How to Begin A Company Chart Program
By Jimmy Cox
Charts are living proof that "a picture is worth a thousand words." Charts provide management with an easily understood review of a company's past, present and projected future. When charts are used effectively, profits can be improved. It is necessary to employ a systematic, step-by-step approach to the adoption of a company-wide chart program. You should consider where the program should begin.
Total Company Approach
It is logical to have the first charts prepared for the use of the executive management. A chartist can be hired and a chart room set aside. Someone, preferably a member of the financial organization, should be officially designated in charge of the chart preparation, the chart room, the statistical information required, and the explanatory data which accompanies each chart. A person with accounting or statistical training should prepare the data to be plotted on the charts.
Following the lead of the corporate office, the divisions and subsidiaries can prepare chart rooms and pattern their chart presentations after the executive program. The divisional and subsidiary charts should contain most of the top level information which appears in the executive office chart room; this will be supplemented by a number of detail charts which depict the many control items the operating management uses to direct day-to-day activities.
For example, the top corporate management is mainly interested in sales, profits, assets, inventories, receivables, profit per cent to sales and per cent return on assets. In addition to these, the operating managers must get into cost and expense control item by item, production scheduling by models, product movement through the distributor-dealer pipeline, inventory buildups prior to new model introduction dates, the cost and effect of special promotions, and similar, more fragmentary problems. All of these activities require final decisions after considering alternate courses of action.
A coordinated chart program can be most effective at the time discussion centers on the results of alternate courses of action. The operating executive can be given a voluminous report or a series of statistical schedules detailing all the pros and cons. A superior approach would be a simple set of charts, prepared to illustrate what will happen, for instance, to profits if the company increases expenses to support a higher sales volume and then the business fails to materialize.
If the reader is going to adopt a top company chart program before going to the divisional and product line level, it is suggested that the following program be considered. Begin with total company statistics going back as far as possible or as far as desired. Plot sales, profits, receivables, inventories, assets, fixed assets, net worth, equity and debt relationships, the essential ratios such as profit per cent to sales, per cent return on assets, asset turnover, current asset ratio and so on.
In addition, some companies may have important single items which contribute materially to profit performance, such as engineering and development, raw material purchases, direct labor or traveling expenses. These should also be included in the basic series of charts, in order that all levels of management can review them and become acquainted with the important elements affecting company operations.
These charts should contain space for future years, to minimize the frequency of repeating the entire series. It is recommended that these historical charts not be used to plot short term forecasts or five-year plans. The historical charts should reflect only long term trends, and generally this is confined to total company operations. In some cases these charts are segmented by the years the company was served by different presidents, to compare sales and profit performance during each period.
Once the total company historical charts are completed, it is advisable to consider a series which will look to the future. Again focusing attention on the total company, it is suggested that space be provided for five years of history and a minimum of five years ahead.
Some time spent on the initial setting up of the program will be well worth it in the end.
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