Chapter 7: Value - Insight, Oversight and Higher Returns

Overview

How much do you really know about the financial condition of your company?

Most of us monitor the financial health of our companies quarterly. We finalize budgets for the next year two months before the year even starts, which means we re predicting performance 14 months in advance. Then we do three-year plans and five-year plans. No matter how good our information is, can we really say that we know what s going to happen three years from now? Is it good business to pretend we can see into the future? Not necessarily . Not only is the value of long-range financial planning overrated, it can often lead to slack oversight. It s in the plan is not a good enough reason to do something that no longer makes bottom-line sense.

Establishing a strategic plan, the bedrock vision of where the company should be, is always valuable . Attaching hard numbers to that corporate vision can actually limit our ability to respond to change quickly. Being agile is essential in the market today. We need to know more, and know faster, about the financials of our companies. We need to bind ourselves to long-range forecasts less.

Of course we re not advocating that quarterly and annual statements be abandoned . Not only are they legally required, they are critical to getting the big picture. But the most important financial information may not be in the financials. We need to drill down into the numbers and we need to do it regularly.

We need to know about revenue, order and expense run rate right now to be able to recommend timely action before we close the books, when it will have the most impact.

Continental Airlines

Continental President Larry Kellner has an array of financial information at his fingertips on his desktop computer every day. He can track performance on an almost hourly basis. He can dig into the regional numbers, the country numbers and individual flights to pinpoint successes and problem areas. That means Kellner can take action immediately when he spots an issue. He doesn t have to wait until quarterly numbers come and then spend time asking for details. By then it s too late to take effective action. The window of opportunity has passed.