business owner is usually saying is "I don't want anyone seeing all that SENSITIVE information." Again, if this is your attitude you've got big problems. GET OVER IT. If you want to run things on your own then scale down, curtail your grand plans to takeover the world and stop whining about the lack of qualified people. They are not the problem. You are.
Last, get people to use it. Make it relevant to your business. Not one of my clients is using the original dashboard that we created for their business. They've all undergone tweaks, revisions and sometimes major changes. After using it for just a few days you will find out some things need to be changed. After a few weeks you will have hammered out the format that addresses your goals for the business. Eventually you will need to change it again but usually only when there is a change in your goals or the strategic direction of the business. What keeps business owners from adopting dashboards is usually their inability to hold people accountable. They feel bad about pointing out a number that is below expectation. They don't want to confront a manager who fails to contribute to the dashboard or use it to manage their side of the business. Once again, if this describes you then you have big problems and we need to work on those. Accountability is the key to making dashboards work for your business. Without it you'll have a pretty report that has cost you a lot of time and money and isn't worth the paper it is printed on.
For businesses who take up the challenge to get their financial reporting in order and build a concise and informative dashboard the returns are great. People are more effective, surprises occur less often, morale improves because of better feedback. But the biggest payoff usually occurs because the business owner starts getting a full night's sleep once again. Please feel free to share your stories about using dashboards to help run your business.
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