Painting with Numbers E-Book

Randall Bolten

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 533

Veröffentlichungsjahr: 2012

Beschreibung

Learn how to communicate better with numbers Whether you are distributing a report or giving a presentation, you have a lot of numbers to present and only a few minutes to get your point across. Your audience is busy and has a short attention span. Don't let an amateur presentation bog you down, confuse your audience, and damage your credibility. Instead, learn how to present numerical information effectively--in the same way you learned how to speak or write. With Painting with Numbers, you'll discover how to present numbers clearly and effectively so your ideas and your presentation shine. * Use the Arabic numeral system to your advantage master the use of layout and visual effects to communicate powerfully * Understand how audiences process your information and how that affects your "personal brand image" * Learn how to be perceived as a professional who truly understands the business concepts and issues underlying your numbers * Use software tools, including Excel, PowerPoint, and graphs, efficiently and to drive home your point Author Randall Bolten shares his decades of experience as a senior finance executive distilling complicated information into clear presentations, to help you make your numerical information more comprehensible, meaningful, and accessible. Painting with Numbers is brimming with hands-on advice, techniques, tools, rules, and guidelines for producing clear, attractive, and effective quantation (the word the author has coined for the skill of presenting numbers).

Leseprobe

Contents

Cover

Title Page

Copyright

Dedication

Foreword

Preface

Acknowledgments

Introduction

Being “Literate”

It’s What They Think That Matters

What You Were Never Taught

Some Notes about Reading This Book

PART I: THE RULES

CHAPTER 1: Numerals Matter

Lining Up the Numbers

The Units of Measure

Precision

Negative Numbers: What Do They Mean?

CHAPTER 2: Looks Matter

The Tabula Rasa Decision

The “Where’s Waldo?” Effect

White Space Is Your Friend

…But White Space Is Not Always Your Friend

Time and Other Dimensions: Across or Down?

Borders, Shading, and Other Visual Effects

Comments and Artwork

The “Ransom Note” Effect

Two Truly Helpful Hints

CHAPTER 3: Words Matter

Mean What You Say and Say What You Mean

Choosing between Precision and Presentability

Treating Words Like Numbers

Remember the Title. Please.

CHAPTER 4: Your Audience Matters

The Right Amount of Data

Appropriate Emphasis on Critical Information

Consistency

Meaningful and Relevant Numbers

Respect for your Audience’s Time

PART II: THE TOOLS

CHAPTER 5: You Can Pay Me Now . . .

The Instant Payoff Tips

Instant Payoff Tip #1: Set Up Templates and Styles

Instant Payoff Tip #2: Customize Your Toolbar

Instant Payoff Tip #3: Learn Some Shortcut Keys

Instant Payoff Tip #4: Use Consistent Formats

Instant Payoff Tip #5: Learn to Use Excel as a Database

Instant Payoff Tip #6: Learn to Use the Lookup & Reference Functions

Instant Payoff Tip #7: Organize Data for Easy Computation

Instant Payoff Tip #8: Learn to Use Automated Help

Instant Payoff Tip #9: Don’t Learn Too Many Ways to Do the Same Thing

CHAPTER 6: . . . Or Pay Me Later

The Long-Term Payoff Tips

Long-Term Payoff Tip #1: Use Sensible, Intelligent Filenames and Folder Organization

Long-Term Payoff Tip #2: Use Consistent Formats

Long-Term Payoff Tip #3: Design Intelligent, Intelligible Formulas

Long-Term Payoff Tip #4: Use Named Ranges

Long-Term Payoff Tip #5: Use Named Formulas or Macros

Long-Term Payoff Tip #6: Links: A Force That Can Be Used for Good or Evil

Long-Term Payoff Tip #7: Make Different Types of Cells Visually Distinguishable and Physically Separate

Long-Term Payoff Tip #8: Document Your Work!

Long-Term Payoff Tip #9: Check Your Work!

Long-Term Payoff Tip #10: Avoid Cool New Features

CHAPTER 7: Graphs: The “Cartoons” of Numbers

Why Do People Use Graphs?

