It is February 16th. By now you should be finalizing your January 2012 P&L. What matters now, is what you do with the information. While one month should not cause you to make changes to your business plan, it is a data point in an evolving trend. Following are recommended activities —
Compare actual results to your planned results. In theory, these plans have only been around for 45 to 60 days. The actual for the month of January should be the closest to your plan than any single month in 2012. How do your January Actual Revenues compare to your 2012 January Planned Revenues compared to your 2011 January Actual Revenues? Complete this type of comparison for all p&l line items. Compute the numerical variance and distribute the data to the appropriate cost center manager.
The most productive process I participated in, included monthly meetings where cost center managers discussed revenues and expenses achieved in the current month, compared to the plan they developed, with the responsible executive manager. This approach was vital in creating an environment of accountability. The purpose of the meeting was not to brow beat the manager, but to understand if the budget created was unrealistic or a situation where subpar performance needed to be addressed. The greatest value in this process was to gather information from the point of sale, i.e. what was working vs. what was not working.
In some instances, a production shortfall in the current month will be made up in a later month. But sometimes that will not occur. After the first quarter, monthly reports should show four different comparison points, i.e. actual vs. plan vs. variance vs. forecast. This last value will provide executive management and the board with an accurate representation of what to expect in the current full year, financially.
If results vary widely from what was expected, the conversations during the cost center manager meetings gravitated to “what can be done to fix the shortfall” or “how do we prepare for the unexpected increased business we are experiencing, to ensure customer service does not suffer.” Many constructive ideas were borne out of these meetings.
After following this process for a few months, you should see a slight change. Managers will understand they are accountable for their respective cost center; and that process corrections are being implemented quickly and efficiently. Most importantly, executive management will be in the communication loop monthly.
Please share your thoughts.© Copyright 2012 Regis Quirin, All rights Reserved. Written For: CFO Tips - What you need to know, to be a CFO TODAY!