Forward-looking KPIs and other attempts at generating deep insight could become part of an emerging trend in supplemental financial disclosure packages.
Sometimes, after watching a particularly long PowerPoint presentation, you might see the “Appendix” slide come up and say to yourself, “Please, let’s just stop now.” Or if you’ve slogged through a long and difficult book, you might skip the afterward the author wrote. In financial reporting, however, more is decidedly not less.
In fact, more experts are beginning to suggest that the best way to really master the art of using key performance indicators (KPIs) is to go beyond what’s already accepted as the basic level of information.
“The CFO must be prepared, though, to accept the good with the bad. For instance, certain metrics that present the company in a good light one day could later paint it in a bad light — that’s what comes with being transparent.”
Mike Ricco, CFO at Panasonic North America, made reference to this in a group Q&A with some of his peers on Forbes:
We’re now exploring ‘forward looking KPIs’. We’re pretty good at backward looking KPIs. So now we’ve picked a couple of our business groups and we’re working closely with them on some of the important business indicators either internal or external, that can help us be more predictive in terms of where their business is headed and what some of the gaps are, and we’re seeing financial results.
If you’re already a data-driven finance department, then, the next step is weaving in additional data — not just for analysis but in what you can present to other stakeholders.
Phillip Joseph, CFO at Spirit Realty Capital, recently published a helpful and comprehensive post about the concept of a supplementary financial disclosure package that would offer that level of detail. He argues these packages will help investors and others get the answers they really need about KPIs, though he acknowledges the practice does require a particular kind of leadership:
“The CFO must be prepared, though, to accept the good with the bad. For instance, certain metrics that present the company in a good light one day could later paint it in a bad light — that’s what comes with being transparent,” he writes. “Even when the information provided isn’t flattering, if the company can back it up and explain the numbers, it’s going to get applause from the investment community for simply making the information available.”
You’ll still need to look “back” to understand what happened, even as you work to develop your own “forward-looking” KPIs. Just bear in mind how all that insight will be conveyed. CFOs and CEOs may be best served with dashboards that let them see the most critical changes in KPIs in real-time. Shareholders and others may need more than that. In time, what may seem supplemental today could be essential tomorrow.
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About the AuthorMore Content by George Papayiannis