Toucan Toco is now three years old, and I would like to revisit the mission statement : to equip the novice user with a tool that lets him/her easily access company performance data. One of the first observations that we ...
What is striking with financial reporting and dashboards is how difficult they are to understand. These reports are made by finance people for finance people.
Click here if you want to see examples of cool finance reports.
But what about the others? To make a simple financial reporting you have to place yourself in the head of a 5 years old. So everyone in the company can understand and use the financial report in their work. This precious information should empower people not to make them confused.
Who are the main users of financial statements?
Today users of Financial Reporting are C-levels, Board of directors, employees and investors. Then the government. They are all using the information for different purposes. And they all have a different level of understanding.
What is the main objective of financial reporting?
The objective of making a financial report easy to understand is to create new business opportunities. At any layer of the company. Easy access to financial information should be the priority of the companies that want to innovate and bring change.
With easy to find information managers and C-levels will make better decisions. With more transparency, employees and investors will have more trust and feel more aligned with the strategy.
Each financial reporting is different but it doesn’t mean you can’t have golden rules to help you craft it.
- RULE NUMBER 1: UNDERSTAND WHO IS GOING TO USE YOUR FINANCIAL DASHBOARD
- RULE NUMBER 2: A FINANCIAL REPORTING SHOULD NOT BE A COMPREHENSIVE GUIDE OF ALL EXISTING KPI’S!
- RULE NUMBER 3: CHOOSE KEY PERFORMANCE INDICATORS FOR FINANCE THAT TELL A STORY
- RULE 4: A FINANCIAL DASHBOARD IS AN EVOLVING TOOL… THUS IT IS NEVER FINISHED.
- RULE 5: ONE MESSAGE FOR ONE DASHBOARD
RULE NUMBER 1: UNDERSTAND WHO IS GOING TO USE YOUR FINANCIAL DASHBOARD
Before you start, it is important for you to know the nature of your business or enterprise. The market on which it operates, and the needs of the different populations that are going to use it. You must know what people are expecting before crafting your financial dashboard.
Each company has a unique use of its data and no one will be able to tell you what to do better than the people in your company.
Understanding what type of financial information people need to make better decisions, helps identify the most important data. Is it the main sources of revenue? Should you focus on the revenue per product, per region, per distribution channel? What are the main sources of costs? Should people focus on fixed costs, variable costs in value or percentage?
There is no standard dashboard in finance. Each department, profession, industry has its particular sets of codes, and this plurality is what requires a higher level of personalization.
RULE NUMBER 2: A FINANCIAL REPORTING SHOULD NOT BE A COMPREHENSIVE GUIDE OF ALL EXISTING KPI’S!
We are not robots. We are Humans. We have the ability to use our brain to select relevant data that will help people make better decisions every day. We should use this ability.
What we usually see with financial reports targeted to internal communication, is a list of all financial KPI’s. Other teams and departments won’t understand what you do if you don’t tell them what they should look at.
There is a lot of financial information. When developing a financial reporting dashboard you have to pay attention to the most important metrics.
Another way of prioritizing your indicators is by significance or relevance. One motto: get straight to the point. Remember that a financial dashboard has two purposes:
- to serve decision-making
- to allow communication to managers or the team.
It is counter-intuitive, “financial dashboard” makers are usually afraid to forget crucial data. So they put every Financial KPI’s they can find and put it in the report. But, nobody wants to look at 100 financial key performance indicators.
Don’t do this at home !!!
Léonard De Vinci wrote: “Simplicity is the ultimate sophistication”. A clear financial reporting allows the audience to focus on the information, rather than deciphering the data. A successful presentation is, therefore, a strong message, contextualized and supported by data.
Data never speaks for itself. You have to make it speak by giving context.
Click this link if you want to know the reporting trends for 2019.
RULE NUMBER 3: CHOOSE KEY PERFORMANCE INDICATORS FOR FINANCE THAT TELL A STORY
How do you choose your financial or economic indicators? First of all, ask yourself this question: What is your objective through developing a financial dashboard? Is it to support the management of a particular project? To have an analytical look at the company’s activity or to have a general vision of what’s going on in your company at a specific time?
New technologies in Data Visualization can generate interactive dashboards and graphs with captivating designs. Dataviz makes it easy to navigate from one piece of information to another while processing big databases.
During a presentation, the goal is not to simply state the results, but to offer an overview of how an indicator influences the business. It is important to dive into granularity and understand the reasons for a specific fluctuation or variation. To allow an audience to understand the data, an educational effort has to be made to contextualize it. It is called Data Storytelling.
Each Financial KPI tells a story about business activity. Whether it is in HR on workforce evolution, or in finance in the understanding of the balance sheet, each data has to carry a message. Confucius once said: « a picture is worth a thousand words ». Each graphic must have a clear and precise message, to facilitate the understanding of complex information.
RULE 4: A FINANCIAL DASHBOARD IS AN EVOLVING TOOL… THUS IT IS NEVER FINISHED.
Your financial reporting dashboard is not an end in itself. Think of it as a step in a decision process. Thus, it is absolutely necessary to periodically update it and refine its relevance.
This will enable the company’s decision-makers to adjust the dashboard when they change strategy. This makes it a real instrument for steering the company’s performance.
Your environment, your projects, your objectives, and your constraints evolve, and a good dashboard backs up such evolution if it does not lead it. It is necessary to always check and ensure that your dashboard includes indicators that match your needs. Good analytics makes people want to act. An indicator that does not trigger any action in case of a drop or increase is a bad one.
RULE 5: ONE MESSAGE FOR ONE DASHBOARD
The easier it is to read data, the faster their understanding will be, and decision-making will be facilitated. Additionally, readers are not always familiar with the format of data presented to them. It is important to make information as accessible as possible.
A chart must carry a single message. Too often, dashboards present dozens of indicators and graphs that loose audience. Do not accumulate your graphs. Present an idea, a visualization for a screen. Unwind your ideas on several slides.
As you may have understood, developing an effective financial dashboard does not amount to condensing the most technical information into the shortest possible support. Rather, it amounts to making the information understandable, to the greatest number.
Select the most relevant information and put yourself in the shoes of your reader. The dashboard must speak for itself. If you can send it out to the recipient without commenting on it, then, you have successfully completed the exercise!
Charles Miglietti, Co-founder @Toucan Toco.