Why Effective Leaders Don’t Use Accounts To Make Decisions

Accounts were never designed for decision making. They are for recording and reporting upon historical transactions and that’s why effective leaders don’t use accounts to make decisions.

Accounts are valuable for what they are designed to do and that is report past income and sunk costs. We have already discussed how dangerous it is to use sunk costs in decision making in my blog https://www.wellsassoc.co.uk/why-are-sunk-costs-important/

They are important for tax purposes, reporting to external stakeholders and giving to external funders who still believe the past is a guide to the future.

In his 2014 TED Talk Larry Page the then CEO of Google said “the main thing that has caused companies to fail is the future.” What he meant by that is things are moving fast and the past is no indication of the future. Effective companies look to the future rather than the past for their information and plans.

If we shouldn’t use accounts then what should we use? Given that cash flow and profit are the life blood and pulse of any business surely the numbers are really important.

Of course they are but it is management information and not accounts that will help here. Management information will include and be based upon finance but it is so much more. Accounts are drawn up according to statutory rules to which all companies must comply. Good management information is unique to each organisation.

Effective leaders and good organisations know the value of people who understand the business and the market as well as potential markets and can produce good, concise management information looking forward upon which decisions can be made rapidly.

Increasingly AI can produce the accounts, but good management information, that’s a true skill and one that good companies value.

What has gone, has gone. Get over it.

If you want to look at this further we have both manufacturing and service simulations to enable everyone to be more effective then please contact us for details –¬†https://www.wellsassoc.co.uk/contact/

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