Defining “Useable” Monetary Information for Internal Decision Support

The Profitability Analytics Framework focuses on improving internal decision support by building monetary models based on operational models of the organization and reflecting the causality inherent in operational models in financial information. The goal is to create “useable” information for internal decision support. But how do you know if the information is useful for the organization?

In the IMA’s Conceptual Framework for Managerial Costing, I laid out 3 characteristics of “usable” information for internal decision support. These are true when used for revenue management and investment as well as managerial costing.

1. Transparency: Monetary internal decision support information must reflect the characteristics of the resources, process, or activity being modeled. This is done by first building an operating model, looking at how the resources are consumed (money follows resource use), and collecting monetary information that mirrors that consumption to the level of detail needed for internal decision making. The same applies for revenue except the model is of customer or channel buying characteristics.

2. Defensibility: Naturally monetary internal decision support information must be defensible based on logic, but what is MORE IMPORTANT is that anyone in the organization can be defended from criticism when they use the information created by the causal monetary model. The monetary information needs to be that transparent! It should not require adjudication from finance to insure it is used correctly. It should be a clear reflection of operational information. If someone can use operational information, ideally they can use causal monetary information designed for internal decision support.

3. Timeliness: Internal decision support information must be timely, and it must be consistently available when needed. This means to everyone, not just finance. This is the failure when relying on an FP&A group that investigates differences from regulatory financial accounting information; they don’t start the project until after the debate is raging. They also tend to serve as adjudicators of the correct interpretation. Innovation and improvements occur if everyone in the organization has the information they need and can interpret and act on the information when they need to.

I hope this explanation helps illustrate the importance of organizations’ using a causal internal decision support model to create information that enhances and enables better decision-making throughout the organization.