Data-Driven Decision Making (DDDM)
Digitization and globalization are trends that, while external to organizations and business decision makers, are effecting change within virtually every industry on multiple levels. Increased transparency and communication of information between customers and organizations, as well as organizations and partner organizations, has the potential to redefine how organizations interact both with internal stakeholders as well as external partners and customers. Obviously, business decision making and strategic planning are critically dependent on high-quality information that is produced on a consistent basis that can be compared to both internal benchmarks and external competition. Integrated reporting and the growing importance of broader swaths of organizational data are clear examples of how important these trends are to management decision making. Financial information, clearly, along with other quantitative data and information, are necessary for senior management to plan the course for the business moving forward, but it is important for organizations to also integrate nontraditional information, and this includes governance, sustainability, and other types of organizational information.
Big data and analytics have fundamentally reshaped the way organizations interact with both other organizations and customers. In short, the vast increases in information available to the management decision makers require that organizations evaluate opportunities, plan for future development, and make decisions on a continuous basis. Accounting, accounting analytics, and the way in which accounting interacts with other functional groups are bound to change, and the priority for professionals must be able to integrate data and analytics into accounting decision making and planning. It is difficult to forecast or summarize the specific ways in which big data will impact accounting practices, and the accounting profession, but there are several areas that are clear ways in which increased data analytics will drive decision making. Specifically, reporting off-balance sheet assets and other types of information, including but not limited to governance and sustainability data, represents ways in which increased data can help accounting deliver increased transparency to the decision-making process (Warren, Moffitt, and Byrnes 2015). The facts associated with this conversation and research do not appear to be open for debate. Analytics, increased demands for information, and a multiple stakeholder approach are trends that continue to shape the business environment. What remains, however, is how, specifically, accounting professionals can implement such ideas and concepts into day-to-day functionality.
Accounting professionals can take several steps to proactively engage both the senior leadership of the organization in which they work as well as building an increasing professional footprint in areas not traditionally considered or ranked within the purview of accounting and finance. Linking analytics to business problems, drilling down to specifics, and building bridges between analytical information and the challenges facing organizations are several ways in which accounting professionals can assist in making data more understandable (Hagel 2015). Being able to, in real time, collect and analyze information that is generated by the organization, and interpret that information for business decision making, is a critical aspect of management accounting and finance that must be expanded upon, and utilized further as the business environment continues to evolve and develop in a globalized context. Perhaps, the development and further integration of accounting professionals with the information technology function are most important. Extracting and implementing innovative and creative solutions for financial reporting needs lie within existing competencies and strengths of the accounting and finance function.
Moving from generalities and drilling down to specifics as to how such issues can be implemented in organizations represent both an extension of the increasing role accounting and finance professionals play in information technology initiatives, as well as the importance of adopting a strategic headset, and a common theme emerges. Strategic thinking and planning, discussed throughout this piece, is clearly a transition that is currently occurring within the marketplace. This change must also be acknowledged and, more importantly, translated into meaningful actions for accounting professionals. Linking together operations, senior decision makers, and the financial information that underpins decision making represents an area that is of growing importance, as indicated by the proliferation of integrated reporting as well as the rise of more rapid decision making.
Business is increasingly digitized, with virtually every business transaction able to be reported and analyzed on a real-time basis. The reality of this situation necessitates that accountants must be able to take part in these discussions. Whether it is just utilizing advanced Excel techniques, mastering predictive analytics, or integrating analytics into graphical presentations, the underlying message is the same. Data and information are used to make business decisions, and the more effective accounting professionals are at processing and analyzing data the more effective leaders accounting professionals will become.
Accounting and Analytics
Accounting, largely, generates value for the organization by producing and communicating information that travels from the front-line, or interactions with customers, to senior-level decision makers. The importance of real-time data, information, and analytics is apparent as organizations must be able to respond to changes in the business environment and proactively seek out new opportunities as market conditions dictate. Stakeholder requirements, put simply, are a driving force behind the creation of frameworks such as integrated reporting. In order to fulfill these requirements, however, it is necessary for the accounting profession and practitioners to modify current skills, and develop new ones. Stated another way, the pace of business and decision making has increased dramatically, and accounting must keep pace. In order to take advantage of the increasing digitization of business activities as well as the increasing importance of data and analytic information to business decision making, accounting professionals must be able to frame analytics and data analysis in a format that is usable and understandable to end users.
