Dashboards for driving in the business world
The average American travels well over 10,000 miles per year by automobile. How many of us would take a trip by automobile without a dashboard? We might consider a short trip to the store, but I doubt we would consider any long-distance journey without a fully operating dashboard. Why is that? Because dashboards serve as the main communication between the driver and the vehicle, sharing the status of all the components of the automobile necessary to get to one’s destination, like speed, oil pressure, battery, gas and tire pressure.
Of course, most drivers are no longer content with just a dashboard, but also utilize sophisticated navigation systems. With navigation systems, the driver not only sees the overall direction the driver is traveling, but also has turn-by-turn directions alerting the driver of potential delays from traffic or construction and suggesting detours along the way.
Similarly, drivers in the business world need reliable, regular financial communication and information to base sound business decisions. Therefore, the most effective CFOs and their teams provide meaningful financial information often times referred to as “dashboards” to keep tabs on various financial or key performance indicators — not only to help monitor the business, but also help with the overall goal of gearing the business towards operating at its peak efficiency.
Dashboards have evolved from the formal more traditional financial statements (balance sheet, income statement and statement of cash flows). Dashboards are normally faster and more granular in nature, allowing businesses to be more responsive in decision making. They also tend to be more user-friendly, more understandable by a manager who may not have an accounting or finance degree. It is so important for all managers, including non-accounting professionals, to stay abreast of the business metrics — especially those that may be included on a dashboard.
For instance, a financial institution’s dashboard might include information such as number of customers, average deposits per customer, number of loans, average loan balance to customer, number of relationships per customer, number of branches, number of ATMs, asset size, new deposits to date, loans approved, loans funded, write-offs, recoveries, etc. The dashboard also may include budget information so that variances can be easily identified. By checking this information on a regular basis, the financial institution can be more in touch with the business metrics that lead to its success. This may mean interest-rate changes to products and services to either encourage or slow growth, depending on the data received.
Of course, most successful businesses provide more detailed statements and can include department performance and drill down further to the product or service level. This allows managers to obtain a clearer understanding of what drives performance with a product or service and consequently what can improve performance. In many cases, the mere monitoring of certain financial data like balances, ratios, days of inventory, interest rates, losses, etc., is enough to bring the data point in line with expectations.
The most successful CEOs understand that financial information is the key component to practically all business decisions. For that reason, in many businesses the CFO serves as the CEOs right hand, no longer only the chief “bean counter” as in yesteryear. In order for the CFO to be effective in this key role, it is imperative that the CFO have a finance team that operates like a well-oiled machine, not only by generating timely and accurate financial statements, dashboards, etc., but staying well connected to all business operations, understanding all the intricacies of each service or product. This knowledge helps create meaningful reporting that helps drive better business decisions each and every day.
Anne Hagen, CPA, is the CFO at the Masonic Home of Virginia and a member of the Virginia Society of Certified Public Accountants.