A successful business needs steering. Management accounting reports are an essential part of that. It is therefore just normal that many management accountants are required to constantly create new reports and analyses. A classical example is a variance analysis report.
When approached to create a new management accounting report, the accountant does normally not fully understand the problem or need for the new report. However, the stakeholder asking for the new report tells the management accountant what he or she expects in detail. Dutifully, we management accountants start generating a report in order to fulfil the stakeholders wish.
This is exactly where the 4 step problem/solution model comes in handy. In the example above, a shortcut was taken to jump from field 1 to field 4 according to the following graphic.
As a consequence, the solution was probably delivered quickly but there was no exploration of the problem done and therefore the implemented solution may not be one of the best.
How should management accounting reports be developed?
In order to produce the best possible solution, all four stages of the model should be run through sequentially.
We start at on field 1 where a request for a new report is made. Instead of just producing it according to the requirements of the stakeholder, we now take the request and try to forget the original proposed solution. At this stage, we are not interested in the solution at all.
On field 2 we start exploring the problem. What is the true requirement of the stakeholder? What does he or she need to do? How is this current problem related to other problems? With this process the management accountant increases the knowledge in the area and as a consequence is later able to produce better solutions.
When the problem is fully understood, the management accountant arrives on field 3 and can now start using all the insight to explore suitable solutions. Then, a decision can be made which solution best fits. Hereby, it is important to distinguish between best fit and most precise. Remember Lean Finance: 4 Awesome Tips for Busy Mgmt Accountants where we talked about the 80% / 20 % rule and accepting the gap. It could be a good decision to sacrifice a bit of precision for valuable time. A good exploration of the problem from the previous step should assist you in this decision.
When decided on the specific solution, we arrived on step 4 and we are now ready to implement new management accounting reports. Going through the process we increased our knowledge of the area, produced the best possible solution and made sure that there is no redundancy with some other already existing analyses.
Take care when using the model
When you start using the model, take care that you actually stick to the steps. It is a common pitfall to look for a shortcut in the hope of speeding up the process. Don’t let these shortcuts happen. The process is important and you will be rewarded with a top management accounting report as the result.
Another aspect to take care of is the communication towards the stakeholder. When someone comes and asks for a new report, you should explain the process you are going to apply. This will reduce confusion and increases acceptance.
Give the 4 step problem/solution model a go and see how it can work for you producing new management accounting reports. Expect that you produce better results because of better understanding and that you reduce redundancy.
Let me know how it works for you.