Category

Data

Sep 10
0

Using Decision Trees for Business Planning

By | Data, Nonprofit | No Comments
diagram example of a decision tree

Have you ever heard of or used a decision tree? Decision trees are excellent tools to help evaluate every potential outcome of a decision. Like a flowchart, they map if/then scenarios based on decision points. Each decision is evaluated for its possible outcomes, and then the outcomes are mapped. Chance events, resource costs, and their possible benefits are also included in a decision tree.

Because many important decisions are complex, involving myriad decision points, a tree model works better than a simple flowchart—each decision branching off the main choice looks more like a tree than a straight line.

They can be useful during times of great change or for business continuity planning. Let’s look at several ways in which decision trees can be helpful and discuss how to get started with this useful business tool. 

How CFOs Can Use Decision Trees

CFOs can significantly enhance their financial decision-making and strategic planning by leveraging decision tree models. One key application is in budgeting and forecasting. Decision trees allow CFOs to conduct scenario analyses by modeling various financial scenarios based on different assumptions, such as changes in revenue growth or cost fluctuations. This approach helps in understanding how different decisions impact the overall budget and aids in more accurate revenue forecasting by analyzing historical data and identifying key factors influencing sales.

Risk management is another critical area where decision trees prove useful. They enable CFOs to identify and quantify risks associated with different business strategies or investments by mapping out possible risk events and their impacts. Additionally, decision trees facilitate the development of contingency plans by outlining various risk scenarios and their potential consequences, helping organizations better prepare for adverse events.

Cost management also benefits from decision tree analysis. CFOs can utilize these models to perform cost-benefit analyses of various cost-saving initiatives, enabling informed decisions about which initiatives to pursue. Furthermore, decision trees assist in assessing operational efficiency by analyzing how different operational changes impact costs and overall efficiency.

In strategic planning, decision trees are instrumental in evaluating different strategic options or business models. By understanding the potential outcomes of each strategy, CFOs can make more informed long-term decisions. Additionally, when considering entering new markets or launching new products, decision trees help in evaluating potential outcomes and associated risks, guiding strategic choices.

To effectively use decision trees, CFOs should start by gathering historical financial data and other relevant information. They then construct the decision tree by defining decision points, possible outcomes, and probabilities. Analyzing the decision tree provides insights into various scenarios, helping CFOs interpret the results to determine the most viable options and manage risks effectively. 

How to Start a Decision Tree

Begin with the big question. Then, evaluate every potential outcome. Each possible outcome becomes a “branch” off the main tree until every eventuality is explored.

Decision trees can be mapped using whiteboards or paper during meetings. Often, brainstorming sessions can feel chaotic because no decision points are identified. People share answers without exploring the nuances of their responses. Using the decision tree model, the group can collectively brainstorm ideas, then follow each to its natural conclusion, asking important questions and mapping out possible scenarios, including major considerations for success.

It’s important when using decision trees during brainstorming meetings to keep the following in mind:

  • Keep an open mind. The answers the group develops may surprise you.
  • Draw from your past experience and listen to others whose experience differs from your own.
  • Don’t forget to consider what it may mean to do nothing. Choosing to do nothing is still a decision that should be mapped out. What will happen if all things stay the same?
  • Evaluate the results of past decisions and include this feedback too.

When faced with complex situations, mapping out all possible scenarios and getting them down on paper can be helpful. Decision trees offer a visual method of organizing thoughts around such decisions. Whether using them to offset damage from business outages or to plan for new and exciting changes, they can be a helpful tool to explore all the options. 

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.

Jan 13
0

How to Find and Clean Dirty Data

By | Data, Technology | No Comments
broom sweeping data

If dirty data sounds like something you want to get rid of, and fast, it is. What is dirty data? It is corrupted, incomplete, or inaccurate data that is clogging up your accounting system and making it difficult to produce accurate reports. Here, we share tips for finding and cleaning such data from your systems.

A Primer on Dirty Data

One question you may ask is, “How does dirty data get into our system in the first place?”

Several factors contribute to dirty data in a system. The first is obvious: human error. Individuals entering customer information may inadvertently create duplicates by misspelling a company or customer name or using an acronym instead of spelling out a word. Other factors that can cause poor data quality include lack of internal controls, merging systems together, and inadequate processes to manage data.

