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Challenges for the 21st Century FP&A: Sense-making and Storytelling

By Steve Morlidge, Business Forecasting thought leader, author of "Future Ready: How to Master Business Forecasting" and  "The Little Book of Beyond Budgeting" 

The London financial planning and analysis (FP&A) board recently held its first meeting of 2016, at which Steve Morlidge offered his insights on some of the challenges faced by practitioners in making sense of data and communicating it within organisations and his ideas on how these shortcomings can be overcome. They will provide the basis for a forthcoming book ‘Present Sense’; a companion volume to his book on business forecasting ‘Future Ready’ which was published in 2012. 

A few decades ago everything seemed so straightforward. When it came to planning and controlling businesses annual budgets were the only show in town. Managing performance simply consisted of comparing financial outcomes to these budgets on a periodic basis and using variance analysis to understand where and how deviations in performance had come about, to help the business ‘get back on track’. In this simple world of plan, actual and variance, simple presentational devices such as tables displaying columns of numbers sufficed.

But things have changed since then:

  • Budgets have somewhat fallen into disrepute and disuse. This is partly the result of an increasing recognition that in a dynamic and unpredictable world the cost of building and managing a traditional annual budgeting system vastly outweighs the benefits. Partly it is the result of the work of organisations like the Beyond Budgeting Round Table in convincing people that they are an unnecessary evil, responsible for promoting dysfunctional and unproductive behaviour as well as wasting resources doing the wrong things
  • An industry has grown up around measurement systems, usually promoting a richer and more extensive range of measures of business performance. The Balanced Scorecard is the most famous example but few businesses feel they can manage without KPI’s or ‘dashboards’.
  • The amount and quantity of data available to analysts have increased enormously over the last few years; a trend to which there is no visible end
  • Sophisticated data analysis, dissemination and presentation tools capable of exploiting the potential of superabundant data are now easily accessible. 
  • Insightful, coherent analysis needs to be delivered and assimilated more quickly than ever before. The bandwidth of consumers of performance information is physiologically fixed and demands on it have increased enormously. As a result, the time available for the careful consideration and weighing up of evidence has collapsed.

So the demands and the potential have increased but there is a large gap between what is possible and what we see on the ground. This is partly because the capability of the tools available has outstripped the time needed for analysis to master them with the result that Excel and the rest of the Office suite of products continue to be the tool of choice for routine reporting, even where significant investments have been made in BI software. It also because there is an abundance of advice on what to measure but there is relatively little guidance given on how to analyse the results and communicate them in an effective way.

Also, we need to recognise that performance reporting is part of a social process; it informs decisions which are made collectively by boards and business teams. And while there is now an abundance of BI software that helps individual managers personally explore and make sense of data online, these capabilities are ill-suited to the task of providing groups of decision makers with the information they need in the form in which they need it. To help them collectively agree what needs to be done they need clearly presented and concise analyses to ensure that they all receive the same story about performance message at the same time: because if the do not there is little chance of them quickly agreeing what needs to be done.

So software isn’t the solution to these problems, although it will certainly be part of it.

This is the premise upon which Steve Morlidge’s presentation to the London FP&A Board last month. This will form the basis of his forthcoming book ‘Present Sense’ along with his remedies. These remedies are divided into two; the first set comprise a series of simple and pragmatic approaches to help practitioners make sense of performance data and include:

  1. Using rolling measures like Moving Annual Totals to provide decision makers with an accessible picture of trends in organisational performance to offset the blinkered focus on the most recent period
  2. Using simple statistical filters like control charts to reduce the risk of reacting to noise and help find the needle in the haystack of data that most businesses now sit on
  3. Using tracking signals to reduce the reliance on arbitrary ‘point in time’ targeting and the risk of over-interpreting variances.

These second set of remedies are six design principles practitioners better present and communicate insights to decision makers, particularly in the form of graphics. Steve argued, with the help of examples and illustrations, that effective communication needs to be:

  1. Targeted: taking account of the role, purpose and capabilities of the target audience
  2. Attenuated: eliminating as much irrelevant detail as possible so as not to distract the brain
  3. Amplified: emphasising the important stuff that remains.
  4. Contextualised: giving information meaning by adding contextual information in the form of text and so on
  5. Condensed: limiting the amount of space that is used for the message and employing it to maximum effect.
  6. Organised: presenting the information on paper or on screen in such a way that makes it easy for the audience to navigate and interpret.