Insider Business Club: decision making

Is the quality of decision making an issue?

Peter Simons, technical specialist, CIMA

As global markets give businesses access to similar resources, and as
business processes converge on similar high standards, decision making becomes
the key to success.

Leading companies have already seized the opportunities presented by finance
transformation to not only make the costs of their account function lower, but
also to engage management accountants in decision making across the business.

Finance transformation presents a threat to the traditional role of the
accountant in business, but also presents an opportunity for those who can
develop and support decision making. By finance transformation I mean the forces
that are global markets and changes in technology, outsourcing, those kind of
trends that are causing finance functions to become cheaper, but they’re also
becoming more effective in business.

The emphasis in accounting has been on financial reporting and a large part
of the accounting profession is engaged in the preparation of financial reports
and the assurance of financial reports.

But the area where businesses are now looking for accountants to perform is
in support and decision making. And the combination of the understanding of the
financial implications and the business is where accountants can really provide
insight because, if they can help the business understand the implications of
its actions, that will improve its decision making.

How much difference does improved decision making have on
performance?

John Wilkes, head of performance management, Capgemini Consulting
UK

I would see decision making and the improvement of performance as being
inextricably linked. But the real question is how are they connected in
practice? Now, in the research world, performance management and decision making
have grown up as separate fields. In performance management, there’s a lot of
emphasis on key performance indicators, rather than what you do with those
performance indicators. And in decision making there’s quite a bit of argument
on the different styles that people use, whether they’re intuitive or rational.

I see the finance role here as twofold: firstly, collecting decision-making
practices to improving performance across the enterprise and, secondly, making
decision making practices more consistent.

How can you use historic information to improve decisions about the
future?

Philip Smith, chairman and FD, H Young Transport

I think the key issue is that the information that you’re working with is, by
definition, historic. What we’re all trying to do is manage the future. So how
can what we know historically flow through to the future? The only way to do
that is by projecting what you know of the past, and the changes that you know
about, into the future.

The problem then is how to respond to the unknown. And that’s where the
accounting function has to become more flexible because the traditional training
of accountants is backward based to try and identify the actual facts.

The problem is that you’ve got to introduce a level of flexibility into the
future so that when it doesn’t happen, you can change the organisation to
respond to it.

There’s another issue here, though, which is that the finance function
controls information according to financial regulations and practices. Does it
necessarily connect to the operational actions, which are the underlying cause
of financial actions? Because financial results, to my mind, are the financial
consequences of operational actions. So if you want to change the outcomes, you
have to change the operational actions.

If your finance function is looking at things in terms of financial
accounting, it may not have any connection to what the operational guys are
doing on the ground. So you’ve got to have a link between the control thing in
financial terms and the information as it links into operational realities.

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