In addition to changing and altering how accounting professionals generate and analyze data from an internal perspective, the ramifications of data and analytics are redefining how audits, testing procedures, and other testing are done moving forward. While organizations are generating increasing volumes of data, reporting said information, and utilizing this increased volume of data to make decisions, it is only logical to conclude that the audit process will have to evolve alongside these changes. Substantive procedures and testing will, eventually, evolve and integrate the rapid advances in technology that are driving business innovation throughout various industries (Ramlukan 2015). Establishing a virtuous cycle of improvement and learning is a logical step that should be implemented. One such implication of big data, and the influence of analytics of audits, is the ability of auditors to understand and provide increased operational insights to management teams (Murphy and Tysiac 2015). Management accountants must endeavor to ensure that such expectations are fulfilled for auditors and other external stakeholders.
It is one matter to simply perform analytic procedures and generate information as a result of the analytic tests and procedures, but it is entirely another matter to package that analytical information and results into a format that is able to be interpreted and used by a wide range of managerial decision makers. One possible way to approach this challenge, the challenge of turning quantitative data and statistical results into actionable business intelligence, is to be able to understand and frame the results of the analytics in such a manner that is comprehensible and applicable to current business problems. A common complaint from the practitioner perspective is that while the analytics are impressive, the underlying connection to the business issues facing the organization might be tenuous at best. Bridging this gap, between what is produced by practitioners and the organization, is a key aspect of what strategic management accounting (SMA) is attempting to accomplish.
Accounting Strategy and Analytics
Data-driven decision making (DDDM) and the importance of analytics to business planning might, at first glance, appear to be a relatively straightforward area to discuss. Clearly, organizations and senior management teams require information to make informed business decisions, and the responsibility of generating and reporting such information falls with the quantitative divisions of the organizations, including accounting and finance. That said, the application of analytics and big data to organizations and organizational decision making is not simply the application of tools and techniques to raw data and the production of tables, statistics, and other quantitative information. Big data, oftentimes, is associated merely with the crunching of information and production of statistics, but such behavior does not generate business value for any of the stakeholders involved in the conversation. Big data and analytics, rather, should focus on the application of analytical thinking and techniques to the assessment and understanding of business problems and opportunities. In order to do that, however, and fully realize the benefits of analytical processes, big data and analytics must be thought of in a more comprehensive format.
Looking at the concept of analytics and business process management at a higher level, it is evident that, at the core, analytics should be focused on and leveraged to assist management in understanding what is driving the business forward. In order to best effect change and implement data analytics in organizations, accounting professionals must possess technical skills, and an understanding of the broader business content ( Tschakert, Kokina, Kozlowski, and Vasarhelyi 2016). Specifically, as it pertains to adding value to the business decision-making process, analytics and big data should be used to help users understand the underlying causes of operational variances and ongoing issues. For example, organizations are continuously looking for new opportunities to generate incremental revenue, but in order to generate this revenue, management must be able to understand customer trends, demographics, and industry factors that will influence the outcome of these decisions and initiatives.
Accounting professionals are tasked with creating and reporting on current results, and ensuring that past operational performance is reflected accurately in the financial statements disseminated to external users. In order to expand the role played by accounting and finance, however, practitioners employed within these fields must recognize the following reality. It is insufficient to recognize that trends are occurring— organizations must be able to explain why they are happening and what the future impact will be on the business. Predicting the future is inevitably a complicated and multifaceted process fraught with stumbling blocks and obstacles. That said, there is no reason to not apply logical analysis and business sense to bring clarity to the situation. Regression analyses, for example, which help narrow down and specify which factors contribute the most to a particular result or event occurring, can be especially helpful in this regard. In essence, what the role of the accounting professional should be, in terms of data analytics and big data, is to assume a leadership role as that of the data expert. This might, at first glance, appear to be a stretching of traditional roles and responsibilities embraced by the accounting profession, but that is an accurate statement.
Using the Strategic Headset
In order to fully encapsulate and represent the evolving nature of the profession, it is important for accounting professionals to recognize the effect of accounting data and information on an organization. SMA, leveraging the framework of integrated reporting, enables accountants to fully embrace the growing amounts of available data. A business environment increasingly driven by nonfinancial, qualitative, and global issues requires a management style that is slightly different from managerial styles and theories utilized in the past. Specifically, organizations and management teams must be able to differentiate between information related to operations that must be further analyzed, and data that is best left to staff and managers at other levels to address. The key driver of business decision making, clearly, is the data generated by the organization as a result of operations. Organizations, regardless of industry or whether they operate in a for-profit or not-for-profit environment, have a common goal and objective. Every institution must generate more resources than its consumers, as a result of operations, and accounting professionals can and should assist management assess the feasibility of different plans to accomplish this objective.
