What should your financial reports look like?

All too often, financial reports fall somewhere between messy spreadsheets and dashboards, full of poorly labeled and inappropriate charts, 3D effects, and speedometers, that simply do not get the message across to the decision makers.

While recent data visualization trends have improved the situation, the major problems in financial reporting have yet to be solved. Countless reports and presentations are created throughout organizations daily, all in different formats, lengths, shapes, and colors, depending on personal preferences of the person who prepares them. The result? Managers are not making their way through the data presented, time is being wasted, and stakeholders are failing to make important decisions.

Solution? International Business Communication Standards (IBCS) consistently define the shapes and colors of actuals and budgets, variances, different KPIs, etc. The IBCS are a set of recommendations and best practices that went viral in Europe and have solved business communication problems in numerous companies such as Coca-Cola bottlers, SAP, Bayer, Roche, Swarovski, Lufthansa, Philips, etc.

I like to call them

"the traffic signs for the management".

I'll explain why, but first, let's take a look at how the above-mentioned companies' P&L reports look like:

I hope you'll agree that they're clean, clear, exact, intuitive, and meaningful.

They're carefully structured and designed to intentionally direct the reader's attention to the most important business values. In FP&A, this frequently means the variance to budget or previous year, or both.

They are highly visual, but above all, they are extremely consistent.

Let me repeat that: consistent.

The same colors and same shapes always mean the same thing. The terminology is consistent. Even the icons and fonts are used consistently.

Do we really need a standard for business communication???

Well, having standards in our daily life is highly practical. They simplify our decisions, enable us to work more efficiently and in most cases, make our lives better.

If you see this red sign while driving a car, you immediately know what to do. Even if you drive to Canada or decide to rent a car in Europe, you’ll get the exact same sign.

Think about it. You see a sign and you take action... You see a certain shape and color and you make your decision in a snap. Why? Because it's always the same! You've internalized it for life. It's in your lizard brain, so you don't think about it. You don't waste your precious time on deciphering it, you simply act.

Now imagine that every country, every state or even every town used their own set of traffic signs. Perhaps in the mayor’s favorite color (camelia pink? bermuda turquoise?), strictly oval-shaped to satisfy somebody else’s personal preference or polka-dot patterned to follow the latest fashion.

Or perhaps your neighboring city owned a different technology for crafting the signs, producing totally different-looking objects as a result.

It sounds comical, but that's exactly what we do in business communication:

• Today we use blue column charts for sales, tomorrow it’s a multicolored pie-chart.
• If an accountant prepares a financial report, chances are it's a massive spreadsheet with all the figures displayed in two decimals. Font size 8! If you're lucky...
• If it comes from the marketing department, then it's designed strictly in corporate colors, heavily branded, with an enormous logotype at the top. As big as possible. Definitely a lot of pie charts in this one.
• Frankie writes "Sales, million USD" while Johnny uses "Net revenue in $1M". Dr. Jekyll writes "October YTD" but Mr. Hide prefers "2017/1/1 - 2017/10/31". Of course, they're all sending their analyses to the same person (their boss). Poor guy.
• If you use Excel, your report looks like a myriad of numbers just went to jail. If you're a QlikView user, I bet it's populated with fancy speedometers. 3D if possible.

If that's not convincing enough, just google the word "dashboard".

Do you feel lucky?

Voila!

Not a pretty sight, huh?

We have standards in traffic, music, maps, electricity, engineering, etc. Just about everywhere, except in business.

We have standards in traffic, music, maps, electricity, engineering, etc. Just about everywhere, except in business!

It has always struck me that report designers just don't feel their readers' pain. You know, the actual people who have to make sense of all them pies, donuts, random color pallets, and illegible writing.

This is the management we're talking about. Let's show them a little empathy. Let's stop wasting their time!

The way financial figures are presented is important and can make a huge difference. The "action distance" can be shortened colossally. People will actually start reading the reports they're getting. And above all, they will understand the business' performance in much greater detail.

Like the traffic signs, financial reports should have a standardized design.

That's why, like the traffic signs, financial reports should be standardized. I see the road sign, snap, I make the decision. I see the business chart, snap, I make a business decision.

Dr. Hichert's International Business Communication Standards

It was back in the 90's when Dr. Rolf Hichert, the renowned German professor, took on a challenge to standardize the way analysts present data in their reports, dashboards, and presentations. His extremely successful work culminated in 2013 with the public release of International Business Communication Standards (IBCS), the world’s first practical proposal for the standardized design of business communication.

