Six Advantages of Event-Triggered Reporting
Updated: September 14, 2004
Monthly Advice from J. Carlton Collins, CPA
All businesses should ideally employ a team of accountants dedicated exclusively to reviewing the company's books and financial statements continuously in order to identify potential problems. For example, if cash balance drops below a certain level, if profit margin percentages dip dangerously low, or if sales taper off suddenly, warning bells should be sounded and management should be alerted quickly so they can initiate corrective measures. Historically, this process has been out of reach for most companies, as manual accounting systems required the need for hundreds of continuous boring calculations, which rendered such a solution unreasonable.
However, with the advent of the computer, the evolution of application software, and the addition of e-mail, today's accounting systems can perform hundreds of business calculations continuously, comparing the results against pre-set conditions in order to identify emerging problems or trends. Once identified, these business alerts can be sent to the appropriate management personnel through e-mail, fax, or even a mobile phone. This type of reporting is known in programming circles as "Event-Triggered Reporting," "Alarms," or "Alerts." In business circles, this type of reporting is known as "Management by Exception." By any name, this type of reporting is being heralded as the most useful type of reporting on the planet today—and thanks to advancements in technology, this solution is now widely available to all businesses.
Six Advantages of Event-Triggered Reporting
Event-triggered reporting holds many advantages over the more traditional type of reporting, which typically involves the production of periodic financial statements and reports—usually thick, voluminous stacks of financial statements and reports. A summary of key advantages of event-triggered reporting is presented below.
1. | Immediate reporting. Event-triggered reports alert the appropriate personnel to emerging financial conditions as they occur. For example, if profit margins slip, the CFO is notified of this event immediately—often within a few seconds. The more traditional monthly reporting approach might mean the CFO receives this information in report format several weeks later, and even then there's the chance the CFO won't notice this particular event simply by perusing the financial statements. |
2. | Continuous monitoring.Even the most diligent of employees will grow tired of constantly computing ratios and measures in search of significant observations or signs of trouble. However, an automated accounting system does not get bored—it can calculate numbers without tiring. |
3. | Filtered information. The traditional approach of producing and circulating detailed financial reports often inundate management with mountains of information which they must wade through in order to ferret out useful information. This process can be tedious and time consuming. By contrast, event-triggered reporting only provides people the information they need to act upon. |
4. | Efficiency. Event-triggered reporting helps people work more efficiently. For example, assume a customer's purchases decline for a given period. Traditionally, the sales manager might sift through a 400-page sales report in order to identify a customer with declining activity. Such laborious tasks are often set aside or even discarded. An event-triggered reporting system instantly notifies the sales manager whenever activity for a given customer slips. The sales manager need only act on the information—mountains of paperwork are thereby avoided, or at least reduced. |
5. | Benchmarking. When it comes to accounting, no single number is useful. To be useful, it must first be compared to another number. For example, knowing a company has 80 days worth of inventory is virtually useless. You must also fill the blanks to questions such as: | • | What was the number of days in inventory last month? Last quarter? Last year? | | • | What is the average number of days in inventory for a company of our size and industry? | | • | What is our budgeted days in inventory? |
Once a manager knows the days in inventory had been averaging 70 days over the past year, the industry average is 65 days, and the budgeted amount is 72 days, a call to action to reduce the current 80 day amount is evident. Event-triggered reporting is about comparing current financial conditions with benchmarks—hence, all information produced by this reporting process is concise and beneficial.
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6. | Targeted feedback. Event-triggered reports typically send notifications to only those people who should be privy to the information. While the CFO may be copied on all event triggered reports, the sales manager may see only those notifications relevant to his or her job. Likewise, the president may be copied on notifications pertaining to sales, cash, and profits, but may not be bothered with notifications indicating a particular inventory item needs to be re-ordered. |
Not Just Looking for Trouble
One might assume event-triggered reporting might focus on looking for potential problems and troubling trends, and indeed, event-triggered reporting is well-suited for this goal. However, event-triggered reporting can be just as useful for identifying positive events as well. For example, a sales manager might want to be alerted when a customer has earned a new discount threshold. In this occurrence, the sales manager might receive the following e-mail message from the alerts system:
Attention Sales Manager: Please call Julia Stevens and congratulate her for purchasing $50,000 this calendar year and earning an extra 1 percent discount on all future purchases. Her telephone number is 555-0100.
Think how much easier your job could be if your accounting system kept you well informed of key events such as this. Other examples might include notification of an employee who achieved a perfect attendance record for the year, sales representatives who have exceeded their goals, or a collections manager who has set a new record for the lowest days in accounts receivable.
Unlimited Business Alerts
An unlimited number of possible alert conditions exist that might help a company better manage its customers, vendors, employees, and resources. All companies would most likely want to monitor typical benchmarks, such as cash levels, current ratios, days in inventory, accounts receivable, and accounts payable. They would also employ this solution to keep on eye on profits, interest rates, and sales levels as well. However, the accounting system can also alert companies about particular inventory items whose quantity are running low, customers who are paying too slow, or even employees who have exceeded their vacation and sick time quotas. The creative CFO can set up hundreds of pre-set parameters in just a few hours, and thereafter, the accounting system will constantly compare these conditions to actual results without fail for years to come.
Conclusion
Event-triggered reporting represents a tremendous improvement over traditional financial reporting. However, many companies and consultants have not yet fully deployed event-triggered reporting simply because they are unaware of this solution. I hope this article has shed some light on this topic and encourages you to investigate and perhaps deploy an event-triggered report system for your company or client.
J. Carlton Collins, CPA, president of ASA Research, LLC, is an independent author, lecturer, and analyst in the accounting systems industry. He has installed more than 200 accounting systems, and delivered 1,800 lectures around the world on the subject of accounting systems and technology. Collins has published extensive accounting system reviews which can be seen at www.AccountingSoftwareAdvisor.com.
Contact Collins at Carlton@AccountingSoftwareAdvisor.com with questions or comments.
