Apr 09
17
In business situations, we often confront moments in which information is used in questionable ways. There are so many possible interpretations of the same sets of raw data that any number of results could be possible. How do you know whether you’re interpreting information correctly? And how do you know whether you have the right information to begin with?
Historical Information
Historical information is all around you. Your department’s budget is one form of historical financial information. Some data will be non financial. For example, your employees have executed a specific number of transactions, worked varying numbers of hours, or used an office machine at an increasing rate over the past year. All these historical facts can be accumulated, organized, and used in requests, analysis, future budgets, and reports you generate.
However, remember: It’s a mistake to take too much comfort in consistency, especially at the expense of accuracy.
Historically based information may not serve your purpose completely. In many situations, an analysis may need to combine historical with other forms of data. Assuming that your analysis will be reviewed, perhaps even challenged, by others will help you to develop valid arguments and explanations.
This is the ultimate test of analysis, even when no one else will ever see it. Would you be able to support your conclusions if discussing them with someone else? How did you define and then collect your raw information? How was your analysis developed? Was it manipulated to create the outcome you wanted? Or did you test and question it to ensure that your study was fair and objective?
It’s a good idea to build a source file of recurring factors in your department. You probably need to develop your source file over a number of months. Correctly developed, this file can become a valuable collection of intelligence, to be used later in many ways.
Validating the Ratio
In many companies and departments today, invalid analysis is being cheerfully performed but never checked. Why? Because there is no means for finding out that the analysis is misguided. No one ever acts on discovered information coming from the analysis. If no one responds, what is the point of doing an analysis and discovering that something is wrong? A key point: The analysis is worth doing only if you and others are able to act in response to what you discover.
The response is where you discover whether or not your analysis has any merit. If your analysis shows a negative trend and you take action to correct it, you would expect to see results. However, if those results don’t occur, either the action you selected was ineffective, or the trend itself is not accurate.
If you are asked to perform an analysis, especially one that is part of a recurring routine, but no one ever acts on what it reveals, resist doing the task. It’s a waste of time. You might not have the power to simply refuse, but there are a number of steps you can take:
1. Eliminate the work itself. Suggest cancelling the routine. There is no value to creating important information no one uses.
2. Recommend the appropriate actions. Suggest actions others might take. Point out the problem: The information is important, but no one is acting on it. One way out is to suggest ways the problem can be solved.
3. Take over and do what’s needed. Volunteer to take the actions yourself. If no one else wants to do anything in response to what your analysis reveals, take on the job yourself.
4. Reduce the time commitment. Suggest completing the task quarterly instead of monthly. This at least reduces your wasted time by two-thirds. If you can’t completely eliminate a useless task, at least do it as little as possible.
After an analysis has been done several times, you will be able to audit your work. Ask yourself: Do the trends reveal what we’re looking for? Are the ratios dear and do they convey information to others? If not, how can they be changed or replaced? To validate the trend, check indicated actions against the trend itself. Do you see a change in direction as the result of changes you have prompted?
The validation process can now be undertaken. Did the changes you suggested reverse the emerging negative trend? Did the number of days required to collect outstanding accounts decline and stabi¬lize? If they did, it indicates that the ratio is valid, that it does give you valuable information.
You will notice, however, that validation can only occur if actions are taken in response to what the ratio shows. If there is no response, there can be no validation. A lack of response validates only one thing: that the analysis itself is a waste of time and will continue to be unless someone changes the situation.
