Why don’t our reports match?
Date: 5 December 2021
Category: Product News
When recently speaking with the CFO of a new client one of his biggest day to day problems in the
business was “Our reports don’t match each other so we don’t believe any of them”.
We have heard this time and time again and it’s a big issue with data reporting.
Let’s take an example from Insurance and measure the amount of sales.
Insurance companies sell “Policies”. A sales department might target themselves with a number of new sales each day.
Discrepancy 1. The words “sales” and “policies” are used interchangeably around the office and individual reports might count sales transitions or policies sold. But a few sales transactions are for more than one policy.
Whilst the sales department is rightly obsessed with their daily achievements other departments take a longer term view.
Discrepancy 2: Cancellations do not figure in daily “New Sales”, but they do in monthly totals.
So the Month Total is different from the sum of the daily New Sales.
Now we move to money. Sales can be measured by Volume or Value. Premium being the jargon word for sales in money.
Discrepancy 3. Premium is received and refunded for Endorsements (insurance jargon for changes) to policies sold in the past. New Sales reports exclude Endorsements. Some reports include endorsements at the date of endorsement, whilst other reports include endorsements at the date of sale of the original policy.
Most industries have a time lag between making a sale and delivering the product. The insurance
equivalent of delivering the product is Claims.
Discrepancy 4. Cash flow reports have Sales this month less Claims this month. However profitability reports have Claims subtracted from the month of the Sale of the Policy. (Insurance usually measures Loss Ratio which is Claims divided by Premium rather than profit as an absolute number.)
What is the solution?
Every department has a reason for presenting the information in a particular way: daily sales, cash flow, loss ratio, statutory accounts, etc. In cross-department meetings it is no surprise that no-one trusts anyone else’s figures.
The solution is to establish “Gold Standards” which are measures that are precisely defined and agreed throughout the company. Gold is the symbol of quality and stability, being chemically the least reactive of all metals. Gold Standard Measures are stable between all reports. Gold Standard. Our Insurance company might have a gold standard of “Premium”, which is a complete definition. Simple definitions make good gold standards.
Every report reconciles to a gold standard, either by showing the gold standard as an extra column or by a reconciliation summation.
Example. Daily sales would show
Daily Sales £49,832 (the figure of interest)
Cancellations (£2,175) (reconciliation)
Endorsements £3,290 (reconciliation)
Premium £50,947 (the gold standard)
Note that the gold standard is displayed in reverse colours “mimicking a bar of gold” Why Your Reports Don’t Match When recently speaking with the CFO of a new client one of his biggest day to day problems in the business was “Our reports don’t match each other so we don’t believe any of them”.
We have heard this time and time again and it’s a big issue with data reporting.
A key piece of information that every business always needs to know is the amount of business being transacted. That is a good example for egr_udfval.udfval_strxploring report consistency. The concept applies to every organisation. Whilst I will use Insurance today, the example can be adapted to any industry.
For the benefit of non-insurance readers the jargon is: Policies are what is sold; Endorsements are changes to Policies; Claims are the product cost For example in Insurance it is important to know how many policies are being purchased at any one time, any endorsements/changes, as well as how many claims are being made. For example the monthly sales report may include purchases, returns and cancellations, whereas the daily report only includes sales. This causes a discrepancy.
How much business has actually been done this day/week/month?
Let’s look more closely at the Sales department reporting. In their daily conversations they use “Orders” and “Widgets” as the volume measure interchangeably, but a few orders are for more than one widget. Discrepancy no. 1. The daily sales report does not include returns or cancellations, but the monthly report does. Discrepancy no. 2. In sales department speak “orders” means for complete widgets. For dispatch and accounts “orders” includes spares & accessories. Discrepancy no. 3. To jump to the accounts department, some customers are invoiced and pay at the time of order, other customers are invoiced at the time of dispatch and pay eventually. Discrepancy no. 4. How much business has been done this day/week/month?
- Discrepancy 1
The time difference between Order and Dispatch, however that manifests itself for the organisation, is usually well understood and reports structured around it. In fact such data is usually a matter of constant operational scrutiny. But that still leaves many discrepancies in how “business amount” is measured. The solution is to agree “Gold Standards”. Usually money turnover is one. Frequently a volumetric measure too. For our manufacturers volume would probably be Number of Widgets. Gold Standards are precisely defined. Then every report either includes a relevant Gold Standard or it includes a reconciliation to a Gold Standard.
Example of a reconciliation for the daily sales report, which is whole widgets ordered, would be to show a report total, total of returns & cancellations, total of spares & accessories and a grand total, which should match the Gold Standard total.
