By: Joseph P. Brennan, CPA
Senior Accounting Manager
Analytical procedures can be a powerful tool to help you better understand and manage your business. By performing analytical procedures on a regular basis, management can better evaluate mission accomplishment, financial results and operational activities.
Mission accomplished? Analytical procedures can help us determine if our business is meeting its goals. As nonprofits, we exist to serve the greater good of our constituency. How do we know if we’re doing this effectively? Regular tracking of certain key performance indicators (KPIs) can help a company monitor its progress towards its mission or objectives. The hardest part of this process may not be tracking the KPIs, but rather choosing the most appropriate ones to monitor. All nonprofit organizations are unique. Accordingly, the most appropriate KPIs for one organization will not always be the right KPIs for the next.
Here are a few things to keep in mind when developing your organization’s KPIs:
Analytical procedures can also help you understand and monitor your organization’s day to day performance and overall financial health. Whether you realize it or not, you are already likely using analytical procedures to help you understand your organization’s financial status. Common examples include:
Year to year comparative analysis of actual results
Comparison of actual results versus budget
Peer to peer comparisons (industry information)
Analytical procedures not only help evaluate mission efforts and financial performance, but they also help managers report successes (or failures) in these areas to governance. When reporting information to governance, it is helpful to get their opinions on what they believe are the most important areas to measure. When you have their “buy-in,” you are more likely to have them engaged in the analysis.
After you determine what information you want to report, you need to figure out how to present it. Common examples are executive summaries or dashboards accompanying a set of financial statements or other information. Dashboards are flexible and can be designed to report on a whole host of information. You can present information in many forms such as charts, graphs, text boxes, itemized metrics, etc. And the best part of all - once your dashboards are created, you can easily update them from one period to the next by updating the underlying data.
Regardless of which method you choose to report information to governance, consider the following:
Naturally, this just begins to scratch the surface. Management can utilize countless ratio or trend analyses in order to help evaluate the organization. Just don’t forget the old expression, “paralysis by analysis.” Remember, analytical procedures don’t need to be complicated to be effective. Even simple reasonableness analysis can be useful – after all, your auditors are using it!
Joseph Brennan is a senior accounting manager is Tate & Tryon’s Outsourcing services department and can be reached at email@example.com.