Visualisation: Helping FP&A Improve Business Performance

The first thing that happens in our organisations is results. Whether we know what they are or not, results are happening constantly – products are being sold, components being made, web pages clicked on, patients treated and cash is changing hands. This is the fundamental activity of businesses, whether they are profit-seeking or not.

What happens next? We measure these results. Accurately or approximately, rapidly or slowly, we try to measure what’s going on.

We then analyse these measurements to see whether we have a problem or not. Our analysis might be simple – a 10-second review of the bottom line, for example – or it could be more profound. What is happening to the underlying business drivers affecting our results? What insights can we gain from the measurements we have collected? Unless we analyse to some extent, our measurements will be wasted.

After this initial stage, our analysis needs to be communicated to the managers responsible for controlling the results. We need to open up the dialogue process to ensure that the insights and key messages are getting across – and that the analysis is refined with the benefit of the line managers’ real-world understanding.

Once our analysis is understood, managers need to evaluate the alternative courses of action that can be taken and achieve commitment on what should be done. Finally, commitment has to be turned into action before results can be improved.

This simple feedback loop is the ‘business performance cycle’ and it is shown in Figure 1 below.

Figure 1: Stages of the Business Performance Cycle
 

Business Performance Cycle

In order to rate the effectiveness of our organisation at each stage of the business performance cycle, we could assign a score out of a possible 100% for each stage in the diagram. How would we then calculate the overall effectiveness?

The most important thing about the cycle is that each of the steps is a necessary precursor to the next. We cannot have analysis without measurement and we cannot have action without commitment. In a causal chain such as this, each step is dependent on the success of the prior activities. If one step breaks down completely, the whole cycle is broken.

Therefore, our business performance cycle effectiveness is not the average of the individual scores, but their product instead. For example, if our scores were:

 

  •  Measurement 80%
  •  Analysis 40%
  •  Dialogue 30%
  •  Commitment 60%
  •  Action 85%  

our overall effectiveness score would be 80%*40%*30%*60%*85%; or just 4.9%.
 
The key lesson from this analysis is to focus our efforts on improving the lowest scores.

If our competence at measurement is already running at 80%, rather than trying to make this perfect perhaps our effort would be better spent by improving dialogue, which scores only 30%. After all, we cannot double our effectiveness when we are already at 80%; however, improving dialogue by 20 percentage points from 30% to 50% would increase our overall effectiveness from 4.9% to 8.1%.

The same percentage point increase in measurement, from 80% to 100%, would improve our overall effectiveness to only 6.1%, and – according to the law of diminishing returns – would be much harder and more expensive to achieve.

Visualisation: A Tool to improve the Business Performance Cycle

Visualisation offers a powerful technique to help FP&A teams improve the effectiveness of the business performance cycle in their organisations. To quote Alberto Cairo of the University of Miami, who writes about it on his site‘The Functional Art’, visualisation is “a tool for communication, understanding and analysis, delivering visual representations of data and phenomena that reveal things that the bare eye would not be able to see otherwise, designed in ways the human brain can easily understand, for example through their shape.”

Visualisation is not a new concept. FP&A professionals in most organisations have for many years recognised the value of using well-designed charts and graphs to identify and communicate insights. However, the development of specialist visualisation software and the emergence of Big Data have initiated a new wave in this area.

So how can visualisation help improve each stage of the business performance cycle?

Measurement

Measurement is not just about financial performance, but also about key non-financial factors. Hold a business driver workshop with your key stakeholders and aim to achieve consensus on the most significant measurable drivers that affect your bottom line outcomes. By setting out driver relationships in a cause and effect visualisation, you will build understanding of what the most important measures of performance are in your business. This will enable you to prioritise efforts to build a comprehensive set of performance metrics, identify any gaps that need to be filled and focus your improvement efforts on getting better measures in the most important areas.

Analysis

Visualisation is a powerful tool for exploring your data to search for significant facts and make sense of the business insight contained within. Trend, variance and exception analysis can be conducted comprehensively and automatically, using modern visualisation tools linked to an intelligent data mart, without the need to handcraft unmaintainable spreadsheets.

Dialogue

Visualisation is an important means of communication that can really wake people up. Insights presented visually are processed more rapidly by the brain than conventional tables of numbers, enabling rapid mutual understanding. Each visual analysis must provide a clear answer to a business question, and do so in the simplest possible way.

Commitment

Visualisation has a powerful role to play in the business planning process, through which managers commit to the budgets, targets and plans that steer their actions. Enabling line managers to evaluate draft plans using visualisations at the time they are produced results in targets of better quality that have a higher degree of buy-in.

Action

Receiving immediate feedback on actions taken through a rapid and effective business performance cycle is important in ensuring that plans are followed through or explicitly revised if a course correction becomes necessary. Visualisation provides powerful tracking tools which, when combined with data transformations such as moving annual averages, enables turning points in performance to be rapidly identified.

Conclusion

FP&A professionals improve the performance of our organisations by influencing line managers to take appropriate action, and we do so through each step of the business performance cycle. Optimising this cycle requires identification of each of its individual steps, where an improvement focus will yield the most benefit for the effort and cost involved. Visualisation is a powerful enabling technique that has applications in improving every step in the business performance cycle.

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