Help Your Audience

First, Do No Harm

CHAPTER 8: The Pitfalls of Presentations and PowerPoint

Why Do People Make Fun of Business Presentations?

Real Estate Is a Scarce and Precious Commodity

Help Your Audience

First, Do No Harm

Some Basic Truths That Go Double for Quantation

PART III: REAL MASTERY

CHAPTER 9: It’s Clear, But Is It Meaningful?

The War of the Adjectives

A Quantation Professional

Relating to Your Audience in a Constructive Way

CHAPTER 10: 53 . . . Uh, Is That a Lot?

What Is a Key Indicator?

What Makes a Good Key Indicator?

A Simple Example

How Do You Present Key Indicators Effectively?

A Note on Precision

A Note on Dashboards

CHAPTER 11: The One Report Every Organization Needs

A Sample Natural P&L, and What Makes It a Good One

1. One Page!

2. Decision-Focused Line Items

3. Appropriate Dollar Amounts, Neither Too Big Nor Too Small

4. Intuitive Organization of the Line Items

5. Understandable Categories, Meaningful to All Users

6. Plain-English Terminology

7. Consistent Look-and-Feel

8. Key Results Equal to the Corresponding Numbers in the Accounting System (or an Explanation Why Not)

Mapping the Chart of Accounts

Generate a Natural P&L from a Spreadsheet, or from the Accounting System?

Now Let’s Talk about the Columns

APPENDIX 11 A: A Sermon to the Accounting Purists

CHAPTER 12: The Gaps in GAAP

Rules-Based versus Principles-Based

Where Is All This Headed?

“Expensing” Stock Options

Software Revenue Recognition

Tying GAAP to Internal Management Reports

APPENDIX 12 A: Some Notes on GAAP

What Is GAAP?

Stock Options

Revenue Recognition

CHAPTER 13: Quantation: It’s Not Just for Business Anymore

One Taxpayer at a Time

All the Taxpayers at Once

What’s Really Going on Here?

CHAPTER 14: Quantation in Ordinary Life

Models

The Meaning of Words

That Quiz I Promised

PART IV: WRAP-UP

CHAPTER 15: Speaking Truth to Power

My “Tell the Truth” Syllogism

Reason #1 for Telling the Truth: It’s the Right Thing to Do

Reason #2: It’s in Your Employer’s Interest

Reason #3: It’s in Your Interest

Reason #4: You Will Get Caught

Reason #5: It’s the “Gotcha” of This Book

Don’t Be So Smug, You Civil Servants and Elected Officials!

Your Audience Has a Role, Too

CHAPTER 16: Now, What’s the First Thing You Do?

My Last, Best Tip

It’s Just a Skill

Where We Have Been

APPENDIX: Jazz Meets Theology

Revisitation

The Sins of Presentation

The Sins of Behavior

The Deadliest Sin of All

About the Author

Index

Copyright © 2012 by Randall Bolten. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, [phone], fax [phone], or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, [phone], fax [phone], or online at www.wiley.com/go/permissions.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at [phone], outside the United States at [phone] or fax [phone].

Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our web site at www.wiley.com.

Library of Congress Cataloging-in-Publication Data:

Bolten, Randall,

Painting with numbers: presenting financials and other numbers so people will understand you/Randall Bolten.

p. cm.

Includes index.

ISBN 978-1-118-17257-5 (book); 978-1-118-22789-3 (ebk); 978-1-118-23996-4 (ebk); 978-1-118-25782-1 (ebk)

1. Business mathematics.

2. Microsoft Excel (Computer file) I. Title.

HF5691.B675 2012

650.0285′554—dc23

2011042678

For Rachel and Molly, my favorite girls and my two favorite writers

Foreword

I first met Randall Bolten in early 2009, as I was beginning my run for California statewide office. He was my contact for a dinner speech I was giving, and I sent him some economic data to be turned into slides and a handout. What came back was not just a correct and accurate presentation of the data, but one that was clear, concise, and comprehensible. Based on that experience, I retained Randall to prepare the economic and fiscal policy handouts that I used throughout the campaign. My data and graphical presentations became a mainstay of how I presented my public policy suggestions. I feel strongly that clearly and honestly presented data is essential to an informed electorate, and Randall made it possible for me to put that belief into practice.

