Join Rudolph Rosenberg for an in-depth discussion in this video Analysis is about decision making, part of Financial Analysis: Introduction to Business Performance Analysis.
I've already partly made this point earlier, but it is so important that I think it is worth spending a bit more time on the concept of analyzing for decision making. There are many benefits to analyzing the performance of a business. But like every other activity it has to add value to the company. When you run a business, or a department within a business, or your own scope within a department for that matter, you will probably be overflowing with questions you're asking yourself which, if answered, could help you improve the performance of the company.
The temptation then is to try to answer them all and spend a significant chunk of your time analyzing your business. While all those questions surely seem interesting, and charged with added value, most of them will not lead to concrete actions to improve the business. Why? Simply because not all of them have, at their source, a problem to be resolved. Every company, every day has a set of problems to resolve. Those will always have priority over everything else. Other people within the company will acknowledge the importance of solving those problems, and will support and prioritize any action or analysis that helps in finding a solution.
So next time you sit down to analyze your business, ask yourself if it is helping to resolve a problem and will lead to concrete actions. Most questions that start with why is this, or why is that usually don't lead to actions, because they seek understanding of a situation. Questions that start with how can I, how can we, for example, are focused on the need to do something, and are therefore likely to lead to concrete actions. Any analysis that helps in answering those questions, will surely add a lot of value.
This course, the first in our Financial Analysis series, introduces you to key concepts of business performance analysis. Author Rudolph Rosenberg focuses on the analysis of the profit and loss (the P&L) statement and on the key dynamics you need to understand in order to interpret the performance of your business. Understanding this data will help you make informed decisions that benefit your company in the long run.
Get started now with this quick primer. When you're ready for the next steps, check out Financial Analysis: Analyzing the Top Line with Excel and Financial Analysis: Analyzing the Bottom Line with Excel.