So, how does IBCS work?

Let us start with a simple example:

This is a typical grouped or “clustered” column chart, representing the actual and budgeted sales figures. The goal of this visualization is to compare the sales vs. budget.

Is it efficient?

First, we need to figure out that the blue columns represent the actuals and red columns the budget. Why blue? Why red? The color assignment is completely arbitrary, probably just an accidental default of the software tool. Second, it's hard to estimate the variances to the budget. Are we above the budget or below the budget for a particular month? By how much?

Now, let’s observe the exact same dataset presented according to the IBCS.

The actuals are depicted as dark gray full columns, while the budget is an outline. We call this scenario coding: the budget is an empty frame that will eventually be filled with the actuals. It’s very intuitive and it saves colors so we can apply them to more important data categories.

Next, the variances are explicitly calculated and visualized. Positive variance is green, the negative variance is red. The user’s attention is guided to the variances, which are in this case the key to understanding the sales performance.

The values are explicitly labeled at the most appropriate position on the chart. All texts are standardized, exact, short and displayed horizontally. The name of the KPI always contains the unit.

The must-learn IBCS rules

The IBCS include extensive rules and recommendations for the design of business communication that help

(1) Organize your content by using an appropriate storyline (Conceptual rules),

(2) Present your content by using an appropriate visual design (Perceptual rules)

(3) Standardize the content by using a consistent, uniform notation (Semantic rules).

Here's the key part of the uniform notation in IBCS:

After you apply the IBCS rules to your standard variance report, it will look something like the illustration below.

As you may have noticed, this report has several distinctive features:

(1) The key message (headline) at the top,

(2) Title description below the key message,

(3) Strictly no decoration (no logotypes, pictures, corporate image visuals, colorful backgrounds, borders, etc.)

(4) Clear structure of columns (PY for previous year on the left, AC for actual, and BU for budget on the right; always in this order),

(5) Scenario markers in column headers (gray for PY, black for AC and outline for BU),

(6) Variances visualized with red/green “plus-minus” charts and embedded into the table,

(7) Absolute variances (ΔPY, ΔBU) displayed as bar charts, while relative variances (ΔPY%, ΔBU%) are displayed as “pin” charts (I call them the “lollipops”)

(8) Semantic axis in charts: gray axis for variance to PY (gray = previous year), double line axis for variance to budget (outline = budget) 

(9) Numbered comments that should be written on the same report page.

With that, we've arrived at a consistent sign system - a language. An international business language that FP&A professionals will need to start speaking to take the efficiency of their business communication to the next level.

Source: ibcs-a.org. Coca-Cola ??ecek uses Zebra BI for IBCS-compliant internal reporting in Excel.

OK, I like the idea, where do I start?

The IBCS standard proposes two rather bold ideas:

1. The reports should look the same (or at least very similar) in any company, regardless of the industry and its size - from a multinational pharmaceutical corporation to a bank, a mid-sized consulting company or a startup.
2. The reports should look the same (or at least very similar) regardless of the software tools the users work with.

In short, it refers to every report, in any type of company, done with any software tool. That implies it probably concerns you as well, my dear reader! ;)

So why not give it a try right away?

You'll need to learn a few more details and you'll need the tools to do it. Luckily, the IBCS Association has officially certified several software tools, so that you can choose a tool for almost any major IT platform.

If you're using MS Excel, then your tool of choice is the officially certified Excel Add-in called Zebra BI. It contains tutorials and ready-made templates that will teach you how to create IBCS charts and reports in MS Excel. You can download your 30-day free trial here.

To try IBCS in Excel, get the Zebra BI add-in here: https://zebrabi.com/

This about covers it for today. If you'd like to become a ninja in IBCS reporting and data visualization, then here are the next dates of my full-day workshops of IBCS-compliant reporting in MS Excel:

How did you like these ideas? Let me know in comments below. And, if you liked this article - please share it!

———

Andrej Lapajne is the founding member of the IBCS Association and one of Dr. Hichert's closest associates. He's the founder of Zebra BI, a Hichert Certified Consultant, a renowned Excel trainer and a DataViz geek.

Andrej with Naomi B. Robbins after his lecture at McKinsey & Co. in NYC, 2015.

Andrej with Dr. Rolf Hichert, the morning after the #IBCS2015 conference in Amsterdam, sketching new ideas for the design of the "semantic axis" in charts. #FourCoffeesEach, #UltimateDataVizGeeks ;)

#IBCS, #reporting, #FP&A, #data visualization, #Excel, #Zebra BI