Most monthly board packs share a structural problem. They are built to answer the question: did we hit the number we said we would hit? That is a legitimate question. It is not the most useful one.
The question a board should be asking is: did the operations perform the way we expected them to perform, given what actually happened in the business this month? Those are different questions, and they require different numbers to answer them.
Variance to budget is not a control number
Variance to budget is the most common primary metric in board reporting. It tells the chair whether the forecast was accurate. It does not tell the chair whether the operations were well run.
If revenue is down 8% versus budget and the whole market is down 12%, operations outperformed. If revenue is flat to budget but the market is up 15%, operations significantly underperformed. Budget variance tells you neither of those things without the market context — and most board packs do not provide it.
The number that isolates operational performance is variance to prior period actuals, adjusted for known volume changes. That number strips out the planning assumption and shows you what the business actually did with what it had.
The board pack diagnostic I run on every engagement
When I start a new fractional CFO or board advisory engagement, one of the first things I do is read three months of board packs back to front — starting with the decisions the board made, then asking whether the information they had was sufficient to make those decisions well.
In a recent engagement, 38% of the CFO’s monthly board pack figures were being recomputed by hand from four disconnected systems before each meeting. The reported figures were accurate. The control process around them was not. The exposure was not in the number. It was in the process that produced the number — and a board reading the number without understanding the process was missing the actual risk.
Three questions every board should ask about its own pack
First: is the primary variance metric isolating operational performance, or is it confounded by planning assumptions?
Second: do you know which figures in the pack were produced from a single system of record, and which were assembled by hand from multiple sources? The hand-assembled ones carry execution risk the single-source ones do not.
Third: if operations significantly over- or underperformed this month, would the pack tell you clearly why — not just by how much? The ‘why’ is where the decision lies.
What good board reporting actually requires
None of this requires a new system or a new CFO. It requires someone who has sat in enough board rooms to know what the chair is actually trying to understand, and who can map that back to the data that exists in the business.
If your board pack feels like it is telling you what happened without helping you decide what to do about it, that is worth a 30-minute conversation. amadden@ajmsolutions.ca
Arthur Madden is a CPA CMA MBA ICD.D with thirty years in CFO, CEO, and board director roles. He advises boards and CFOs through AJM Solutions Inc., based in Calgary.
Related: The translation gap between finance and operations — why the people who run the business and the people who report on it are often working from different pictures.