Last week I spent two days, with different clients, analysing and reviewing their management information.
In the first case we’d be warned by their monthly management accounts that profitability had slipped in December. As is often the case the reason wasn’t clear from the P/L alone (which is often the case) and we needed to dig deeper into their data.
This company has a relatively complex manufacturing process through which its bespoke products go before final assembly. The source of the problem was always going to be difficult to track down.
But these days the technology available to businesses and their accountants is more than up to the job if it produces the right data, which after a few tweaks to some software it did. We uncovered issues around estimating, pricing and productivity all of which had contributed to the fall in profitability and, unless corrected, would have had serious consequences for future projects profitability.
Without the ability to drill down deeply into the data it is unlikely we’d have discovered these issues.
The next day I was reviewing data with a client that is growing at a very fast rate (30% growth in 2018 and forecast to grow by 50% in 2019). Fortunately they have well developed information systems to manage and control this speed of growth.
As in the first case, their key metrics – net cash margin, staff utilisation and capacity – are derived outside of their formal cloud accounting system, in this case by an intricate technology stack. Information is formally reported to the management team monthly, although it’s available weekly – or even daily – if necessary to take decisions.
These cases are illustrative of three fundamental changes taking place in the accounting and finance sector:
- Technology is now driving the production of information to ever greater heights and delivering virtually real-time data to management. The days of monthly or quarterly accounts several weeks in arrears are over.
- Accountants are no longer the producers of information but need to become the data analysts, to assist their clients in interpreting the information at their disposal. Until AI is more developed, data can only point at possible explanations. The human touch is still need for the interpretation.
- Conventional accounts, such as the P/L account and balance sheet, are no longer the harbinger of management information other than at a high level, which is usually insufficient for decision making. The ability to dive deeply in data, which can then be manipulated (in a good way!), analysed and cross-matched with other data has become the new norm. A new breed of data analysts and business intelligence professionals rather than accountants are leading this change.
PS If your management information hasn’t progressed or your technology hasn’t kept pace with the times please give a call or drop me an email.