Eide Bailly | Special to the NNBW
Monday, March 22, 2021
EDITOR'S NOTE: This article is adapted from the 2021 edition of Northern Nevada Smart Money, a specialty magazine of the Northern Nevada Business Weekly. Look for this article and others in the 4th edition of Smart Money, inserting for subscribers in the Wednesday, March 24, 2021, edition of the NNBW. You may also view the digital edition here.
Are you running your business off financial statements alone? If your answer is yes, you’re missing out on significant insights on the overall health of your business and operations.
Now don’t get us wrong, financial statements can be a great tool for the month-to-month management of your business. But in today’s uncertain times, every organization needs deeper visibility to manage performance and drive decision-making on a far more real-time basis.
This is where operational analytics can be a game-changer.
Bringing together both the financial and the operational management disciplines, operational analytics is increasingly becoming a tool of choice for the most successful organizations. Business leaders across industries are turning to this branch of analytics to more accurately forecast, plan and measure operations on a daily, real-time basis.
To truly understand the value of operational analytics in your business, you first need to explore the limitations of financial statements. Operational analytics addresses four key shortcomings of running on financial statements alone.
1. Leading vs. 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 only help you answer, “What happened?” reactively after the month has ended.
Operational analytics: Properly implemented operational analytics solutions 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.
2. Communicating with non-financial 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 immediately improve performance.
3. Timeliness
Financial Statements: By definition, financial statement reporting is limited to monthly, quarterly or annual reports. For most organizations, this is simply not fast enough. 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 (KPIs) in real-time. The simple fact is that more timely information will result in better decision-making by your team.
4. Diagnostic Detail
Financial Statements: In the hands of the right person, monthly financial statements can be an effective diagnostic tool to measure business performance. But no organization should be limited to only financial statements to measure their performance. A single data source does not make a comprehensive and diagnostic report.
Operational Analytics: Operational analytics provide not only high-level dashboards but drill-down capabilities that allow your team to “troubleshoot” your business. These capabilities have traditionally been limited to experienced 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.
Next Steps
Given the high-value proposition, every organization should have an action plan to implement operational analytics as part of its organizational arsenal. Organizations with successful strategies typically follow three guiding principles:1. Engage across the entire organization: Help get your whole organization excited and on the same page as you implement to drive more innovation and create a “data-driven” culture.2. Start small: Identify a handful of simple metrics that can be delivered with your currently available data and go from there.3. Adapt over time: It’s important to remember that operational analytics is not a project. It is a continuous process that drives your organization’s performance improvement efforts.If your organization is 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 business forward.This article was provided by the team at Eide Bailly in Reno. A version of this article was previously published on eidebailly.com.
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