When management asks for advice on profitability, the first useful step is rarely analytical. It is to look at what the management team actually receives each month — and at how long after month end they receive it.
The report defines the conversation
An organisation cannot manage what its reporting does not distinguish. If costs are aggregated above the level at which decisions are taken, the monthly meeting will discuss the total and change nothing. If non-performing units are consolidated into a healthy average, they will continue to be funded by the units that are working.
This is why business advisory work so often begins with the data structures and processes that generate management information, rather than with the strategy. Re-engineering what the numbers show is frequently the intervention with the largest effect on what gets decided.
Three questions worth asking
Does the report reach the level of the decision? If a manager is accountable for a unit, the reporting has to isolate that unit. Accountability without visibility is a formality.
Does it arrive while it is still actionable? Information delivered six weeks after month end describes history. The same information delivered in the first week describes a situation that can still be influenced.
Is anyone required to respond to it? A report that generates no decision is a cost with no return. Either the reporting should change or the meeting should.
Systems, then policy, then habit
Durable improvement usually needs all three. The financial and cost accounting systems have to be capable of producing the distinction. The policies and procedures have to be documented so that the practice survives a change of staff. And the management routine has to actually use the output.
Advice that stops at the first of those has produced a better report. Advice that reaches the third has produced a better business.
