Data-Driven Decisions Kept Me from Falling on My Face

The title "Data Driven Decisions Kept Me from Falling on My Face" became my reality when I was a senior leader tasked with driving the success of multiple product lines. Many times—often daily—I was faced with having to make product decisions, some small and some significant. I found that it was only when I had data to support my decisions that I could predict the outcome.

This week, my focus on LinkedIn content creation has been to provide a comprehensive overview of two accounting fields: management accounting and financial accounting. Why? Three primary reasons:

1. Knowing there is a difference is useful in demystifying the practice of accounting for all.
2. Making operational business decisions is better when the decision-maker has good data.
3. Two great sources of data in any organization come from the management accounting function and from the financial accounting function.

Management accounting and financial accounting are two traditional accounting roles. Many accountants become tax practitioners or auditors—two other traditional accounting roles. This week’s newsletter will focus on the differences between management accounting and financial accounting.

Are you a decision-maker for your entity's operations? Find your Management Accountant.

Management accounting is internal to the organization. For example, perhaps you are a product manager, and you want to get a handle on your product costs. Who do you ask? If you want to know the product costs, you will seek that information from the management accountant who has a finger on the pulse of the operations of the business, including product costs, the direct materials and direct labor incurred, and the manufacturing overhead allocated for a given period.

Common management accounting topics:

• Cost behavior (e.g., fixed, variable, and mixed costs)
• Cost-volume-profit analysis
• Pricing decisions
• Variance analysis
• Budgeting
• Capital budgeting
• Cost allocation
• Job costing vs. processing

Management accountants track the details of the operations. They create detailed reports used to make decisions like “Should we continue to use this supplier?” or “What should we do with this excess capacity?”. The input of the management accountant helps determine pricing and, therefore, gross profit which is a very important performance metric.

Are you an investor, creditor, or regulatory agency? Your decisions rely on the work of the Financial Accountant.

The practice of financial accounting results in the communication of the financial activities and position of the entity. The role of the financial accountant is to identify, measure, record, and communicate economic events.

Communication comes in the form of financial statements, including:

• Income statement or statement of operations
• Balance sheet or statement of financial position
• Statement of cash flows
• Statement of stockholders’ equity

The work of the financial accountant must comply with the standards and rules of the FASB and the SEC.

The financial statements tell the results of the strategic decisions made by the organization’s leaders. Users of the financial statements will perform analysis of these results and compare them to prior period results as well as to competitor’s results and industry metrics.

Just like the management accountant, the financial accountant must have strong critical thinking and problem-solving skills. Both the financial accountant and the management accountant will be at the decision-making table, helping drive the business forward.

Building Your Financial Acumen: A Shield Against Mishaps

As you embark on the journey to build your financial acumen, envision it as a powerful shield guarding you against potential mishaps. Just as data-driven decisions kept me from falling on my face in the realm of product leadership, your ability to harness financial insights will serve as a safeguard in the dynamic landscape of business.

Understanding the intricacies of financial statements, analyzing results, and comparing them to industry benchmarks equips you with a data-driven compass. It guides you through the complexities of strategic decision-making, ensuring that each step is supported by a solid foundation of information.

In the world of business leadership, being a better contributor and decision-maker hinges on your capacity to interpret financial data accurately. The insights gained from financial acumen empower you to make informed choices, mitigating risks and steering the organization toward success.

Allow me to assist you in fortifying your financial acumen. I am currently accepting new clients in 2024—send me a message to explore how we can enhance your capabilities.

And as you invest in your professional growth, don't miss out on my LinkedIn Learning courses ! They provide an excellent opportunity to further develop your skills and embrace the transformative potential of data-driven decision-making. Remember, a commitment to informed choices is the key to avoiding pitfalls and achieving sustained success.

About the Author:

Denise currently holds the position of a full-time accounting professor at the University of Colorado-Boulder, specializing in financial accounting and financial statement analysis. In addition to her role in academia, Denise serves as a LinkedIn Learning Instructor, offering five courses designed to help individuals enhance their financial acumen skills at their own pace. Her expertise extends to executive coaching, where she focuses on empowering leaders to build confidence in utilizing data for informed decision-making. Finally, Denise is a keynote speaker and is LinkedIn's Top Motivational Speaking Voice.

Before joining the University of Colorado, Denise showcased her leadership abilities in senior roles at Kaplan Professional and Wiley Publishing. These experiences allowed her to refine her skills as a leader, setting the foundation for her current endeavors in education and coaching.