How Your Reporting Defies Statistics — And How To Fix It
In a 2014 study, psychology and statistical analysts found that people felt more confident in decision-making with fewer options. Conversely, decisions were more difficult when faced with a large number of options. The study proved the “less is more” concept for making decisions. The concept of “less is more” also applies to metrics. Imagine convoluting the decision-making process with an abundance of metrics. It is important to develop key reporting capabilities to provide a window into key business drivers while not overloading management with unnecessary reports and metrics. Management reports are essential to company success but can become a burden to everyone if the data is not captured at the appropriate granularity.
Balancing Quality and Quantity
How does a company successfully achieve the balance between quality reports and quantity of information?
Less is More
As studies have shown, oftentimes less is more. One of the key elements of building effective management reports is boiling down a large amount of information to what is critically important.
- Define the company goals and growth plan. A company focusing on a couple lines of business and striving to grow organically will require much more granular data into each line of business. However, a company planning to grow through acquisition, taking on new lines of business with each new acquisition, must prioritize flexibility and scalability within the reporting.
- Determine the biggest drivers of cost and revenue. From amongst the biggest drivers, it is also pertinent to consider which are most variable. Understanding slight variances that have significant cost effects enables companies to make strategic decisions regarding times of the year and locations, allowing the company to offer certain services to drive costs down and increase margins. Once the key drivers have been identified, get rid of unnecessary data and reports by answering the following questions:
— Will the information materially impact our results?
— Will the information captured change over time or remain constant?
— Is the information relevant to our stakeholders? Does it provide insight?
— Does the information provide predictability into future indicators of success?
Quality In and Quality Out
Regardless of the business systems being utilized, if quality information is not being entered into the system, the resulting management reports will yield false or misleading information for decision-making. The following steps can help to ensure quality data:
- Ensure business processes align with updated reporting requirements. For example, if a company wants to begin tracking the profitability of certain assets, field operators would be required to create asset numbers, to tag assets with the appropriate numbers, and to capture when the specific asset is used, repaired, or relocated. If new reporting metrics are identified without rolling out corresponding updates to business processes, inaccurate reporting will continue to plague the company. There are not enough systems, precautions, or automation to yield desired information without effective business processes, enforcement from management, and participation from line-level employees.
- Standardize input fields. Freeform or open input options often result in inconsistent data entry. For instance, one employee enters Houston, another enters HOU, and another enters HTX for a billing location. The information should all be associated with Houston, yet when filtering, the HOU and HTX will likely be left out, resulting in reporting inaccuracies. A way to mitigate this common problem is to utilize drop down with preselected data rather than free-form boxes.
- Utilize cross validation rules. Cross-validation filters data to prevent coding errors. For example, if wireline services are only offered in Texas, an employee who inputs their location as Colorado should not see the option to select wireline as a service.
- Allocate with discretion. Creating allocations for internal purposes provides little to no benefits. Practically, an IT organization may allocate their IT costs to the operating divisions. At the same time, the operating divisions have no control over the allocated IT costs. This additional information becomes meaningless to the operating divisions, and the IT costs become less visible to the organization as a whole. Allocations should be used where there is a legal or customer requirement to allocate the costs.
Management reports should present information managers need to make informed decisions. Abiding by these two simple and statistically-backed rules will give management exactly what they need — and nothing more.
Trenegy is a non-traditional consulting firm, equipping businesses to make the most of their reporting. With successful management reporting, business decisions can be simple and strategic. Ask Trenegy how: email@example.com.