My presentation at Host Analytics Perform 2019 at the Aria Hotel in Las Vegas: The Board View, What EPM Looks like from the Board Level.

1. The Board View
What EPM Looks Like from the Board-Level
Dave Kellogg
Blogger, Independent Director, Consultant, Angel Investor, and closet FP&A Person
May 22, 2019
Revision 2.0

2. Alternative Title: Boards Just Wanna Have Fun

3. Shameless Blog Plug
• Startups
• Metrics
• SaaS / cloud
• Venture capital
• Leadership
• Silicon Valley
• Management
• And more …

4. What boards want
How boards think about …
How to give it to them
Agenda

5. Our Focus Today: One Question
How does everything we do look from the Board-level?
( A chance to step back and get above the trees)

6. What Do Boards Care About?

7. What Boards Really Care About
• Compliance
• Trust in the numbers
• Shareholder value creation
• Growth
• Profitability

8. Compliance and Trust
• The Foundation
• Reporting the right numbers to the right parties at the right time
• Having faith that the numbers in those reports are correct
• Audit is for financial reporting, not management reporting
• But certainly provides an indicator on how tight a ship is being run
• Board meeting slides and monthly board reports are the basic tests
• Getting stuff done on time is a huge tell-tale
• Late numbers = suspect numbers
• Late numbers = not really in control
• Establish and hit realistic expectations for when things wills be delivered

9. The Impact of One Bad Number
• Makes everything else suspect
• Rule 1: There is always at least one savant on every board
• Will find a bad number before CEO can finish saying
“Good Morning”
• Cockroach principle
• If you see one, you know there are 50 more hiding the
in walls
• Dangers of copy, paste, attach at 2:00 AM when one
change means 15 charts need to be updated
• What we do
• 8-eyes tests → replace with automation

10. A Private Equity Perspective
• Bad numbers are career-limiting for the CFO
• First strike: we all get concerned
• Second strike: we probably start a search
• Third strike: you’re out
• (Note: some don’t even believe in three strikes.)

11. More Subtle Type of “Bad Numbers”
• They don’t match the story = cognitive dissonance
• The words need to go with the music
• You say
• We are beating lead generation targets
• We had sufficient pipeline coverage at the start of the quarter
• That we have strong win and close rates
• That our sales cycle length has not increased
• Yet many deals slipped and few reps seem to be handling their opportunity capacity
• So why did we miss plan again and was week 3 forecast accuracy 68%?
• Is weak pipeline a cause or a symptom of the problem
• If we recognized pipeline was weak at the start, could we have done something
about it?

12. What The Board Doesn’t Want
Sunshine on a cloudy day Sunshine blown up their collective a**

13. Shareholder Value Creation
• A long-term financial model that creates value for shareholders
• Usually a combination of growth and profitability
• But some are more profit-focused than others – “I Love EBITDA”
• If they’re smart, a model that wins markets at the same
• It’s easy to go out of business beating expectations if expectations are to grow
at 50% of the market
• The fundamental tension: “make a plan that you can beat”
• Aggressive enough to create value and win markets
• Conservative enough that you can beat it 9 out of 10 quarters

14. Growth and Profitability
Growth
• Should be about market share and
winning markets
• The GE rule: be first, second, or exit
Profitability
• Should be about continuous
improvement and benchmarks
• Assumption is not be average /
benchmark on all things
• Strategy should dictate variations
• But when not strategic, convergence
to benchmark is the name of the game
• A debated, agreed-to long-term
financial model really helps here

15. What The Board Wants
Reality and what to do about it
• Realistic recognition of company strengths and challenges
• Logical, data-driven explanations that are consistent with numbers
• The story needs to hold together (i.e., lyrics and music)
• A sense of transparency and openness
• A sense of accountability – can’t have the same problems too many
consecutive quarters
• A positive tone that recognizes problems but focuses on solutions

16. What boards want
How boards think about …
How to give it to them
Agenda

17. Consolidation
• Frankly, unless they’re audit committee chair they probably don’t
worry about it that much

18. Forecasting
Are you in control of the business?
• Not be confused with are you growing the business?
• Or are you running the business efficiently?
• But, simply, are you in control of the business?
• Do you know where you are going to land and managing to it?

