Timeliness versus Precision

It’s a good thing that crow tastes a lot like chicken- and that I like chicken- because I’ve been eating a lot of it lately.  The latest portion has been served up by way of a discussion or several I’ve had with the leader of one of the companies with which I work.  The long and short of the debate comes down to the importance of timeliness versus the need for accuracy and precision.

You guys know me by now.  I’m a perfectionist.  I like things right.  I insist on putting my best foot forward.  My tagline, after all, is “Addicted to Improvement.”  It is my belief that what people produce and put out for the world to see and consume– whether in words spoken, in writings and reports created, or in physical appearance –is reflective of their personal brand.  So you should always make sure what you do is the absolute best.  Right?  Well, actually I’m wrong.  Sort of.

Let me explain with a few examples.  As an Accounting and Finance professional, I’ve always taken extreme pride in making sure month, quarter, and year-end financials are accurate.  This has meant, often times, that the closing of the period takes longer than I– or the rest of the management and leadership team, especially– would like.  What about at home?  I have been known to take an hour to update our family finances, spending far too much time tracking down the particulars of a few expense items.  That is probably 40 minutes longer than it should take, 40 minutes more I could spend tackling my four-year old son in the backyard or playing “Go Fish” with my growing-up-too-fast daughter.  And speaking of relationships, trying to carve out time to plan the perfect get-together means I miss opportunities to just go with the flow and hook up with my dear friends for coffee or a quick phone call.  The point is that spending time trying to get things just right, trying to make things perfect, comes at the direct expense of timeliness- or in some cases completion at all.

Back to the impact of this battle (between speed and accuracy) on business.  This friend I have, a successful CEO and mentor to me, has been telling me this for a long, long time.  But like my kids, who only really believe what my wife and I tell them if their teacher, grandparents, or (I)Carly says it, I had to hear (or in my case read) it somewhere else before it really hit home.  That source for me is Winning CFOs: Implementing Better Practices by David  Parmenter, one of the three books I’m currently reading.  (Do You! by Russell Simmons and Twitter for Dummies are the other two) Unless you’re an Accounting and Finance nerd, it’s not really worth looking up, but the underlying message is worth embracing.  Within the first several pages, the author illuminates the importance of reducing the month-end closing process to as few days as possible.  In larger companies, it is becoming commonplace to close the month in as little as three, two, or even one day.  That is almost unheard of.  But apparently it is completely possible.

The battle comes down to timeliness versus precision.  And for Accounting-types (at least those like me), this is a very difficult trade-off.  That’s because, by nature, we are detail-oriented people.  We inherently feel that 1+1 is always 2, that wherever possible, we should apply science to the task at hand.  The problem is that much of business, including Finance and Accounting, is as much art as it is science.  Or at least it is a lot more art than we are comfortable admitting.  Whooaaa!  Yes, I said it.  And if I hadn’t read it, I wouldn’t have believed it either.  The convincing argument for me came in two parts.  First was the reality that no matter how diligently and carefully a Finance Team works at closing the month, there will be mistakes made.  Accruals, missing or forgotten payables and receivables, and assumptions make it unavoidable.  Secondly, the truth is if you put ten Accountants in a room and ask them to close the same set of financials, you’ll get ten different sets of results.  And that is the reality.  Also the reality, thankfully, is that they will all be similar, with I’d imagine far better a variance than you (or your management team) would accept.

So what does that means?  Well, it means as Finance professionals we can relax a little.  We don’t need to worry ourselves about getting every line item precisely booked, down to the nearest penny.  We don’t need to bug that annoying sales rep for his $300 expense report, at least not for the reason of closing the month.  And we certainly shouldn’t lose sleep if our depreciation, prepaid rent amortization, or vacation accrual is off by a few percentage points.

As my CEO friend and mentor has been telling me for months, “It’s better to get fair and representative results into the hands of the decision makers faster, even if it means we are not 100% exact.”  That gives the company time to analyze and understand the results, make necessary adjustments, and better plan for the future.  Stated in another way, building strategies and a culture around getting information into capable hands sooner means the company is able to react to that information effectively.  What good is having information, after all, if it’s too late to do anything about it?  Even if it is perfect!

Let’s quickly and briefly bring things back to the personal level, to help those who are not in Accounting and Finance apply this rule.  In my earlier example of taking more time than is necessary to balance personal finances, the loss of family time is absolutely not worth the extra 2% of accuracy to my records.  And even though taking time to organize and plan might result in a perfect get-together with all of my friends, it might mean I’ve missed dozens of small chances to connect with them, either as a group or individually.

The moral of the story is clear, then.  Accuracy is important.  There is never an excuse for sloppy or unprofessional work.  But when an immaterial increase in accuracy means a very material decrease in timeliness, the costs begin to outweigh the benefit.  To coin an economics phrase, when the marginal “profit” from such activities becomes zero or negative, these additional activities should cease.

And so I continue to learn and grow from others.  I created this site for that purpose, so that we could all learn from one another.  And I hope to continue to grow my community of followers and those whom I can follow as a result.  But if I’m going to continue to eat crow like I’ve had to the last few weeks, I’m going to have to make a run over to Costco and stock up.