Steps to Identify and Correct Data Issues

CPAs and accountants who suspect that data quality issues are contributing to poor decision making should take steps to uncover and rectify dirty data. The following process can help identify problematic data.

  1. Understand and map the business process that creates the data: Data is captured as part of a business process or workflow. For example, an accounts payable process starts with the order of goods or services, receipt of an invoice from a vendor, and payment to the vendor. By mapping the process, you can then identify where data enters the system and points to review to ensure accuracy. For example, controls need to be in place to ensure that invoice amounts match the contract amounts, and that the final payment matches the approved invoice.
  2. Analyze data sources: How is data input into the system? Is it manually entered or automatically entered? Manual data entry creates more potential for mistakes, so these should be your first areas of inquiry.
  3. Identify acceptable data elements: Another important step is to identify what are considered the acceptable data elements or data fields. By making these consistent, you’ll ensure consistent data entry.
  4. Review existing data sets and tables: Although this step is time-consuming, it is important to manually open existing data sets and data tables and review them. You may wish to break this step into smaller parts or tackle it one hour per day for large datasets. This gives your mind a break between review sessions to ensure you see things with a fresh eye.
  5. Note what data is problematic or missing: After reviewing the data, take notes on which elements are missing or incomplete. These should be fixed as soon as possible.
  6. Document the database requirements: Create a data dictionary, which defines what information goes into each field. Document the requirements for data entry as well. This ensures consistency in future when others enter information into the system.
  7. Identify exceptions: As with every rule-based system, there will be exceptions to the rules. Identify these exceptions and document them as well to provide guidelines for what is an acceptable deviation from the norm.
  8. Clean the database: Fix any errors and remove duplicates after reviewing the entire database.

Hint: There are companies that can help you clean up big databases, especially those involving names and addresses. These companies can conduct what is called a “merge/purge/suppression” by comparing datasets and identifying for manual review any potential duplicates. Then duplicates can be merged, deleted (purged), or suppressed (hidden) depending on your needs. While this may not be an appropriate step for confidential financial information, for customer databases it can be an enormous time saver.

Garbage In, Garbage Out!

Failing to clean dirty data could result in poor decision-making (garbage in, garbage out) from reporting on bad data Taking the necessary steps now to have clean data in your system will be worth the short-term costs and resources required for this effort. Contact us for more information on this topic, help with your data clean-up project, best practices on data entry and shared data between multiple systems including automation, reporting and compliance.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.

Nov 15
0

Improving Communications with Data and Trend Analysis

By | Accounting, Data, Donations, Nonprofit | No Comments
people looking at papers on a desk with graph overlay

Charts, graphs, and financial reports may seem like they don’t say much to those outside of the accounting and finance department. But with the right data and trend analysis, the information contained in these reports can inform and improve constituent communications.

The Tip of the Iceberg

It’s an old cliché, but a good one—the tip of the iceberg. If you imagine an iceberg, you can only see the tip of it. The majority of the iceberg is underwater but it’s probably the more important part.

The same goes for your organization. The data that you can easily find is the “tip of the iceberg” and readily available. And it’s usually what your team uses to base their decisions.

However, what’s going on underneath the surface is often the more valuable information. Getting to it is the challenging part.

How Nonprofits Can Leverage Data

Many organizations only dig at the surface level into their data. They run basic financial reports to gauge how fiscally solvent an organization is, or which programs require more funding and leave it at that. But the data that can be used to assess funding can also be used to dig deeper into issues such as program demand, program use, and more.

Each nonprofit is unique and tracks different data. But, in general, nonprofits can mine their data to find information to help them improve programs, improve donor communications, and ensure transparency.

Look beyond your existing technology for additional data. Although your current accounting system may provide plenty of data, other data exists. If your nonprofit sells items, look at warehouse and inventory reports. If programs provide participation and survey data, add that to the data repository for examination. Consider many sources to leverage all of your data and build a stronger, better organization.

Improve Programs

Nonprofits that track program participation can look more closely at program data to update their offerings. Programs that receive higher participation, for example, should be examined to determine if they can be spun into additional opportunities. For example, an animal shelter offering a spay/neuter clinic may find that a free rabies vaccination clinic is also in high demand and brings people into the shelter to view (and potentially adopt) homeless pets. An education nonprofit that finds its free mathematics tutoring program for elementary school children in high demand may wish to expand into the high schools and so on.