Linking back to the importance of strategy and organizations, the global nature of business, and the reality that business moves and evolves and ever-increasing rates necessitate a strategic planning process that is streamlined, able to be changed, and that is augmented by periodic updates and additional information. Geopolitical risks, currency changes, and impacts originating from the volatile nature of commodity prices represent items that can, and should be, modeled for and explained to upper management. This is not to imply that these initiatives are not already occurring with many organizations already expending a large amount of financial and human capital to complete such items. That said, and herein lies the link between strategy and SMA, it is critical to bridge the gap between quantitative analysis and business management. Stated in a different manner, the information must be presented and composed in a way that makes sense to the individuals receiving it.
In order to successfully broaden the base of advocates and gain the support of a more strategically oriented accounting function, it is imperative that there are clear connections among the data analyzed, the information presented, and business challenges facing the organization. There are several ways in which the data can be presented and communicated that assist in establishing this connection, and ensuring to do this reinforces both the importance of the data as well as the credibility of the person delivering the data. First, and a relatively straightforward step, is to embed the results of analytical testing into graphical representations, flow charts, or some other type of visually appealing format. Managers, even those quantitatively oriented, do not ordinarily want to stare and digest a presentation composed exclusively of quantitative results and data. Second, and arguably the most important step in the process, is to clearly link, possibly with a text box or other direct sign, how the data presented pertain to the specific management issue and problem at hand. Which-ever specific method is prescribed, however, it is important to remember that, to ensure validity as a strategic business partner, accountants must also be thought of as data experts.
Data Experts
Building this bridge, between the information entering the organization and the data utilized for managerial decision making, is a critical step in the transition and evolution of the accounting function to one of a strategic accounting function. In essence, this transition represents the reality that accounting professionals are increasingly tasked with mastering and reporting data for stakeholders. Stated a different way, accounting professionals must become data experts and be able to interpret information in ways that are meaningful and applicable to decisions. An evolution such as this, from historical financial reporting to that of continuous and real-time analysis of organizational data, requires several factors to be present and contained within the decision matrix, as well as an adjustment in how accounting professionals interact with, and present themselves to, other members of the organization.
Drilling down specifically to steps and policies that can be implemented to assist with this transition, several practical items arise as possibilities that can be applied on an overall basis. While industries and organizations differ, clearly, there are commonalities that are present in every organization that can be applied to aid accounting and financial professionals in this endeavor. Perhaps, the most important fact is that if accounting professionals wish to engage in more strategic decision making, they must be able to advocate successfully for assuming such a role. The ability to write, speak, and advocate for a more strategic role and enhanced involvement in organizational initiatives is an important aspect of SMA. Logically speaking, it is clear that, in order to be involved, decision makers must realize both the interest of accounting professionals as well as the benefits of involving said professionals in the decision-making process. Examples of such techniques that can be integrated into day-today operations are linked to presenting information and advocating for organizational change.
First, it is important to leave the presentation uncluttered and minimize the content in the presentation or handouts, as follow-up e-mails and attachments can fulfill the need for quantitative information. Your audience can read and is listening to you present or advocate your position, and keeping the text to a minimum, focusing on bullet points, will help you accomplish this goal.
Second, while accounting jargon and terminology might be applicable and important for the professionals performing analyses and reporting functions, they are largely irrelevant for most interested parties. Minimizing the usage of jargon and overly technical concepts and abbreviations can make your case stronger, keep your audience interested, and make the successful adoption of your concepts more likely.
Building on these first two points, it is important to keep the presentation short, to the point, and to provide action steps or key takeaway items that can be implemented moving forward. Incorporating examples, including time for questions and answers, and keeping the presentation moving forward, all represent traits of successful presentations on a case-by-case basis. Such items should also be incorporated into the advocacy campaign for a more strategic accounting function. Returning to the inclusion of action steps, while it is important to include steps, it is simultaneously important to recall the overarching themes and principles that are guiding the SMA process.
From Theory to Practice
Implementation, as is nearly always the case, is more difficult and multifaceted than simply identifying the theoretical framework that needs to be identified. One area in which accountants can assist in DDDM is in improving the integrity of the information that is produced through current procedures, that is, improving and elevating the role of audit and fraud-detection procedures. Forensic and forensic-detection procedures, for the most part, are still locked within the traditional pace from which business, but the accounting headset especially, must be adapted and expanded to include methods and policies to also ensure the quality of the information produced by the organization. If, as is increasingly apparent, business decision makers and organizations at large must react more rapidly to challenges and opportunities, it is up to accounting professionals to become both strategic partners and data experts.
