Using Additional Information to Manage Your Business Better — May 2015

This topic regards financial reporting.

Integrated reporting encompasses a broad set of forward-looking and coordinated information. The goal of reporting this information to users of financial statements is to provide a more effective decision-making process. In turn, this will develop a more dynamic, resilient business. Though the entire management team is involved, the CFO drives this process.

This approach is particularly important given the increasing importance of intangible assets that drive company’s value. Accordingly, traditional financial data should be supplemented with key metrics that are not quantified in traditional financial statements. In the subsequent paragraphs we examine how this data can be integrated into the decision-making process.

Most managers already have a good grasp of the financial metrics. That said, non-financial metrics are also important. Accordingly, managers must view the big picture; determine the organization’s value drivers; and understand how the business creates value. This effort entails identifying key inputs, activities, outputs, and outcomes. Once identified these factors should be evaluated in terms of how they affect the success of the business. These metrics can apply to the supply chain, customer experience, IT Infrastructure, and the sources of orders, among many other inputs.

The key to this effort is showing how the information is related to the long term value of the business. An example might be showing how the number of ancillary product lines relates to orders received for related major products. Another might be identify factors that convert sales calls into orders.

After the identification of critical factors, managers must develop clear expectations of the positive and negative impacts of the critical factors. Once accomplished, it is necessary to gather data and analyze it so that the impact can be reported in a meaningful manner.

As these metrics are developed and demonstrated to drive the firm’s value, key decision-makers must be provided with regular reports in conjunction with traditional financial information. This creates a strong internal reporting model to generate optimal decisions. Once the model is running smoothly, management may choose to share the data with key external constituencies.

Integrated reporting encompasses a broad set of forward-looking and coordinated information. The goal of reporting this information to users of financial statements is to provide a more effective decision-making process which will develop a more dynamic, resilient business. This approach is particularly important given the increasing importance of intangible assets that drive company’s value. Accordingly, traditional financial data should be supplemented with key metrics that are not quantified in traditional financial statements.

For more information, please see the following link:

http://journalofaccountancy.com/issues/2014/dec/integrated-thinking-tips.html

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