This article was first published in the April 2016 UK edition of Accounting and Business magazine.

Most accountants’ analysis of the monthly or annual results has limited value and the analysis process has serious flaws, while other much more useful analysis has to go by the wayside. 

The only purpose of analysis is to promote the right decision, so if like most accountants you analyse the monthly results for managers and the board by waiting for the numbers casting your eyes down the ‘actual/budget’ variance column and then finding reasons for the big variances you aren’t adding much value. That is because the process is flawed, for the following reasons:

  • It is reactive. You have to wait until you get the results before you can start your analysis. In today’s fast-changing world that is far too late. Management needs to make decisions quickly to fix problems and maximise opportunities.
  • It doesn’t reveal problems or opportunities. If there is a problem in the fourth week of the month, you might not see a big financial variance until the following month, by which time the delay could be costly. Either that or the management has already fixed the problem, so you’ve added next to nothing.
  • It compares actual results against a budget that is almost certainly out of date or flawed. But you can’t say that in your analysis so you have to invent weird and wonderful, but plausible, explanations for the variances.
  • It is inefficient. Any queries you may have around variances are likely to require the appropriate department to dig out the paperwork, delaying analysis, interrupting work and adding little value, as the problem will already have been fixed.
  • It tends to make you write your analysis from a finance rather than the business’ perspective. In any case, the issue may well have caused variances in several line items of the P&L. So it makes more sense to analyse it from a business perspective so you can tell the whole story.

Worst of all, your analysis doesn’t do much for your reputation because it only provides the context for decision-making. Management makes few decisions based purely on your analysis of the monthly results, no matter how good it is.

So how can you help management analyse unexpected events and business situations clearly, concisely and quickly? Get onto it straight away by analysing:

  • what’s happened and why, and then quantify it, adding rigour to your analysis and to the decision
  • what the implications are, again quantifying the potential impact
  • what needs to be done to fix the problem or maximise the opportunity. Even if management doesn’t go with your recommendation, you’ve provided them with a better starting point for the discussion.

When your business undertakes an initiative, you can provide useful analysis as follows:

  1. Help work out how and when to carry out the initiative, including calculations of net present value, internal rate of return and the payback period.
  2. During the initiative, analyse its progress at regular intervals to help keep it on track. Essentially, you can work out whether it’s on budget, on time and achieving its objectives. If it’s going poorly, you can analyse what to do to get it back on track; if it’s going well, you can analyse if there’s anything the business can do to take advantage of that.
  3. After the initiative, if you are independent of it, carry out a post-implementation review to hold those responsible accountable and to learn for the next time.

All this analysis adds much more value than evaluating the monthly results (although of course those not so close to the business such as the bank will still appreciate analysis of the monthly figures, as it keeps them in touch with what’s happened) and enables you to make a real difference.

It means you need have a good understanding of your business and industry. If you have this, you can contribute significantly to ensuring that business managers and directors make the best decisions. And it won’t harm your reputation. 

Malcolm Simister is a chartered accountant and author of Accountants’ New World – The Essential Guide to Being a Valued Business Partner.