Looking back on my terms in the U.S. Congress, in the California State Senate, and as Director of Finance for California, I am struck by how often arguments are won on the basis of how the numbers are presented. I am also struck by how great the temptation is for shading numerical data. Some of that temptation comes simply from the presenter’s lack of skill at presenting numbers. But some of that temptation also comes from the view—which, sadly, is all too often correct—that the audience will not speak up when they do not understand or are skeptical of the information put in front of them, and will, instead, be swayed simply by the amount, or exclamatory nature, of the data presented.

As Director of Finance for the State of California, I had to reconcile many different ways of presenting similar data from different departments of the state government. In that position, it was obvious that how clearly and coherently information is presented has a huge impact on how effective the presentation is. It was also obvious that a consistent approach to presenting the underlying numbers—in essence, creating a “common language”—is critical in a complex organization like the government of the State of California to making intelligent decisions, and to fostering a team approach to problem solving.

As a Dean in both public and private universities, I was introduced to new ways of presenting similar data, and my ability to comprehend the information was strongly affected by the way the data were presented.

In all of my roles, the ability to explain decisions to a larger audience—voters, students, faculty, trustees, legislature, press—demanded a need for simplicity, clarity, and transparent honesty. In the best-functioning organizations I have been associated with, the key players have had this ability when presenting statistics, financial data, and other numbers, and their audience has expected and demanded no less.

I’m delighted that a book like Painting with Numbers is available. I am confident that the lessons Randall Bolten sets forth in this book, a first of its kind, will have a hugely positive effect on the level of public debate, and thus, the quality of the choices we make in our public and private lives.

Tom Campbell

Preface

Everybody talks about the weather, but nobody does anything about it.

—Mark Twain

The concept for Painting with Numbers was one of those ideas that just emerged slowly over time. During my nearly 20 years as chief financial officer of high-technology companies in Silicon Valley, I saw small changes in documents containing numbers make a huge difference in how well they were understood. This happened over and over. In the case of financial documents, poorly understood reports could lead to mass confusion or even mistakes costing millions of dollars. But the right presentation of that same information could make an audience think aha! and motivate outstanding performance.

I also couldn’t help observing that the people generating these reports—extremely competent and intelligent people—often overlooked the nuances of these small changes and the effect they had on their audiences. When we reviewed the results afterward, though, they readily saw the connection. It became increasingly clear to me that presenting numerical information is a communication skill, and not some sort of black art practiced only by the “numbers guys.” I’ve stated that premise in hundreds of conversations since I began writing this book—with people ranging from accounting students and administrative assistants to CEOs and corporate directors—and the response has always been enthusiastic agreement. At the same time, though, very few of the people I spoke with had any sense of what that meant for how they should lay out numbers on a page, or a computer monitor, or a projection screen.

Think about it. A significant portion of our school years, especially in elementary and middle school, is devoted to training us to write and speak correctly, clearly, succinctly, and eloquently. We are taught grammar, vocabulary, diction, sentence structure, and paragraph organization. Even beyond our basic education, we are expected to continue to improve our grasp of the nuances of effective writing and speaking—about a particular subject, to a particular audience, with a particular purpose in mind. Bookstore shelves are loaded with books intended to sharpen those skills, with titles including The Elements of Style; Eats, Shoots & Leaves; The Careful Writer; The Business Letter Handbook; How to Write a Million-Dollar Memo; and Public Speaking: An Audience-Centered Approach.

Still, mathematics for the most part continues to be taught as a computation skill, not as a language for describing complex problems and situations. And although there are plenty of books about how to understand numbers, about the underlying mathematics, and even about how people try to fool you with numbers, there are no books focused solely on how to make yourself understood when you are presenting numbers.

