Albert Einstein on financial reporting

Albert Einstein on financial reporting

Albert Einstein was one of the smartest people who ever lived, responsible for the mathematical equation more people on the planet can recite than any other, even if they don’t always know what the science behind it means…

E=mc2

If you were perhaps expecting the secrets of the universe to be a little more complicated than that, you wouldn’t be alone. But it turns out that the workings of the unimaginably massive, scientifically complex, and still largely undiscovered universe we inhabit is, at its heart, governed by a pretty simple equation with just four terms.

It takes a massive amount of brainpower to understand the workings of the scientific world, and if Einstein’s formula for how the universe works had extended to several hundred closely-typed pages, none of us would have begrudged him that.

But however clever you need to be to understand the universe in all its glory, you need to be an order of magnitude more insightful to summarise everything you’ve learned into a formula with only four terms in it.

What separates an outstanding Finance Director or CFO from a perfectly competent one isn’t their ability to run the numbers. Most of us are perfectly capable of doing that. The difference is in the level of insight they bring to the analysis of the business.

Firstly, an outstanding Finance Director or CFO can bring down a highly complex business to just a small number of variables.

Secondly, they’re wise enough to know that numbers alone will never be enough to run the business. Some things are just unknowable…or, at least, to the extent they are knowable, financial numbers and KPIs are probably the least effective way to measure them.

Albert Einstein put this much more eloquently…

Not everything that can be counted, counts. And not everything that counts, can be counted.

He wasn’t writing about financial reporting specifically, but if he had been, I feel sure he wouldn’t have been too impressed by the ever-thicker monthly reporting packs and ever-lengthening lists of KPIs managers have to report against each month.

I’ve yet to see a business which has become twice as successful by doubling the length of its monthly reporting pack, and doubling the number of KPIs managers are expected to track.

Until you can be sure that any increase in tracking and reporting is going to add to the bottom line you might want to think twice about adding another element to your monthly reporting pack. That way your managers can concentrate on running the business instead of chasing around for weeks on end just to get some often fairly meaningless KPIs into shape before month-end rolls around.

Obviously I never had a chance to discuss this with Albert Einstein in person, but I feel sure he’d agree. Measure what matters, but don’t fool yourself that the monthly reporting pack represent all the important things that go on in your business. 

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