19. Two Dimensions of Business Performance

20. Planning
Can you accurately plan one year out?
• While converging to a long-term, benchmark-based financial model?
• Says nothing about market share gain or loss
• Determines a lot about executive and company compensation = top use
• If public, can you consistently beat-and-raise?
• Do you have smart system for rolling and revising the plan?
• Are you constantly increasing or decreasing the plan at mid-year?
• Does your plan hit financial goals by “forgetting” about next year?
• Is your plan strategy-driven, trended, or top-down spread?

21. Reporting
Can you tell us what’s going on?
• And, if you can’t, how are you flying the plane yourselves?
• Do you have the basics in place? Definitions, historical comparability,
meaningful presentation, …
• Have you chosen “everything” or a key set of the right metrics?
• Are those metrics key to the strategy and/or top operational challenges?
• Finance should keep handy way more metrics than they show
• Are you constantly changing your systems and definitions?
• If so, is it poor decision-making or deliberate continual obfuscation?
• Aside: I’ve never met a board member who’s afraid of a table of numbers
• (And I’ve met many who dislike complex visualizations.)

22. AI and Machine Learning
A little afraid of it, but want you experimenting
• Generally don’t understand the technology
• Generally dislike black boxes
• But want the company to leverage big data and data science, typically
via an expert team
• Want to see results of working with models, not explanations of them
• Don’t want to see the math
• (“I’ve never seen a board slide with an exponent before”)
• Worried about over-fitting and correlation/causation errors

23. Spurious Correlations, I

24. Spurious Correlations, II

25. Spurious Correlations, III
• For more, see https://en.wikipedia.org/wiki/Correlation_does_not_imply_causation
• Or https://www.tylervigen.com/spurious-correlations

26. What boards want
How boards think about …
How to give it to them
Agenda

27. How To Give It To Them, #1
Build credibility by running a tight ship
• Monthly reports out like clockwork
• Board decks out consistently in advance
• No spreadsheets called “2019 plan, v2.5 final final final, r2”
• Numbers that always foot
• Numbers driven off databases (“how come he’s pulling from a
database and we’re always opening spreadsheets”)
• Clean audits / happy audit committee

28. How To Give It To Them, #2
Plan your work and work your plan
• Hit operating plan timeline milestones
• Never be in February without an approved plan
• Build realistic plans that you can beat
• Don’t plan to double headcount and constantly be behind (“cushion!”)
• Help the business figure out what they can and should sign up for
• Build in enough room that anticipatable “surprises” aren’t surprises
• Run the business off rolling forecasts – avoid the December cliff
• Think trajectory

29. How To Give It To Them, #3
Be a great partner to the business
• Most boards prefer finance-as-partner to finance-as-police
• Want to see collaboration across the team
• Forecasts and plans are more accurate where there is such collaboration
• Don’t be “Doctor No,” instead be “Doctor How”
• Offer your opinions, but respect their accountability
• Goes from the CFO/CEO relationship on down throughout the organization

30. How To Give It To Them, #4
Bring insights beyond just bringing data
• If you spend every minute simply producing the data, you have no
time to analyze it
• The CEO/CFO shouldn’t be “sight reading” slides in board meetings
• Make time to review what you’ve created from analytical perspective
• Empower the CFO with those insights for review meetings and
rehearsals

31. Keeping the A in FP&A
Partner with data science and operations teams
• Is FP&A the “if it can be answered in Excel, we can answer it” dept?
• Other functions are increasingly providing reporting & analysis
• Operations (“ops”) teams are taking on some traditional FP&A duties
• Data science teams are bringing analytical tools and techniques to bear
• To remain a trusted business partner, we need to
• To embrace these teams as partners – take a ops person to lunch!
• To understand how they work – read a book or take a course on data science!
• Try (and it’s hard) Data Science for Business by Provost and Fawcett
• Let me know how it goes

32. Conclusions
• Boards love numbers
• Never let anyone tell you otherwise
• Boards see the work of FP&A indirectly
• Boards draw conclusions from the basic quality and timeliness of that work
• Boards demand absolute confidence in the numbers
• You are your metrics
• Boards can tell if you’re focused based on the metrics you track
• Boards can tell what you care about by the metrics you track
• Boards know it’s the teams’ job to run the company
• And the board’s job to determine who runs the team