Many organisations face the challenge of communicating complex financial information to their board and other stakeholders. This is particularly important given the need to understand risk in mergers and acquisitions as well as planning major developments and on-going operations. This article explores the use of interactive graphics and dashboards to monitor performance and understand complex risk scenarios.
Management reporting focuses, quite properly, on the accuracy of the information. However, the requirements of non-financial decision-makers to fully grasp financial performance are growing. They need to be able to:
- Monitor the current status of VFM (value for money) ratios and loan covenants, comparing them to historical levels, external benchmarks and budgets.
- Challenge corporate plans by running high-level stress testing via ‘what-if’ scenarios.
In addition, they may also want to:
- Drill into the detail of expenditure codes, displaying values over time, creating alerts of budget variances and viewing standard reports such as monthly income and expenditure.
- Ask detailed questions such as: is performance good enough; is it as good as it can be; is it actually changing, either arbitrarily or in response to management changes; and are there any particular issues in the detail, for example in specific housing areas or teams, that might be missed in the high-level views?
Working closely with key clients, especially Together Housing Group, Musgrave Analytics has built up a suite of executive, operational and analytical dashboards focused on providing everything from high-level overviews to operational alerts and financial forecasts. This article explores the key elements of these tools.
While we work with all types of content, this article is focused on financial data. A common client refrain is the desire to see just ‘one version of the truth’ and in housing (as in most sectors) there can often be a divergence between the data from finance and operational systems on key issues such as rent collection, arrears, and repairs and maintenance. Divergence may be the consequence of different timings and definitions as well as errors in the data. It is important to ensure that data from all systems is as accessible and understandable as possible so that users know what they are looking at, can understand their relevance and grasp the key messages promptly.
To this end, we have been working on developing financial dashboards which seek to present complex data as simply and clearly as possible, using graphics wherever they are helpful. It is essential to address the concerns of those key stakeholders who may not be financially trained, but who are deeply concerned about the strategy and challenges facing their organisations.
VFM monitoring
The Social Housing Regulator requires each housing association to report their value for money ratios; to quote from the specific expectation (2.1d): “Registered providers must demonstrate: [d] that they have appropriate targets in place for measuring performance in achieving value for money in delivering their strategic objectives, and that they regularly monitor and report their performance against these targets.”
While there is a clear process to submit the VFM scores annually, the on-going monitoring doesn’t have any formal methods. With Together Housing, we developed a dashboard that makes it possible to demonstrate that this expectation is addressed.
To help monitor performance, there are also options to show benchmark values, such as those from Housemark, a band showing historic performance or simply the previous year’s values.
In depth assessments – scenario modelling and forecasting
Going beyond simply monitoring, a board also needs to know what might happen in various circumstances. The regulator’s guidance is: “We have reinforced our expectation that boards take ownership of their organisation’s stress testing and ensure they understand the impact of economic cycles as well as one-off shocks on their businesses.”
The more data-literate board members expect to be able to interact with data in this way and these tools facilitate this. Live scenario modelling requires a full financial model in the background; this is often done using R (the statistical computing language) which re-computes the financial model as soon as a slider is adjusted.
A further advantage of using an environment like R is that sophisticated forecasts can be generated that project time-series data into the future. Where there are clear trends and seasonal patterns, the value of a series can be projected with a good level of confidence.
Monthly reporting
While the board or senior executives wish to monitor the main ratios or explore the risks, the financial manager wants to ensure that they understand the current data, and although accountants are obviously skilled at reading tables, using graphics makes it easier to spot trends and anomalies.
Conclusion
Good analytics requires the merging of multiple skills in IT, design, statistics, data management and of course, the business domain itself. This article argues that the design of good dashboards can make a significant difference to the understanding of risk and the delivery of sound performance.
Simon Musgrave is a director of Musgrave Analytics.