Better Donor Communications

The same data that reports on your program activities can also be leveraged to improve donor communications. Program participation and success data can be parlayed into donation campaigns demonstrating the efficacy of your offerings. People like to give to successful initiatives as it makes them feel that their donation is worthwhile, so demonstrating how successful the programs are can go a long way towards encouraging additional donations.

Enhanced Visibility

Successful nonprofits know that increasing visibility into their activities and finances is an excellent way to court donors and participants. The more transparency and visibility into their actions, the greater the trust they engender with the public, which in turns leads to better utilization of their programs and increased donations. Sharing the data from your systems and using it to for storytelling purposes can take your nonprofit to new levels.

Increasing Nonprofit Success in a Tough Economic Climate

Inflation and global unrest have created a climate of uncertainty, and this in turn means fewer people donating to nonprofits … or does it? It doesn’t have to lead to a downturn in donations. Instead, leveraging stories and data, improving program offerings based on data, and ensuring transparency and communications can build up programs and services during times when other nonprofits may be struggling. For those nonprofits that can dig deeply into their data, they may find information that can lead them to greater improvements across the organization.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.

Apr 07
0

The Three Pillars of Digital Transformation

By | Corporate Culture, Data, Nonprofit | No Comments
smiling woman at laptop computer. Welter logo

“Digital transformation” is one of those buzzwords that seems to be everywhere right now. From e-commerce to manufacturing, everyone is talking about the impact of digital transformation.

The term “digital transformation” makes it sound like a magician is at work behind the scenes. Presto, change, click a switch, and voila—your entire organization has undergone a magical transformation!

If only it were that simple. Organizations undergoing digital transformation may find themselves struggling with new questions if they lack strategy behind their adoption of new technology.

There are three pillars, or core concepts, embedded within every successful digital transformation. We suggest having these three areas addressed well in advance of your digital transformation project to boost its chances of success.

A Clear Strategy and Alignment of Vision

Success doesn’t happen by accident. A successful digital transformation project occurs when the strategy and vision behind the project align with an organization’s clarity of purpose and mission.

What is the vision behind the project, and how does it help an organization fulfill its mission? New technology can improve the organization’s ability to fundraise, track grants, and/or manage fund accounting. These are all worthwhile and noble goals. Map out how the new technology you hope to implement helps you fulfill a goal that is clearly aligned with your organization’s mission, purpose, and vision for the future.

Shared Decision Making Around New Technology

It’s tempting to think the purchase of new technology is an IT-department responsibility. But the best IT departments will tell you that all stakeholders—those who will use the technology daily—are the ones who need to be at the table when creating the technology requirements document and exploring options.

Shared decision-making around new technology is essential to finding the best technology that will meet your organization’s needs. Each stakeholder knows their respective area of business best and can provide the most valuable input into how the technology under consideration will help them do their work better.

Any digital transformation team gathered at your organization should include a representative from each major area of responsibility: accounting, finance, operations, program management, marketing, outreach, grant management, donor management, and more. Let those who will use the technology have a voice in the decision of which one to adopt and why.

Process Changes, Too

The third pillar, or major consideration, when undergoing digital transformation is that technology never lives in isolation. It is the impact of technology on people, processes, and things that makes it such a transformation.

The people in the equation—your staff and stakeholders who will interact daily with the technology—must adapt and change their behaviors to work with the new system. There may be a steep learning curve for some. Routines must change, and with changing routines, come changing processes.

No matter how user-friendly the new technology, processes and people must both adapt to it. Make sure you give everyone the time and space they need to learn to use the new technology. Keep an open mind and be flexible to process changes and adaptations, too.

Are You Ready for Digital Transformation?

You’ve probably seen those ads on television for diet programs. They always show before and after pictures: someone looking sad and overweight in the before picture, triumphant and overjoyed in the after photo. What they never show is the in-between: the daily struggle to make wise choices, the moments of decision that lead to a successful outcome.

Your organization’s digital transformation is also like those weight loss programs. You have a “before” shot now: a problem you need to solve, a process that’s cumbersome or slowing things down, and so on. What you desire is the “after” effect: faster, more productive work. But, to get there, you’ll need to bring together these three pillars of strategy and vision, shared decisions, and adapting process to make it successful.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.