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3 questions to answer before report design

3 questions to answer before report design

  • Jamie Black
  • 12 April, 2016
  • Style & Substance
  • minute(s)When finance is asked to prepare a new report or redesign an existing report (financial statements, budget book, quarterly forecast, MD&A, etc) the decisions made can dramatically impact understanding.   In our experience, formally dealing with these decisions (the design stage) is rare. As we have discussed in Style & Substance before, there seems to be little formal direction on how to design reports. Combine this lack of direction with an abbreviated, overlooked design process, and you run the risk of having some fundamentally flawed reports; reports that confuse, distract and obfuscate the data.  When tackling a new report or re-developing an old one, these three questions need to be asked during the design phase: Who will use the report, What must be reported, and How should it be presented This article examines this best practice for communicating financial information and why adhering to it is essential to improve your financial reporting.  Question 1 - "Who" Knowing who the likely user of the report is, should make a critical difference in report design decisions. For example, if the likely user is the senior management team, perhaps very general introductions and explanations are unnecessary as you can be certain they have great knowledge about the organization.   On the other hand, if the users are likely to be non-finance experts, new to the organization (newly elected council members for example), or external to the organization, then the use of jargon or omitting general introductions or explanations may well be unwise. Are the users technologically adept? If so, providing the report electronically may be the best option. Electronic distribution is especially powerful if the board/council will want to make & share notes, and create action items based on the report.  On the other hand, if the user is not comfortable with technology, a well crafted, printed document is likely a superior choice.  Why does technology matter when designing a new report? If the destination is paper & ink, then you are bound to designing a report to fit on 8.5" x 11" paper, printed in portrait orientation. If the ultimate destination is an iPad or a computer screen, you may be able to abandon these constraints.  Question 2 - "What" The first, most fundamental "What" question is "What answers are readers trying to get with this report?" This is an absolute prerequisite before creating the report.  Consider some examples - If finance is reasonably confident that users of the report are looking to understand profitability, they will tailor the "What" to show the variables that are most explicitly tied to profit. In many cases, this is where finance's expertise comes in. Likely their experience means they have a very clear understanding of the relationships that affect profit. Now is finance's opportunity to leverage the report to communicate their knowledge to the user(s) of the report.  If you are in the automotive sales industry, you might know that region, and product category most directly affects profit. You would then omit or summarize data if it confused the topic. Thus the design must allow the user to see the relationship clearly. Do they need to know how much budget is available for a specific department, fund or program? If so, this information should be displayed with priority. Too often reports are generated without first establishing very clearly what answers the user needs. If this failure occurs, end users of the report are often left to dump a report out to Excel to manipulate the data to find the answers they seek themselves.  The next step in report design is asking, "What data should be included in this report to answer the readers' questions?" Our experience is these sorts of questions are fairly straightforward and easily answered by the finance team. Examples include: What type of data should be presented? Actuals, Budget, Forecast or all three? Revenues, Expenses, Operating, Capital What date range will this report cover? Current Year to Date, Current Period, Prior Year(s) What level of detail must be presented? Individual GL accounts? Or should the accounts be grouped on some basis? Question 3 - "How" For finance professionals, the "How" can be more challenging. This is because formal training on how to present the data and how presentation choices can affect interpretation is not commonplace. Consequently the answer to "How?" is often "Let's throw the data in a table with several columns and rows. That'll satisfy them!" As a means of helping our would-be report creators, here are some guideposts (at a high level) for how best to present our data. There are 3 different devices we might use to communicate our message: Tables: A table encodes quantitative data as text. Table are the right choice when: the exact value is important. For example, budget officers might need to know that Public Works is precisely $101,985 over budget. comparison of exact values is important. there are multiple units of measure to be displayed together. For example, the quantity of 911 calls, dollars of expense for the Policing department and variance against budget as a percentage.  Graphs: A graph encodes quantitative data visually. They are best used when: the message you wish to communicate is best understood in patterns, relationships among and between quantitative values & exceptions.  there is no need for precise numbers or to compare individual values. For example, budget officers only need to know that Public Works is approximately $100k over budget. there is a need to show much more complex relationships. vary large data sets must be presented. Narrative/Text: Complements graphs and tables. Consider using narrative text to: Introduce a topic, a problem, a business process or other item the reader might not be fully conversant on.  Explain the graph or the table so the reader does not miss any nuances. Highlight or calling out a particular point in a table or graph. Label a particular data point in a graph, or columns or rows in a table. Recommend appropriate next steps or actions. In subsequent articles, we will delve deeply into Tables, Graphs, and Text to layout their use and how they fit into the best practices in financial reporting. If you are interested in further reading on these topics we strongly recommend a couple of authors who have fundamentally informed & challenged our opinion over the years. Stephen Few & Edward Tuft are both incredibly insightful and helpful on all topics associated with communicating complicated information. As an added bonus, the hardcover versions of their books are very close to works of art!
When finance is tasked with creating a new report, best practice for financial reporting says there are 3 essential questions to answer before you begin.
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Best practices for communicating financial information

Best practices for communicating financial information

  • Jamie Black
  • 24 March, 2016
  • Style & Substance
  • minute(s)Our appetite for reporting is insatiable. Every time finance professionals turn around there is some new disclosure required. Non-finance folks often do not appreciate how much work each new request entails. After all - designing the report and obtaining the right data is often a great deal of work and there is no magic shortcut (once the design is done however there are tools that can dramatically accelerate the generation of the reports). When designing some reports, we are constrained by a financial reporting standard (PSAB, GAAP, GASB, IFRS etc.). These standards are very prescriptive; they guide professionals about what data must be presented and how it is to be presented.  What about those other reports you prepare and present that may not have such absolute standards to guide you? Reports like the budget book, management discussion & analysis (MD&A), and quarterly variance reports are often complex documents full of images, graphs, tables and narrative that must combine to tell a comprehensive story to the reader. Where do you get direction on what these reports should look like and what they should include? Very often the What is based on broad guidance from an authority (GFOA perhaps), past experience, custom, what your competitor/neighbor has done and your understanding of reader preference.  Significant weight is often given to recreating the same information which appeared in past iterations, especially when presenting to board/council that are not finance experts. Our experience tells us your recipe starts with "that's what we have always done", and is updated based on the questions your receive from council or board of directors.   And the How? The answer is the same as for the "What", supplemented by the Communication department. In many organizations, there is a Communications department that specifies fonts and spacing guidelines and such. Despite these "guides", there are still a lot of questions left to the finance professional to answer: Should you use tables, graphs or prose to communicate a particular point? Is a pie, bar, line, column, area, scatter, bubble, doughnut or radar chart/graph best in this situation? What colours should we use in our charts/graphs?  Should we put labels in the chart/graph, below in a legend, or both?  Finance professionals who are given the responsibility of making these decisions may not be well-trained in the How, and your choices will affect how the data is read and understood. Consider the graph below: Is the reader now likely to better understand your data as a result of this graph? Unequivocally, "NO" is the answer.  These decisions are far too important to leave to the flip of the coin or a personal sense of style, especially if you are presenting financial data to non-finance experts.  In this series, we will provide finance officers with best practices they should employ when presenting financial data. We will explore many of the Do's and Do Not's and will endeavor to show examples (good and bad) to illustrate the point. For example, not sure why we say the graph above is horrible? Continue reading this series and you will learn this and much more! To make sure you do not miss any of our Style & Substance posts, be sure to sign up for our blog today. 
Finance officers are often unaware of the best practices in communicating complicated information. The result can be confusion, and poor decision making.
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