While many people are getting excited about big data, there is a different problem lurking at the heart of every organisation. The bigger the organisation, the bigger the problem - and this is the problem of too much data.
Jeremy Hope commented in a book he wrote in 2006 called Reinventing the CFO: "The technology bandwidth is widening every year, and the resulting data flow through organisations is overwhelming managers' ability to make sense of it."
His view was that new technology has complicated, not simplified, finance practices. Just because we can have an endless number of account codes in our accounting software, it does not mean we should have them. A large number of accounting teams labour to produce what information managers actually want because there is so much detail and complexity.
Hope describes how a view seems to have caught hold in organisations that more detail is equal to greater accuracy.
Actually, the opposite is true. This is the rule of big numbers, which anyone who has studied statistics will recognise. This rule means that you are going to have greater accuracy if you look at high-level numbers, rather than the detail. For example, in forecasting income, you are more likely to get it about right if you forecast the total you might receive rather than analysing each appeal in detail.
We need to spend more time and effort on forecasting, and maybe the big-numbers rule will help accountants to see it as their job. Typically, the balance of time and effort in a finance department is such that more time is spent looking backwards. You can rely on many departments to produce accurate, detailed accounts of the past. The trouble is that it leaves them too little time with managers to develop alternative views of the future, which most managers would find more useful.
We live in a world of considerable uncertainty, so it would be helpful to run a risk assessment of the forecasts. Accountants have the skills and tools to do this and it is not difficult to assign probability to forecasts on a spreadsheet. It would be useful to have forecasts that give a range for key income and expenditure numbers. You might say that donations from individuals are likely to be in the range of £100,000 to £120,000, rather than having to opt for a precise number. You can further enhance the information value of this forecast by giving a confidence rating based on a risk assessment. You might then state the forecast range is provided with 95 per cent confidence. You would base your confidence on the fact that you have achieved similar levels before, or that you had good results from a pilot scheme, or other evidence.
Past accounts will be useful and they always provide a good starting point. But we all thirst for more information, which is likely to be forward-looking and provide an indication of the big picture.
Kate Sayer is a partner at specialist auditors Sayer Vincent