Customer demands, competitive pressures, and world economics force us to do things better, faster, and cheaper. To respond to these pressures, we need to be able to see where we are today, understand what changes need to be made, and to implement these changes and measure results. What gets measured gets done .
Looking at financial statements (balance sheet, income statement, and cash flow statement) tells what happened. Add a budget and variance report and you can see what was intended and how well you did. But, these reports are lagging rather than leading indicators—more like a rearview mirror than a windshield. By combining the actual results for the past and the budget for the future we can create a forecast based on where we are today. A big improvement, but not sufficient .
While a good forecast (budget + actual) is necessary and useful, it does not show us what would happen if we made incremental changes to costs and revenues based on current information. Adding the ability track these changes at a detailed level gives us the tools to improve the future. The ability to manage the business.
A well-managed business is absolutely fanatic about continuous improvement. That is, doing things better, faster, and cheaper. HTM’s Financial Control Service provides the tools and a methodology that allows a manager to plan and measure the incremental changes that result in continuous improvement.
The main tool for this service is a database that contains your budget and financial results, and records of the incremental changes to the budget. The original budget never changes and is always available. The incremental changes are kept as separate records, which allow creating different change scenarios. Because of the detailed data required and the reporting requirements, a database (not spreadsheets) with analysis tools is required. Results of the scenarios are shown with tables, charts, and graphs.
We meet with management in Japan monthly to report the results and how they will affect the future both on a cash and accrual basis. Based on that meeting, new incremental changes are entered. The frequency of these meetings can be increased to bi-weekly or even weekly when necessary. The discipline of frequent and regular meetings is a critical part of this HTM service, as is the methodology that allows your manager to focus on business not on financial tools. This continuous improvement process can make real change by putting a clear focus on how a business improves by cutting costs and increasing revenues.