The monthly rhythm: close, forecast, report

In this lesson: You will learn the steps of the monthly cycle, why each waits for the one before, and what makes Brenlow's pack late.

Every month, finance closes the books, updates the forecast and produces the management pack. Then managers meet and take decisions. A pack that arrives after the meeting cannot change its decisions (Lesson 1.1).

The timetable of this cycle is called the reporting calendar. The month-end close (Lesson 1.8) has five main steps:

1. Sales cut-off: record every sale in the right month (Lesson 1.7).
2. Stock count: count and value the inventory.
3. Accruals: record costs that belong to the month but have not yet been invoiced.
4. Group items: check that amounts owed between branches, or between companies in the same group, agree on both sides.
5. Review: check the results and close the ledger for the month.

Each step waits for the one before

The full forecast update usually waits for the closed month's figures, although much of it can start earlier from estimates. The pack cannot be written until the forecast is ready. So the monthly cycle is a chain of dependencies, like the planning calendar in Lesson 1.8. Its longest path sets the day the pack is issued. The design rule is also the same: start from the meeting date and work backwards.

Worked example 11: Brenlow's month, step by step

We will lay out the steps from Brenlow's month end to the issue of its pack. This shows why the pack misses the meeting on working day 9. At Brenlow, the steps run one after another, so every one of them sits on the longest path. The table shows each step.

First, add up the chain: 1 + 2 + 1 + 2.5 + 0.5 + 1 + 1 + 1.5 + 0.5 = 11 working days. So the pack is issued at the end of working day 11.

Next, compare it with the meeting. The first seven steps take 1 + 2 + 1 + 2.5 + 0.5 + 1 + 1 = 9 working days. So the ledger closes on working day 9, the day of the meeting, and the pack arrives two days later.

Last, look at the work beside the chain, such as calculating the month's depreciation. It finishes before the step it feeds, so it has float. Making it faster saves hours, but the pack is issued on the same day.

So Brenlow's executive team never has a pack for the month just closed. At the meeting in early August, the July pack is not ready, so the team discusses June. An average June transaction happened in mid-June, about 58 days (two months) before that meeting.

Bottlenecks and remedies

These are the usual reasons a pack is late:

• Waiting for supplier invoices, instead of accruing from rates that are already known.
• Counting all the stock every month.
• Rebuilding views that the system cannot produce (Lesson 1.6).
• Writing commentary on every line that moved, instead of on the lines that matter.

Three remedies follow from the longest path:

• Estimate rather than wait. Many late items can be estimated early, from contracts and known rates.
• Take work off the longest path. Only work on the longest path delays the pack.
• Issue an early flash report. A flash report is a short, early report of the main figures, based partly on estimates. It reaches the meeting in time, and the full pack follows later as the complete record.

Chapter 5 develops these remedies.

Key points

• Each step of the cycle waits for the one before, so the longest path sets the issue day. Design it backwards from the meeting date.
• Brenlow's pack arrives on working day 11, after the meeting on working day 9. The executive team discusses numbers about 58 days old.
• Estimate rather than wait, shorten only the steps on the longest path, and consider an early flash report.