How to analyze business performance in real-time — Automated Financial Modeling
“If you can’t measure it, you can’t manage it”
We often see that quote attributed to Peter Drucker, as a justification for measuring things. He not only never actually said that, but even spoke about the perils of measuring social aspects of the work.
But when speaking about hard numbers, such as company finances, I would say that the quote is a valid one. I would take it even further, and say that “what does not get measured automatically, does not get managed often enough.” As with any system, getting early warnings and understanding how the organization is performing, works much better if we do it in real-time.
In most companies, understanding the performance of the whole operation from a financial perspective is something that is done, in the best cases, periodically. A financial analyst will “crunch” the quarterly numbers, build the model in a spreadsheet, and put together a powerpoint for management to review.
There are several problems with this approach:
- Latency: a quarterly analysis means that with luck, we can catch today, a negative trend that could have started up to four months ago. Even worse, feedback on any corrective action will take another 3-month cycle to…
