Let's face it: as Finance Directors or Finance Leaders, our commentary on management accounts can often seem like mere footnotes to the untrained eye.

But they're more than that, much more.

The commentary can turn a static report into a dynamic narrative, a storyline that informs and influences decision-making at the highest level.

It's a crucial aspect of our role as Finance Leaders.

So, how can we ensure our commentary adds value, goes beyond the surface, and illuminates what the numbers really mean?

The answer is as simple as asking "why". And not just once, but up to five times. It's a strategy that we can borrow from the Lean Six Sigma world, known as the "5 Whys".

The principle of the 5 Whys is straightforward: you ask "why" successively until you reach the core cause of a situation. This technique helps you dig deeper and identify the real reasons behind a variance, beyond what's apparent on the surface.

Here's an example:

Suppose your monthly management accounts show a significant increase in labour within Cost of Sales. You ask "why?"

Why did the CoS labour increase? Because overtime pay has increased.
Why has overtime pay increased? Because we're missing deadlines.
Why are we missing deadlines? Because we've taken on more projects.
Why have we taken on more projects? Because we've onboarded new clients.
Why have we onboarded new clients? Because our marketing efforts have been successful.

So, the root cause of the increased labour costs is the successful marketing efforts leading to more clients and projects, resulting in overtime.

This detailed insight can't be gleaned from the financial statements or KPIs alone, but it provides valuable context to the numbers and shapes the strategic response.

Sometimes, you need to speak to one or more Department heads to get to the root cause and can't work this out on your own.  In the above example, I would even go one step further and find out which specific marketing campaign was successful and why it was different to prior campaigns.

You don't always have to go to exactly 5 Whys, sometimes less and in the above case, sometimes more.  But ultimately you want to get to a place whereby your telling the reader more information and what they can't "read" from the numbers alone.

Creating insightful management accounts commentary is all about offering something that the raw numbers cannot. The 5 Whys approach gives us a tool to do that, enabling us to uncover the story that the financial data is really telling us, and communicate this in our executive summary.

The aim is to provide a narrative that adds real value, that offers strategic insights and actionable recommendations.

By adopting the 5 Whys, we can turn our commentary from a mandatory report into a strategic tool, one that enhances our role as Finance Directors and contributes significantly to the decision-making process.

Remember, asking "why" isn't about pointing fingers. It's about understanding the root cause and helping everyone in the organisation learn and improve. After all, that's what our role as Finance Directors is all about.

If you feel that your Management accounts aren't well received and sometimes you wonder if anyone is actually reading them, you may want to take a look at our resource "Upgrade your Management Accounts".  Ultimately this is the ideal why to showcase your leadership skills, whether you're in that leadership role or not.  Make sure the one report that goes to the leadership team and board each month is you and your teams best output.

Links:

1. Get your FREE Guide: Stepping into the role of Finance Director or CFO
2. Follow me and let me know what challenges you are having right now.
3. Register for the mini-course, Upgrade your Management Accounts and get noticed by the business 
4. Work with me in the Financial Leadership Foundations course  that includes monthly Q&A sessions where we can discuss all of your questions and how to apply your learnings to your current role.