There’s probably a reason why hieroglyphics were some of the first forms of written communication in human history. Long before there were comic books, movies or TV shows, Ancient Egyptians understood the power of using images to convey meaning rather than simply present a series of facts. This is the “show, don’t tell” rule that writing instructors have been drilling into their students for decades, and it may be time to embrace it in the finance department as well.
Of course, the idea of a budget narrative is already common in some sectors, particularly in the non-profit sector. A post on the Grant Central Station blog explains how narratives are helpful in seeking public sector funding proposals as well:
“Also known as a budget detail, budget description, or budget justification, the budget narrative explains what the numbers in the budget table or spreadsheet represent and how you arrived at them. The benefit of preparing a budget narrative is that it requires you to get down to your project’s nitty-gritty details by laying out who will accomplish what and when, as well as how you arrived at costs.”
Some say numbers don’t lie, but numbers without context can be extremely misleading or altogether wrong. Incorporating thoughtful narratives and other supporting context into your planning and reporting process can greatly improve the understanding of your results, and reduce the time spent chasing down exceptions that can easily be explained. It follows that your budgeting or corporate performance management (CPM) software should to include such context – in the form of comments, attachments or drill-down capabilities – to help you better tell the story behind your numbers.
Storytelling Basics for CFOs
This isn’t to suggest CFOs and their teams should stop using numbers for forecasting, variance analysis or other tasks. It’s more about how they use them as part of a story. Aswath Damodaran, a professor of Finance at the Stern School of Business at NYU, offers a highly insightful take on the use of narratives in the process of creating investment valuations.
“If numbers without narrative is just modeling and narrative without numbers is storytelling, the solution, as I see it, is both obvious and difficult to put into practice,” he writes on his blog. “In a good valuation, the numbers are bound together by a coherent narrative and story telling is kept grounded with numbers.”
Damodaran outlines a multi-step process for data-driven storytelling which can be applied far beyond investment valuations, including budgeting and other areas that interest finance departments. It can be summed up as:
- creating a narrative or theme to describe what the numbers are telling you;
- proving the points in the story through past history and experience;
- connecting the narrative into how it drives value;
- keeping an open feedback loop.
The good news is that CPM software today can make it much easier to tell the story behind the numbers than Damodaran describes. With the right Excel spreadsheets, and the centralization of companies’ financial data, such solutions give organizations much more visibility into their numbers and the context behind them. This translates into more trusted insights and smarter, faster decision-making as a result.
It’s not that the numbers lie, exactly. It’s just that, with a narrative approach, CFOs and their teams can offer their senior leadership team a more meaningful look at the truth.