Best practices in performance management, Part 1: Performance reporting

Narrative Reporting & Disclosure Management Specialist, IBM

Performance management relies on performance reporting. However, finance people 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, say, variance commentaries, our instincts tell us that those who own plans, budgets and forecasts should be documenting their own reasons for adverse or favorable outcomes.

The approach taken within individual organizations depends on the size and culture of the company as well as the tenure and past experiences of individual budget holders. No matter what the backdrop, the finance people I meet tend to agree that budget holders remain wary of harsh judgment 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 department wants to hear—in some cases, purely from a sense of self-preservation. At the other end of the scale, they 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, the budget owners are far happier to let finance people write their performance reports for them. Then, at least, 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 never tell you this tact is the case. They 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 behavior. This understanding is especially true where finance departments may have gained a reputation for organizational 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.

Employing best practices in performance reporting

In response to this somewhat perplexing situation, finance managers tend to take the high ground and talk about best practices. They portray themselves as guardian angels and point out that the leadership teams demand several report requirements: 

  • Performance reports need to be business owned and actionable: Executives need the real story behind the numbers to make enhanced decisions, and the real story only bubbles up from the bottom of the business when individual managers own their explanations.
  • The material they are reading needs to be produced in a highly participative and collaborative environment: Executives want to read about performance on the basis of accountability, alignment and commitment. Involving more people in an integrated way drives consensus and improves report quality.
  • High-frequency, short reporting cycles need to 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 rapid 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 previously mentioned planning, budgeting and forecasting activities. 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 to that question could be recommending that business users access the same software platform that 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 nonfinancial disciplines including business development, capital projects, customer services, facilities management, human resources, inventory control, IT and systems, legal and company secretarial, logistics, marketing, merchandising, procurement, production, research and development (R&D), sales, and many more.

A list of individual departmental and interdepartmental 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 interdepartmental collaboration and trust. At the very least, sharing good ideas should help break down any unwanted departmental stereotyping.

Take a 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 organizations 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.

Facing common document production problems

These days, those involved in regular document production cycles access a wide variety of applications, corporate systems 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 rekeying data into Microsoft Excel spreadsheets, PowerPoint slides and Word documents. 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 organized chaos and relies on patient, professional attitudes and long hours of work to succeed. It is labor-intensive and error prone for contributors and time-consuming and inefficient for reviewers. An overreliance on email exists, 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 several forensic reviews are still needed at the end.

Navigating daily challenges

Many departments encounter several day-to-day challenges when they prepare regular narrative reports: 

  • Little document uniformity: Different business units, geographies 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: Compiling all contributions in the time available may not be possible. Even if timely compilation were possible, multilayer or matrix-based review would take forever. Late nights increase the potential for human error and staff dissatisfaction.
  • Data validation issues: These problems occur when data sources are not synchronized and system cut-off errors are introduced between reports over time.
  • Production bottlenecks: Bottlenecks, or even a broken process, may remain hidden for years, especially in large organizations. Even in smaller organizations, little process transparency is evident.
  • Consistency: 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.
  • Version control nightmares: 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 error this morning.” “Well, it’s still wrong in my copy of the report.” Version control problems such as these are all too common and can lead to a lack of confidence in both the process and the output.
  • Potential for human error: Every instance of a number must be changed when it changes at source, no matter where the number occurs in the narrative. The same key performance indicator (KPI) may be repeated dozens of times in one document, increasing the impact of human error.
  • Waste of valuable human resources: In too many organizations, highly paid staff often end up performing low-value clerical review tasks to ensure accuracy and preserve personal and business reputations. 

Businesses are understandably turning to new performance reporting solutions to meet these costly challenges. Part 2 in this series looks into how finance departments are using these solutions to deliver real business value at operational, tactical and strategic levels both within finance departments and across the organization.

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