Managing Non-Financial Information in business reports.

Managing Non-Financial Information!

I'm pretty sure that most business routinely incorporate at least some non-financial information into daily and monthly reporting.  Hopefully, non-financial information is a critical part of your daily and monthly reporting, because having the right non-financial information in your reports is the quickest way to improving business performance!

However, non-financial information poses a number of issues when used in financial reports and if businesses aren't careful these issues can quickly erode users faith in the report.

What are the primary issues and how can we practically deal with them?



The primary issues that arise are:

1)  Lack of rigour around collection accuracy

In a lot of cases non-financial information comes from a spreadsheet - this spreadsheet may be extracted from an underlying operational system (think plant control systems, environmental/OHS systems, HR etc) but the underlying systems aren't set up to produce the correct metric (usually average throughput/incidents/FTE for the month/YTD) or for the right time period.   The spreadsheet suffers from the usual Excel problems - unrestricted changes, manual entry errors etc.

Another issue is clearly defining how to measure the specific non-financial metric and keeping that measurement consistent.  This can also be an issue with financial information (eg, FX rates - do you take buy/sell/average, end of day vs specific time etc, multiply or divide?) but can be significantly more difficult with some non-financial information (think stockpile estimates, product in circuits etc).

In some cases, the value of the metric is entirely based on the accuracy of the estimation used to determine the number.  Examples are estimates of stockpile volumes, which affect tonnage produced/milled calculations, metal in circuit/process (which is rarely reset to zero because the plant/tank would need to be stopped to clean it out).

2)  Timing of collection

Not surprisingly, non financial information is generally available very quickly - this is because it is usually based on operational control systems which are continuously on.  Good examples of this are plant control systems, automated HR time clocks etc.

However, some systems are dependent on manual updates (think environmental/safety incident reporting, manual timesheeting systems) and keeping those systems up to date requires a business to have a very clear priority (usually the case with environmental and safety systems) and also sufficient people to keep the system updated.  If either of these aren't in place, there is a real risk that the information won't be updated on a timely basis - hence incorrect information will be reported.

Operational cycles often don't align neatly with a month end...ship loading processes, shift start times etc often don't match neatly with a 12am last day of the month close (or whatever your financial periods are).

Perhaps the most visible and worse issue is when there are adjustments to previously reported values - this can be due to cyclical survey measurements, prior period errors etc.

3)  Accountability

In some businesses it isn't clear who is accountable for specific non-financial information metrics.  This can impact efforts to improve the accuracy or timing of the metric.  It also impacts the usefulness of the report produced, as the "Well, I don't know where you got that number from but it is wrong" excuse becomes more prevalent.


4)  Volume of data

Operational systems capture ENORMOUS amounts of data.  Just working out what specific data items are "key" can be a challenge, let alone then isolating and summarising those key items for use in financial reports.


Notwithstanding all the issues, non-financial information is a critical part of an effective monthly, weekly or daily report.  This is because operational teams relate more readily to non-financial information - it is what they deal with day to day and generally they control actions which affect these measures.

Given that, what are some practical ways to address the issues?

Practical Tips for managing non-financial information

a)  Apply the same rigour and rules to non-financial information as you would for financial information

• Make sure that effective controls are in place over the capture of the information.  In most cases this may simply be controlling the ability to change information in operational systems.  Controlling excel spreadsheets is also an excellent idea - keep copies of prior versions for comparison.
• Make sure there is an accountable person responsible for accuracy and timing.
• Restrict the ability to make prior period changes - whether that is in a spreadsheet or in the underlying system (more on this later)
• Periodically audit the information - especially if there is a spreadsheet, make sure that the spreadsheet agrees to the underlying system!

b)  Create a non-financial information "Trial Balance".   

• The datapoints collected by operational systems are no different to the "transactions" captured by financial systems.   From the operational system develop a report which summarises the datapoints and use this as the basis for non-financial information included in the business reporting.  With any luck, this will eliminate the excel spreadsheet.
• The process of doing this is likely to help tremendously with the consistency and volume issues noted above.

c)  Only put Non-financial information into an ERP as a last resort (or if you need it to do a cost allocation which your ERP does automatically).

Yes, you can squeeze it in...what can go wrong?

• Yes, I know that a lot of systems allow you mechanisms to enter non-financial information.  SAP SKFs are a classic example.  The problem I have with this is that in most cases ERP reporting is awful and you are going to dump the information out anyway....so why bother spending the time to put it in?
• Do put the information into your business intelligence system (if you have one).  If you don't create a simple one using MS Access or similar.  (Feel free to ask me if you want to find out how to do this effectively - it really doesn't take long and isn't overly hard.)

d)  Prior Period adjustments go in YTD, not Month

• This one might be a little controversial, but in practice I've found that non-financial prior period adjustments are better dealt with by adjusting the YTD value in a report, not the Month value.  The reason for this is that you want to have the month clean - remember that this is the information you want the business to take actions on - so cluttering it up with prior period data isn't helpful.
• All prior period adjustments need commentary explanation, especially ones that have significant financial impact.

e)  Capture a budget/forecast!

• If your business budget/forecast includes productivity measures (and it should!) then you need to capture the budget/forecast for the non-financial information....and do it in a way so that changes to the non-financial information can be explained.

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I hope that you find this post useful.  I'm very keen to hear your practical tips on using non-financial information in business reporting, so please leave a comment and let me know what you do!