The true value of financial information – Like a pilot flying a plane using “IFR” skills

Using the lessons of aviation for financial navigation . . .

Having closely been involved in the financial and accounting profession over the years, I’ve participated in the monthly (and annual) close process many times. Like a well-oiled machine, all of the pieces come together at the right time, the information is input and processed, the prized financial statement package is created, and the books are the officially closed for the period. The accountant/accounting department promptly declares victory, breathes a huge sigh of relief, then prepares to repeat the exercise for the next period.

The problem: Sometimes lost in this exercise is the real purpose and value of the financial process (i.e., the obvious/not-so-obvious information that resides within those financial statements/reports that can be used to make educated decisions in running the business).

To utilize and make sense of this data for benefit to the organization is to liken it to a pilot that guides the plane to a safe landing using “IFR” (Instrumental Flight Rules) skills. To understand this aviation analogy, we need to reacquaint ourselves with the two rating levels in licensing for pilots.

The first is the basic level – VFR (Visual Flight Rules). The VFR-rated pilot is able to fly the plane on days when there are no/few clouds, and where visibility is expected to remain clear. The VFR-rated pilot uses visual instincts and observations to navigate the plane safely, and can use the plane’s instrumentation as a secondary aid.

Comparison to business: VFR is much like operating an organization and taking your cue from the visual observations of what you see and hear on a day-to-day basis. When things are clear and operating smoothly, this approach can work very well.

Advanced skill level – IFR (Instrument Flight Rules). The IFR-rated pilot is able to not only navigate the plane visually, but he/she has been trained to use instrumentation (i.e., airspeed, altimeter, vertical speed, and gyroscopic tools) for navigation purposes. The plane’s instrumentation is used to navigate by a) supplementing visual observations and b) serving as the primary guidepost when inclement weather is present and visibility is restricted. Though he/she would prefer not to have to do so, the IFR-rated pilot is even trained to fly/land the plane when there is no visibility at all.

Comparison to business: Within an organization, IFR would be the equivalent of supplementing your visual observations by using a core inventory of system reports to keep tabs on the “pulse” of the organization and track progress. Such key information also often reveals factors that may otherwise be hidden from view or not readily apparent, especially during times of chaos or changing conditions.

Therefore, the business lesson we can take from aviation is that by having the ability to generate key/timely financial information and accurately interpret that data is like having an “IFR skill set” to navigate/manage our operations. Just like pilots know, visual information is always welcome and extremely valuable, but when the conditions get dicey and challenging, they need all pertinent information available to safely guide the plane. And by having a process that regularly includes utilizing a core inventory of reports to complement our visual observations, we can either corroborate or adjust/recalibrate our approach as we move forward in managing the operation.