Why running off your financial statements alone doesn’t cut it
Nov. 16, 2021
This paid piece is sponsored by Eide Bailly LLP and originally appeared here.
Are you running your business off of financial statements alone? If your answer is yes, you’re missing out on significant insights into the overall health of your business and operations.
Financial statements can be a great tool for the month-to-month management of your business, but every organization needs deeper visibility to manage performance and make real-time, data-driven decisions. And in the face of uncertain times, periods of growth or change, your operational health and performance need to be laser-focused. But financial statements alone cannot accurately convey the truth of these key measures.
This is where operational analytics can be a game-changer.
Bringing together both financial and operational management disciplines, operational analytics is increasingly becoming a tool of choice for the most successful organizations. Business leaders across industries turn to this branch of analytics to more accurately forecast, plan and measure operations on a daily, real-time basis to not only stay ahead, but also to help them drive strategic growth and respond to change.
Comparing operational analytics and financial statements
To truly understand the value of operational analytics to your organization, you first need to explore the limitations of financial statements. Operational analytics addresses four key shortcomings of running on financial statements alone.
- Leading versus lagging indicators
Financial statements
Standard financial statements provide details of what happened during the previous period. This is a very useful method of measuring performance; however, financial statements are a “lagging” indicator. They can help you answer only “what happened?” reactively after the month has ended.
Operational analytics
Properly implemented operational analytics solutions, on the other hand, provide your team with real-time and “leading” insight into your performance. Operational insights can predict what your financial statements will say about your results before the end of the month. This allows you to ask the question “what will happen?” and explore “why did it happen?” proactively and prescriptively in your business. Operational analytics provides the opportunity to actively change your results.
- Communicating with nonfinancial leaders
Financial statements
CPAs and accountants are highly educated professionals, trained to properly read financial statements. But in most organizations, your entire executive leadership team is unlikely to have a financial background. This means a large portion of your core decision-makers is ill-equipped to run the business effectively off financial statements alone.
Operational analytics
Operational analytics solutions allow you to customize the medium to your audience. Highly contextual reports can be designed to tell customized stories with data that is relevant to each department or leader. Operational analytics provides your team with actionable insights that can be used to improve performance immediately, rather than waiting for that information to flow through your month-end statements.
- Timeliness
Financial statements
By definition, financial statement reporting is limited to monthly, quarterly and annual reports. For most organizations, this is simply not fast enough. Speed of insight is an essential business requirement to remain agile in the face of growth, change or uncertainty. When your business is relying on the right information to make timely and accurate decisions, waiting is not an option.
Operational analytics
Implementing a modern operational analytics solution includes the ability to monitor key performance indicators in real-time. The simple fact is that more timely information will result in better decision-making by your team – and better decisions create better results. Those monthly financial statements will look a whole lot better with the addition of operational analytics in your teams’ hands.
- Diagnostic detail
Financial statements
In the hands of the right person, monthly financial statements can be an effective diagnostic tool to measure performance. But in this digital era, no organization should be limited to only financial statements to measure its performance. A single data source does not make a comprehensive and diagnostic report.
Operational analytics
Operational analytics provides not only high-level dashboards but also drill-down capabilities that allow your team to “troubleshoot” your operations. These capabilities traditionally have been limited to resources with years of experience relying on “gut feelings” or a highly skilled accountant to properly infer results. Now, you can provide knowledge directly to your team, empowering a whole new level of informed business planning.
For any team to reach its full potential, they need to be empowered with timely information to make better decisions, faster. If your organization is limited, managing performance with lagging financial statements – constantly asking “what happened?” – now is the time to implement an operational analytics solution focused on putting control back in your hands and leading your organization forward.
Not sure where to start? We can help you figure out how operational analytics fits into your data strategy. Learn more.