Improving the quality of information is a pivotal change in how both accounting professionals view themselves and how they are perceived within their organizations. Accounting professionals are increasingly involved in a wider range of activities, including nontraditional activities, but without proactive involvement in the creation and implementation of the financial systems and procedures they are held responsible for, accounting professionals will inevitably be reacting to change instead of leading change and organizational development. Volunteering to get involved with cross-functional projects and initiatives allows accounting professionals to refine existing skills, develop new skills, and continue to add value to both the organization and the profession. Converting operational information to financial dollars and data represents the core functionality of an accounting system, and without the appropriate information and data with which to make decisions, it will be increasingly difficult for organizations to successfully integrate the necessary data. Representing a logical extension of the themes of data integrity, information validity and security, and the necessity for greater quantities of information, accounting professionals should play a more active role in generating and maintaining information.
Advising, assisting with, and leading initiatives related to developing and testing financial reporting and budgeting enterprise resource programs such as Hyperion and SAP, and improving existing tools including Excel-generated templates and reports are ways that accounting professionals can display their value to both other internal partners as well as to senior leadership. Taking ownership of data integrity and reporting, which are roles that drive both tactical and strategic decision making, is an essential step for both accounting professionals and organizations at an entity level. An important example of how these ideas and concepts may be identified and placed into operations is the reduction in organizational silos and boundaries that can hinder the flow of information through the organization. Breaking down functional silos that exist in every entity, specifically among finance, accounting, operations, and corporate communication, is important for the development and refinement of a SMA function.
The breaking down of organizational silos represents a true opportunity, not only for the accounting professionals involved in proposing a more strategically oriented accounting model, but also as another platform from which accounting can play a more strategic role in the decision-making process. Having conversations and engaging in constructive dialogues with other functional areas reinforces the fact that accounting and accountants should, under an SMA paradigm, be active participants in managing the business. While not always necessarily a simple or straightforward process, bringing together different departments to address common organizational issues is a worthwhile use of accounting time and energy.
SMA, repeated earlier as well as expanded upon in more detail further in this writing, is a transition and evolution of the accounting function that results both from changes in the business landscape at large as well as changes in the accounting field. Developments related to technology, nontraditional types of information related to big data, sustainability, corporate governance, and the needs of stakeholder groups represent the accelerating pace of change that must be addressed. Embracing these changes, and the necessary strategic mindset that accompanies these changes, represents a paradigm shift in how the accounting profession operates both in the present as well as how accounting education must be developed and disseminated moving forward. Building new competencies and abilities in the profession is not a simple or straightforward task, but there is substantial information generated both in scholarly literature and practitioner-based writing and discussions.
Getting Organizational Support
Stakeholder support is an important aspect and component of any change initiative, and this certainly holds true for the implementation and adoption of a more strategic role for the accounting function within organizations. In order to successfully introduce and solidify this initiative as a priority for managerial decision makers, it is critical that accounting professionals proposing such a shift come prepared with a well-thoughtout critical path that can take the initiative from concept to reality. Cost-effective solutions that add value to the organization without excessive cost or resource consumption are ideal, and must be integrated into any conversation related to the concept of SMA.
Preparing such a critical path is almost always easier said than accomplished in reality, and so it is important that accounting professionals take a comprehensive view of the organization, the strategic initiatives underway, as well as where the senior leadership wants the organization to be positioned in the future rather than exclusively focusing on the present. Analyzing and viewing the organization from this perspective allows the accounting professionals seeking to take a more strategic role an opportunity to think and analyze the organization in a strategic manner. Additionally, framing the concept and proposals associated with SMA within the context of broader organizational objectives and goals, the probability of obtaining management buy-in increases. Linking together the fiduciary duty of management to properly allocate resources with the accounting function’s ability to generate data to best analyze and leverage these resources represents a logical and straightforward use of the accounting data.
Specifically, and while keeping within the mindset of thinking strategically from a management perspective, accountants should focus first on identifying and addressing pain points in the flow of information throughout the organization. Much like a stoppage in production or treatment can create a bottleneck, backlogs, and inefficiencies throughout the manufacturing process, nonstandardized information and inconsistent policies and procedures can make even relatively simple decisions more difficult. Regardless of the specific pain points identified or processes identified in need of a change or refresh, the underlying concept is the same. If management cannot obtain quality information to make decisions, it will be exceedingly difficult for the organization to proactively seek new opportunities.
After obtaining a preliminary list of possible pain points that a more proactive accounting and finance approach can assist in resolving, it is imperative that buy-in is obtained from front-line managers and staff most impacted by these pain points. It is one matter to identify certain points from a high-level perspective, but this must be complemented with a more granular analysis of the specific issues encountered on a daily basis, the issues that are caused, as well as potential solutions that are proposed by the individuals most affected by these pain points. This process of identifying pain points and seeking out input from the individuals involved prior to approaching upper management with potential solutions helps solidify support for the concepts proposed as well as reduce any potential feelings of being singled out. The focus should be on the solution and how to improve moving forward, and not looking back to analyze what could have been done differently.