Here is a fictitious story. But how true could it be?

Our company’s quarterly financial results were just announced. Our loss was unexpectedly double last quarter’s loss, and we have now been in the red each quarter for over a year. How can this be happening to us? Our company has been profitable for decades!

I can track the meetings, phone calls, and e-mails among our managers from the moment the CFO’s staff calculated this quarter’s disappointing financial statement.

The Blame Game

When our CEO first received and saw the bad news, she immediately questioned the CFO as to whether there was an accounting error. Nope. The CFO reported that sales were down 2 percent, but the bottom line tanked at the product gross profit margin line and it worsened further at the operating profit level due to overbudget distribution, selling, and marketing expenses.

The CEO called our Operations VP into her office and asked what happened. Our Operations VP pointed his finger at the excessive distribution expenses – specifically, all the emergency premium shipments.

The CEO called our materials manager into her office for an explanation. He observed that production was missing many customer order ship due dates, requiring costly overnight and premium shipping expenses to lessen the damage to our customers’ satisfaction and loyalty. He pointed his finger at the production manager. more

Let’s look back at the last ten years of applying enterprise performance management methodologies, and then speculate about their next ten years.

THE PAST DECADE

The beginning of this past decade witnessed more experimentation with techniques like strategy maps, balanced scorecards, product and customer profitability analysis, and driver-based budgeting. Much of this was done with spreadsheets with increasing use of commercial software. more

TO: SANTA CLAUS, c/o The North Pole

Dear Santa,

I have been a good boy this past year. I believe that qualifies me for a 100 percent order fulfillment of the following Christmas present requests. (And I promise there will be no returns and exchanges like I did last year.)

My top Christmas gift choice is that the marketplace will begin to view analytics-driven performance management as being much broader than a narrow CFO-driven approach to only financial reporting, budgeting, and unconnected dashboard dials. Those are important, but performance management includes so many more integrated methodologies, with each one embedded with all flavors of analytics, such as segmentation and statistical correlation. more

Over the past few years, I have discussed a paradox with Doug Hicks, President of D.T. Hicks & Co., a performance-improvement consulting firm in Farmington Hills, MI. The paradox, which continues to puzzle me, is how chief financial officers (CFOs) and controllers can be aware that their managerial accounting data is flawed and misleading yet not take action to do anything about it.

Now, I’m not referring to the financial accounting data used for external reporting; that information passes strict audits. I’m referring to the managerial accounting used internally for analysis and decisions. For this data, there is no governmental regulatory agency enforcing rules, so the CFO can apply any accounting practice or cost allocation method that he or she likes. more

A popular acronym is GRC — for governance, risk, and compliance. One can consider governance (G) as the stewardship of executives to behave in a responsible way, such as providing a safe work environment or formulating an effective strategy, and consider compliance (C) as operating under laws and regulations. Risk management (R), the third element of GRC, is the element more associated with enterprise performance management.

Governance and compliance awareness from government legislation such as Sarbanes-Oxley and Basel II is clearly on the minds of all executives. Accountability and responsibility can no longer be evaded. If executives err on compliance, they can go to jail. As a result, internal audit controls have been beefed up. more