Each year you spend weeks with your team, building up your budget for the following year. Hours of discussions filled with critical decisions led you to a great plan. But the plan is only half of the job—what’s missing now is the execution.
The other half of the job, the execution, comes from real life. It’s what happens when your best plans meet against the reality of the markets. And if you choose the correct KPIs, you can easily see how you’re doing.
How do the actual figures look? How do you measure up against your budget?
Of course, for the business to be successful you need a great product and enough customers to buy your product. But aside from those critical operational aspects, transparently measuring and reporting variances is one of the keys to running a successful business. Indeed it’s not the variances themselves that are valuable—they’re only numbers in a table or charts on a dashboard.
The real value of solid variance reporting is rather the actions resulting from knowing how your business is doing. Regularly comparing against your baseline can give a pretty accurate indication of this. Good variance reporting can both keep managers accountable for their area of responsibility and highlight areas where improvement is necessary.
Tables and spreadsheets are a great first step for variance reporting, but charts and graphs allow you to really visualize what’s going on in the business. A dashboard-style visual approach to variance reporting can make your reporting more accessible to managers at multiple levels in the company—not just for the financially inclined.
Properly designed variance reporting also helps to highlight both challenging areas as well as segments that are really excelling.
Obviously, as important as having a visually compelling report is, you need reliable data behind it. To help you drive the business forward, variance reports need to be meaningful and representative of your actual situation.
To help make your dashboards really stand out, here are five keys to creating meaningful variance reports:
- 1. Efficient data flow
- 2. A meaningful baseline
- 3. Real-time reporting
- 4. Actionable insights
- 5. The ability to create custom reports
Mastering these five aspects of variance reporting will help you drive actions and decisions in your business. Who needs to do what, by when, in order to achieve the goals you’ve all agreed to work toward?
1. Efficient data flow
Surely you’ve heard the phrase, “Garbage in, garbage out.” Applicable to many facets of health and business, it’s especially true in financial reporting. Your tables and dashboards, even the decisions you make as a business, are only as good as the information underneath them.
While bad or incorrect information can lead to weak or even wrong decisions, clean data efficiently compiled through transparent data flows can keep your variance reporting lean. Jirav can integrate directly with multiple sources and efficiently pull the relevant data for your reporting.
Variance reporting that needs to be heavily analyzed with layers of cumbersome calculations presents a challenge. Complexity can drive inefficiencies or errors in your dashboards, leading to slow decisions.
2. A meaningful baseline
On the other side of efficient data flows from your actuals, you need a solid, meaningful baseline. Normally the baseline refers to the annual financial budget, but it could also be a forecast or a budget "high" / budget "low".
A meaningful baseline consists of targets that have been aligned with all members of the management team. The KPIs are coherent when broken down through the different functions and segments. For example, with an overarching goal of $100k net margin, your business needs to drive $500k in sales (KPI1) with an average of 20% net margin (KPI2). With everyone’s buy-in on the common goals, the targets are clear and the whole team knows what they are working towards.
Comparing against a disputed baseline throws up major roadblocks to efficient decision making. Discussion drifts from the actual situation to whether or not the target is actually the target. A clear baseline eliminates discussion about what the goals are and lets you drive improvements.
3. Real-time reporting
While some figures make more sense to analyze on a monthly level, i.e. personnel and real estate expenses, many can be analyzed in real-time. Revenue, margin, and other marketing KPIs can be reported continuously and reviewed instantaneously.
Variance reports which are updated in real-time allow for them to take on a scoreboard-like function. You can see how the business is progressing daily or weekly. Variance reports can be used to analyze marketing campaigns and for testing the efficiency of implemented changes. Real-time dashboards permit all team members to keep a finger on the pulse of the organization and how you’re progressing towards the goal.
4. Actionable insights
One critical aspect of measuring and reporting variances is to keep in mind that the reports are only as good as the actions they drive. The sole purpose of your reporting is to drive meaningful action. It gives you a chance to look at the scoreboard and see quickly what’s working well and what needs to change.
To keep your team focused, it’s best to keep your variance reporting clean and to avoid having too many targets. Ideally, pick several key KPIs per audience and keep them at the forefront. Of course, each team should in turn have their own reports, highlighting the aspects of the business over which they have control.
Driver-based modeling is also a useful tool for getting actionable insights from your data. Use variance reporting and projections to show the impact of specific missed targets. Allow these scenarios to drive action and focus on specific things each team can work on in order to right the ship.
5. Ability to create custom reports
Variance reporting is nuanced and needs to be customizable — both for the business overall and for each individual team. Because each business has its own specific opportunities and challenges, each business needs customized variance reporting.
Cater your variance reports to your audience’s specific needs and allow your teams to adapt their reports as well. Board members and investors need a different level of granularity than individual team members. Choose key, high-level KPIs for executive-level reporting, and give teams the ability to drill down for specific needs and segments.
Letting each team see both how the business is performing as a whole and to focus on their key metrics keeps them involved and shows them how their performance affects the business.
Keys to meaningful variance reporting
Good variance reporting can help everyone on the team stay up to date on how the business is performing. It allows you to regularly see how you’re doing in comparison to the goals of the organization — and to make necessary adjustments.
While these dashboards won’t solve any problems on their own, they will help you highlight problem areas. Use this information to drive actions to improve underperforming aspects of the business.
On the other hand, variance reporting also allows a forum for praising teams and individuals who are doing well and achieving their goals. Even these can benefit from better understanding which of their actions are working best.
Custom, real-time reporting of key KPIs can help you ensure you’re focusing attention where it’s needed the most.