Use EPM to Enrich Qualitative Commentary

Quantitative data like revenue and costs say a lot about how a business is performing, but maybe not so much about why. For that you also need qualitative commentary.

Throughout history there have been companies whose financials were outstanding right up until their business model collapsed. Remember the Blackberry? By the same token, there have also been companies that consistently suffered losses year after year only to eventually turn huge profits and dominate their industry. Think Amazon. Just as in sports (think the last-place 2019 Boston Red Sox, the highest paid team in baseball), so too in business — the financials often don’t tell the whole story. On the one hand, a company may underperform compared to industry peers but overperform based on its own deliberate strategy to invest in a new process, product, market, or other perceived gamechanger. On the other hand, an “overperforming” company may also be ignoring signs of financial trouble ahead, like the fact its product makes some people sick or its CEO is a misogynist.

A shift in consumer tastes, the recent hire or loss of a star employee, a cultural or political misstep in a key region — there are potentially countless examples of when “numbers only” financial accounting systems do not adequately explain corporate performance. That is why EPM solutions like Oracle EPM Cloud incorporate robust qualitative commentary features — collectively known as narrative reporting. It allows for the fact that:

• Decisions are often subjective
• Subjective decisions rely on qualitative data
• Qualitative data cannot be represented purely as numeric values

One audience for qualitative commentary is investors — hence, the management discussion and analysis (MD&A) section in 10Ks and annual reports — where management explains financial results and expectations to investors. But static end-of-period reports are not the only place qualitative commentary is useful. And investors are not the only audience. So too are the stakeholders who use EPM narrative reporting because they are responsible for achieving those financial results. As strategies are formulated, decisions made, and events unfold, they need to be explained and acted upon in a narrative context. So, there needs to be a place where stakeholders can collaborate to do just that, not only report numbers. For example, stakeholders will want to build reports that:

• Integrate narrative content with structured and unstructured data
• Can be accessed via mobile, web, and Microsoft Office
• Support robust versioning, comment threading, and lifecycle management
• Auto populate and refresh to enforce a single current version of the truth
• Leverage existing Microsoft Office documents
• Can be securely distributed among stakeholders

Such is the model implemented by Oracle EPM Cloud’s narrative reporting.

A Narrative Reporting Walkthrough

Suppose you wanted to prepare a narrative report that includes a spreadsheet showing project expenses by category (mobile testing, hardware cloud server, cloud software, post launch expenses, promotion, etc.) over several years for a new product initiative. Within the tool’s authoring window, users would see the spreadsheet, along with any explanatory text. Next to the authoring window a commenting window shows a comment thread — say, where a colleague suggests an expense trend chart be added the doc to highlight the fact that most of expenses occur only in the first year. The author or another reviewer could then comment on this comment, perhaps to say they will invite a different user to create and add the requested expense trend chart. Different versions of the document (along with each version’s respective comments) could be accessed by clicking in a version list window separate from the authoring and comment windows.

In this way all commentary would be anchored against specific pieces of content in the report and carried forward throughout the review lifecycle. Documents could also be combined to produce executive briefing books and other books of financial record. Stakeholders could then review and comment on the book, both the individual sections and the entire report package. Based on the nature of the content and the stakeholders involved, specific process flows could be choreographed for approvals and status reporting. Users can automatically be alerted of upcoming deadlines and deliverables while the overall completion status can be monitored on mobile and web.

Thus, stakeholders can literally attach to the financial numbers the various assumptions, assessments, and judgments that actually go into driving those numbers. They can better answer questions like whether the opportunity costs of selling some products as loss leaders make sense given social media conversations. They don’t just analyze the numerical inputs underlying financial results but also the subjective, qualitative inputs that also underly those results.

If qualitative commentary is critical for investors it is even more critical for the stakeholders who ultimately answer to investors for financial outcomes. And having those answers in real time means that stakeholders now have the opportunity to change outcomes while they still can.