Gathering data is a part of business. From needing financial data to produce accounts that are submitted to statutory bodies like the ATO to reviewing your sales data to see how many widgets you are selling, every action in a business produces it and systems are generally in place to capture that information.
The information collected by a business can be a key source of knowledge to be used to assess potential changes and improvements. It can also be used to compare your performance with targets (budgets), historical trends and the performance of competitors and industry participants.
Despite the obvious advantages data brings, correctly using it can be a difficult balancing act. You might know the name of each customer that enters your store, but do those customers really want a salesman they have never met greeting them by name? Some data needs to be paired up with personality and put into context before it can be used effectively. Similarly, you might have data detailing sales for 30 sub-departments within a retail store, but when is the data too useful for its own good and you end up micromanaging details and losing sight of the bigger picture (and profits)?
When looking at the data a business has available, I like to rate it using a ranking coined “the Goldilocks principle” – based on the fairy tale of Goldilocks and the Three Bears. In the fairy tale, Goldilocks tastes three bowls of porridge, finding she prefers porridge that is neither too hot nor too cold, but has just the right temperature.
The same idea can be applied to the data gathered from a business. You want the right type, amount and detail of information necessary in a report to maximise effectiveness for you as a user, while minimising information overload and redundant information (“too hot”) and avoiding incomplete and inaccurate results from not using enough data (that can be seen as “too cold”).
What does it look like when your information is “too cold”?
To define a report on the financials of your business as “too cold” means you are either not collecting otherwise available data or having trouble extracting the right data from the systems. The lack of information might not be obvious at first but once you try to compare against an industry benchmark or past or planned outcomes you may quickly realise the data that has been gathered is lacking in one respect or another.
You may for example extract data for completion of your BAS requirements but fail to analyse that data for performance appraisal because it is extracted in a manner that is suitable for tax reporting but lacks the depth for performance reviews.
You may be able to conduct a top-down review of sales volumes but miss the opportunity to determine the reasons behind sales growth or contraction at a deeper level.
In this example, a comparison on a stores departmental sales is being made to an industry benchmark. The lack of available information leaves the comparison lacking. The data is from different levels of depth, and cannot be compared in this context with any relevance. As a result, little if any knowledge can gained from the comparison.
How can your use of information become “too hot”?
You would think that having more and more data to review is never a bad thing. It provides the opportunity to review details of a business through multiple levels of detail and if you use my grocery store example from above means you can follow down the chain, splitting transactions down in depth. This allows you to examine unit and divisional performance and the effectiveness of your resource allocations.
Too much data however exposes you to the risk of having conflicting conclusions and can result in each set of data not being given enough intellectual space to allow it to be properly examined. You may end up with raw data that does not reveal valuable management information or you may be drawn to data sets that lack enough relevance to justify their own existence in a performance report or even draw your attention away for other more telling analytics.
An abundance of data can look impressive but may end up being more of a hindrance than a help.
Use the information you really need to make it “just right”.
So far we have discussed how reports that lack adequate detail can result in lost opportunities to gain knowledge form readily available data. Similarly, there are other reports that provide so much detail that they may lose their relevance and simply waste the readers time or draw a reader to an incorrect or erroneous conclusion.
What you want to see in a financial or management report is that happy middle – the Goldilocks region of being “just right” – where the reports created for your business provide just the right level of information and depth to influence the viewer and positively impact your business health. By accessing the full depth of data available and then filtering, summarising and re-configuring for relevance and readability as a set of valuable management reports, the business owner is then able to identify the messages it is conveying.
The team at Abbotts knows how to collect and utilise the information created by your business and in consultation with you can produce customised management reports that identify the key revenue, expense and capital drivers that define your businesses success.
If this sounds interesting and you would like to know more, please get in touch with us using one of the forms on our website, via email at recep@abbotts.net.au or phone us at (08) 9321 2642.
