CFO Thought Leader: ASK ETHAN Podcasts

Advancing an Organizational Rhythm with a Rolling Review Process

Jan 20, 2015 2:05:06 PM / by Dave Phillips


Is a monthly review process part of your organizational rhythm? Join us as Ethan Carlson, CEO of Carlson Management Consulting, once more tackles our questions to supply you with answers and a new mindset designed to help empower your finance organization to look ahead.


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Transcript Highlights:

The following is an edited abstract from CFO Thought Leader’s “Ask Ethan” podcast featuring Ethan Carlson, CEO, Carlson Management Consulting, and Jack Sweeney, cohost of CFO Thought Leader.

CFOTL The last time you joined us, we discussed why and how certain organizations are more successful than others when it comes to realizing the benefits of a rolling forecast. How can organizations measure their success? How can they chart their progress?

Ethan Well, I think that the most important thing is that as you’re moving into rolling forecasting and creating more projections, you have to make sure that you’ve got a regular check-in. If you only keep generating projections and you don’t check how you’re doing against them, there’s no way to inform your models or how you’re coming up with your forecast, tracking real results and improving them. We think that it’s very important to have a regular rhythm where you’re projecting, or rather reviewing, those projections, I should say, at least monthly. And you should be making sure that these review processes include not only financial results, but also all of the drivers and key performance indicators in your budget and forecast models.

CFOTL But when it comes to a review process, what are certain organizations doing that others are not? What distinguishes a world-class finance organization’s review process?

Ethan Well, a number of things. First and foremost, it’s their speed. We see that organizations that can generate their month-end results and produce reporting in an accurate fashion faster than their counterparts tend to be what we would consider better, or best-in-class, organizations. We see people who are generating these month-end closes and variances reports closing packages in, completing them, less than a handful of days from month’s end. At this point, information is real-time and is meaningful. We have one customer that we’ve worked with for a couple of years now … when we started working with them, their month-end package took over a month to produce. If you think about this, you’d be reviewing January results in March. It’s not even relevant information. The reporting portion of their close takes less than a day now. If you think about this, you’re putting real-time information in the hands of people who can make decisions with it 30 days earlier. That’s a tremendous impact. So speed is first.

The second thing is the comprehensive nature of the review. We think that basic reviews tend to include a variance analysis of your income statement. You know, how are your revenues doing vs. your budget. Things of this nature. This is a compulsory level of completeness as far as we’re concerned. The organizations that are also including how they did on key drivers — whether it was sales units, or customer retention, or renewal rate percentages, or other key drivers of their model — in these reviews tend to form a more complete picture. Often an income statement is only part of the real story when it comes to the company’s financial health and strategic direction. If you’re only looking at just those — particularly if you’re in a software or services business where revenue and sales are not really directly correlated — you’re not getting that full picture. The completeness of the picture, we think, is very important.

Then we also think that it’s important to make it easy to consume. When we say “complete,” we don’t mean that you’ve got to have a 10-page management package or something like that. It can be very concise. Often we find that incorporating visuals or some sort of graphic chart is very, very important to the overall consumability of the monthly report.

CFOTL Speed, accuracy, and consumability. How are organizations making this process or the output from it more accessible?

Ethan Well, I think that, by and large, finance is learning not to be a bottleneck to this process. Too often, the process involved finance sending out reports. We’re seeing that more and more organizations are moving to platforms that allow self-service access to reports in real time by people in the field. Using a purpose-built software allows an end department head to go in and run their own reports without having to contact their finance resource to run it for them. Because often what has happened is that a department head will make the request, they’re told that they have to wait, and so they move on. But if you make reports real-time, we’ve seen that this has a big impact to the point where the notion that department leaders don’t want to deal with financial results is being proven false. It’s just how we’ve made them have to consume it. You know, go to your analyst, get the reports — no one likes to do that. But if you put it in their hands, we’ve seen instances in systems that can track usage where some of the people at the lowest participation rates before often can have some of the highest rates after you make it accessible to them.

CFOTL Ethan, you used the word “rhythm” to sort of underscore the idea that companies get in a groove with their monthly planning. What are the factors that contribute to an organization’s rhythm?

Ethan Once you have momentum and things moving in a direction, it’s much easier to maintain a process. So, having a set schedule that everyone knows ahead of time and then living by it. If you publish that you are going to close and have reports ready for your organization on the third day of the month, or whatever it may be, don’t miss the deadline. Staying in this rhythm is key because people are building their schedules around it. Being able to stay on this course is very important, and it not only demonstrates respect for their time, but also keeps everyone pointed in the right direction. I think that it’s also key to make it easy for people to access whatever the financial reports are. It doesn’t need to be an overly onerous process.

CFOTL When a review process does break down, or begins to lose its rhythm, what is most often the cause?

Ethan I think that there are two main causes, as much as anything, when a review process starts to have issues. One is if there are delays. If you have a schedule and you can’t stick to it, this will derail any process. The second is errors. You can’t put out financial reports, any kind of reports, that have errors. There has to be integrity in your reports. I can think of a time when I was a divisional CFO and I was putting out our financial reports. I had one vice president who, whatever I sent to him, he would find a problem on that spreadsheet. This would be all that he would talk about for the rest of the meeting — not the content. It could have been an irrelevant cell at the bottom right-hand corner that had no bearing on what we needed to talk about, which was the revenue shortfall up at the top. But this is what we talked about. It derailed the entire meeting. Errors are the biggest issue, and having a process that is as error-free as possible. I mean, we’re all human, but in finance we’re kind of held to a higher standard.

CFOTL You mentioned last time, when we were discussing rolling forecasts, that it’s important that the forecast offer incentives that would have people in different roles buy into the process. Similarly, can organizations incentivize people in some way to participate in a monthly review process?

Ethan I think that they can. I mean, I think that it’s a little bit different. In some levels, you’re asking people to participate in an additional exercise, and putting them on the spot, and making them accountable. I think that first and foremost, you’ve got to make it so that people feel accountable to their results, but it shouldn’t be a combative situation. There have been plenty of situations I’ve seen where a finance resource in a review is overly tough on business leaders. I don’t think that you want to serve that capacity in your review process. Similarly, I think that what people want is to participate; they do want visibility. If you’re giving them visibility into how they’re doing earlier, this helps. This will get people’s involvement and will get buy-in. Again, making it consumable. Making it easy for them to access, not a big time drain on them. Then, also, it doesn’t have to be just big spreadsheets of numbers; it’s good to include visual charts, and graphs, and things that they can then share downstream with their team. It makes them look like a well-rounded leader and lets them demonstrate control of their business. I think people that will participate if you cover these things.

CFOTL It looks like we’re out of time for this episode. We are hoping to broaden the subject area next time and discuss long-term planning with you …

Ethan Sure. I think that this would be a great topic for our next talk.

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