5 steps to better decisions and more flexible management
Management is about making decisions at different levels in an organization, and that these decisions are translated into actions that lead the business towards the set goals. Many organizations want management systems that are agile and easy to adapt when conditions change. Here are five steps to help you make better decisions and manage your organization more flexibly.
When an organization discusses a management question, the discussion often focuses on whether the figures are right instead of focusing on the measures that will drive the business forward. The reason may be that if you and your colleagues work manually to collect and "wash" information, you don’t know which information you should act on. In this case, management issues risk getting bogged down in the current situation instead of looking forward.
For example, business controllers spend only 30% of their time on analysis. Business controllers are a professional category within the controller profession whose work consists largely of analyzing business data from source systems and planning- and analysis tools – and then communicating this business-related decision-making data.
Part of the problem seems to be that not enough of their time has been freed up for the analysis and quality assurance of the data. In a rapidly changing world, it is essential to be able to quickly get an overview of the financial situation, adapt future plans and have clearly defined goals.
Someone who has thought a lot about agile management is Rikard Olsson at Ekan Management and Beyond Budgeting Institute. He is one of the leading advisors in the Nordic region on management questions and here he shares a 5-step model for how you can make better decisions and, in the long run, achieve more flexible and agile control. The first step is about the information you use as your starting point.
1. TRANSPARENT AND CREDIBLE INFORMATION
People have been talking for a long time about flattening pyramids and making information more accessible - thereby moving decisions down to as low a level as possible.
In politics, the EU uses the principle of subsidiarity, which can be seen as a fundamental feature of European decisions; that decisions should be made at as low a level as possible. Nevertheless, the sharing of information and the delegation of decisions are seen as a utopia.
It is often said that all problems are basically communication problems. Delays with decision-making data may be due to the fact that the right people have not received credible (correct) information or that decisions have to go through a middle-management ‘obstacle course’. Had the activities been based on accessible, transparent and credible (correct) information, the situation would have looked much better and decisions would have been made more quickly.
The question of credible information has a lot to do with how much manual work can be scaled away from the information processes. The art of making information transparent requires a deep understanding of the organization's business model.
This means that those who set up the information infrastructure must know what information is needed if the best, most well-informed decisions are to be made throughout the whole organization.
Working with transparent, credible information, therefore, requires a structured approach and an information strategy. It also requires detailed definitions of business-critical concepts (What is a customer, an agreement, and a project?) linked to dimensions and hierarchies as well as a well-described information structure.
In order to promote increased decision-making out throughout the organization, tools and a well-described management model for both tools and information are needed, both to structure the information flows and processes and to disseminate the information.
2. A ‘ROLLING’ WAY OF THINKING - SCENARIOS AND DRIVERS
Based on your organisation's operations, you should work with rolling forecasts that look both backward and forwards. Always understand the data and make the purpose of your forecast your starting point. What do you want to see? Detailed daily production planning or long-term trends? What factors affect the operations? Variation, weight and vulnerability (cost) and security (revenues)?
The future is harder to see, the further away it is, but, then again, the further away it is, the more time you have to adapt. Combine rolling outcomes (actuals) with rolling forecasts. Make sure you can see outcomes and forecasts in a rolling bar chart in your tool at the same time. This is a good way to see breakpoints in a curve at an early stage. Experiment with statistical models. They can be simple in nature; you can use the last month or the latest quarterly averages going forward.
It is possible to experiment further with the statistical perspective (models) and connect internal or external experts when necessary (when, for example, you are working with regression analyses).
Keep in mind that information over time is best described in line charts and graphs. The human brain understands shapes best. Use rolling averages, use trends (where you are) and momentum (what does the trend look like going backwards in your outcome). Experiment with rolling averages in forecasting and outcome reporting.
3. USE DRIVERS
Remember to limit the extent of the detailed data and create a better understanding by going from account-based budgeting to working with key business drivers instead. This not only helps you in more effective forecasting work, but it also helps you to see the early warning signals.
Your starting point is that finance is only the end product of what happens in your organization. Connect the operating systems with the forecasting tools and other systems. This requires a good understanding of what drives revenues and expenses in your organisation.
Some feel that it is a tough challenge to connect things together in a system solution, but just talking about and understanding what drives costs in an organization is highly beneficial in itself. It is possible, for example, to take important steps forward in a workshop using Post-its as a tool. It is also about which system you use.
Some systems have not yet seen the possibility of working with drivers. Others have working with drivers as an important function. Understanding what drives the operation’s costs is vitally important and provides opportunities for effective forecasting. It also leads to closer cooperation between the finance department and operations.
4. SCENARIOS THAT GIVE YOU A BETTER PICTURE OF THE FUTURE
People who work with scenarios have usually already worked, to some extent, with steps one to three on this ladder. They have transparent information, defined concepts, an understanding of the drivers and an approach that is already rolling.
Those of you who have come this far can see changes in your organization's drivers rather than in the financial figures. This facilitates an efficient process for developing scenarios. Remember to have a few, but not too few, drivers with which to create scenarios. The drivers should also be simple, but not too simple.
The future brings with it both increased uncertainty and increased opportunities. If you can see what is coming, it is easier to adjust the plan to achieve your goals. Keep in mind that discussions about different options are often more valuable than figures. They create a better understanding of the different courses of action, risks and opportunities.
It can be easier to work with the drivers in order to impact the finances. It is often difficult to arrive at exact figures, but you can, in all probability, agree on levels that make it possible to have a productive dialogue. One tip is to combine a few main scenarios with statistical models in order to better understand uncertainty (e.g. Monte Carlo analysis).
5. HOLISTIC GOAL MANAGEMENT - THE OVERALL PICTURE
A holistic approach means realizing that the whole is greater than the sum of the parts, and that nothing can be described individually out of context. Here, strategic management comes in as a helpful tool for putting the work into context. These can, for example, be product launches, macro- and microeconomic conditions and competitors.
Instead of focusing on processes, goal management focuses on a company's management towards its goals. Strategic management is thus a way of decentralizing and operationalizing the strategic work to the individual and departmental levels.
Since you want the business to go in a certain direction, you must think about the motivation (talk about why you want to get there) and support this with a vision, a purpose and/or a mission. Direction is often more about words than figures and usually has a longer time horizon. The direction may not even need to be time-related?
Your employees will want to feel both a sense of belonging and a sense of autonomy. They will want to know that they are doing a good job linked to the company's goals and its future, and feel that their job contributes, that they can develop at work and understand the purpose of the work.
To succeed with this, permanent, business-related evaluation processes are needed that always include not only whether or not the goals have been reached but also how they were achieved. Evaluate continuously and think about how you do things, and separate evaluation from reward so as to create better learning.
Examples of targets and target categories you can use in your strategic management are: Financial and non-financial targets, measurable and non-measurable targets, and short-term and long-term targets. Remember to have only a few targets, but not too few. They should be simple, but not too simple.