Intro Video Transcript

Randall Bolten: Hi, my name is Randall Bolten and I'm the instructor for the course, Designing a Great Management P&L. This course is part of Illumeo learning Training series.

Let me introduce myself briefly. First of all, as I said, my name is Randall Bolten, and my professional background is that for 30 years I was a finance executive in Silicon Valley, mostly for software companies, both public and private companies. And for almost 20 of those years I was a Chief Financial Officer. More recently and based on my experience as a finance executive I wrote a book called, "Painting with Numbers: Presenting Financials and Other Numbers So People Will Understand You." I believe it's the first book to treat presenting quantitative information as a communication skill not as a math or computation skill. And this topic, Designing a Management P&L, fits right into that concept.

Let's take a look at the agenda for this course. We'll start with a brief introduction, what is a management P&L, why is it so important, and what are some of the key thoughts I want you to have in mind as you go through the course?

We'll talk about the rows, the things that go down the left side of any financial statement and identify eight essential design criteria that affect how you lay out the rows of a management P&L. We'll also look at what goes across the top, the columns, and give you a perspective on how to make decisions in that area. We'll have a few more thoughts about the implementation of a management P&L and then we'll wrap it up. So let's start.

What is the Management P&L? It has many names, it's also known as the "Management Income Statement", the "Natural P&L", the "Departmental P&L", the "Departmental Income Statement". A whole lot of different names but they're all fundamentally the same report. And what they're intended to do is present to managers the revenues and expenses by their natural categories. Let's talk a little but about ... by natural category it means, "What they mean in a business sense."

For a software company which is the industry that I'm most experienced in, for example, you might want to distinguish on the revenue side between product sales and maintenance revenues. In the cost of goods area between raw materials and direct labor. And in the operating expenses area between categories of expenses like salaries, benefits, and travel and entertainment. I've said, "I think it's the single most important report that any enterprise uses." So let's talk about why that's so important.

Well, you can't manage an enterprise without it. That's true regardless of what industry the enterprise is in, whether it's for profit, not for profit, whether it makes something, or sells a service. This one report is likely to be used by every manager in the enterprise. Which means that it gets a lot of visibility throughout the company. That's a good thing if you're in financial planning and analysis or in accounting because it gives you an opportunity to create a common language for the enterprise to use in the ways that you talk about your business.

It's the same report company wide, hence the notion of a common language. And company wide I mean top to bottom, from line managers all the way up to the board of directors and side to side across all functional areas, G&A, manufacturing, sales, marketing, you name it. The key design thoughts that I want you to have in mind as we walk through the details of this course are designing a good report. A good management P&L is about communication. That means that Job 1 means the report must be understandable and usable, which, by the way, is also Job 2 and Job 3.

No one is going to send you a thank you note just for getting the numbers right. That means you'll get to collect your paycheck next pay period. What's important is to produce a report that helps people manage an enterprise. Remember, most of the users are not going to be finance professionals. That means you have to be very careful about designing reports that can't be understood only by your fellow finance professionals.

They're also not going to want to devote much time to pondering and analyzing the report. You need to design the report in a way that the important information jumps right out. And lastly, as I've said before, the design principles that we're going to talk about apply regardless of what your enterprise does. In the next portion of this course we'll get down into the details.