Because the need to present numbers is critical in so many places in our society, I’m grateful and flattered that Tom Campbell agreed to write the Foreword for Painting with Numbers. His remarkable career has included public service as an elected legislator (U.S. Representative and State Senator) and executive branch appointee (California Budget Director when the state last reported a budget surplus); a Ph.D. economist, lawyer, and law professor; and a dean of both a business school (U.C. Berkeley, Haas School of Business) and a law school (Chapman University School of Law). Perhaps more important, he speaks and writes with precision, grace, humor, and a respect for his audience.

My goal with Painting with Numbers is to enable you to become as skilled at presenting numbers to an audience as the most articulate among us are at writing for and speaking to an audience. Whether you are an accounting, finance, or engineering professional who presents numbers as an essential part of your job; or you are a corporate law, litigation, human resources, marketing, investor relations, fundraising, or other professional who presents numbers less frequently (but when you do the stakes are high); or you are a government official or elected representative responsible for understanding and explaining important issues of fiscal management, taxation, healthcare, or other areas of public policy; or you are a senior manager or board member who must make complex decisions under time pressure based on the information presented to you—this book is for you. Enjoy!

Randall Bolten Glenbrook, Nevada February, 2012

Acknowledgments

First, my sincerest thanks go to Taylor Ray, editor extraordinaire, who understood what Painting with Numbers was about from the very beginning and stuck with the project through all its stops and starts. She was both immensely supportive and unfailingly candid, and worked tirelessly to make sure I honored my compact with the reader.

A few played special roles in the creation of this book. Joel Orr helped me get organized, explained the ins and outs of the publishing business, and offered wisdom that was rabbinical in the best sense of the word. John Cardozo demonstrated that a friend is someone who reads every word you’ve written even when he has more important things to do. And Tom Campbell not only agreed to apply its lessons to the electorate and lend his name to this book, he was the most punctilious, yet most insightful, witty, and supportive of readers—and this while running for statewide office in California.

Many people read parts of this book and made invaluable comments, including Stephen Few, Shomit Ghose, Dana Hendrickson, Karl May, Barbara McMurray, Larry Moseley, Ethan Thorman, Linda Wilson, and Donna Winslow. The finance team at Fortinet (Robert Lerner, Tim Emanuelson, Keith Andre, Jim Bray, Daneya Denson, Doug May, Scott Robinson, and Simran Singh) met with me frequently as a group to offer their from-the-trenches perspectives. To readers I somehow failed to mention, my apologies and my thanks.

My professional colleagues in the Silicon Valley chapter of Financial Executives International deserve special thanks as a group. Many made contributions to the content of this book, whether they knew it or not, and all indulged me patiently as I talked through my ideas.

I thank current math faculty at St. Albans School—Messrs. Kelley, Hansen, and Eagles—for their feedback on the book and for introducing its lessons to high school students. I also salute some of the teachers from my days as a student there, who made it clear that expressing yourself in your own language and style was not just tolerated, but a sacred obligation—especially Messrs. Means, Saltzman, Ruge, and McCune.

Many folks at Wiley deserve mention. Tim Burgard, Stacey Rivera, Andrew Wheeler, and Helen Cho were a real help to a first-time author and led me to intelligent choices. Natasha Andrews-Noel shepherded this book and a demanding author through a production process that was much more complex than I could possibly imagine. And my thanks go to Anne Ficklen for the introduction, and to Michael Rutkowski for just nailing the jacket design.

Some people less directly involved with the book itself deserve mention. A few comments made years ago still stick with me and helped spur me to this project: my appreciation goes to Jeff Walker, Woody Rea, Nort Rappaport, and Van Van Auken. I thank Claude and Sue and Leland, who offered excellent company and an indulgent ear, not to mention good food in the dead of winter. Family members Joshua, Susanna, Dede, and Jimmy provided feedback and cheerleading, and have assured me they will generate thousands of orders for this book.

One person was essential to this book in many, many small, and a few big ways. Well done, Petunia!

Even a book about expressing yourself with clarity, precision, and accuracy will inevitably have errors. For these I accept responsibility. I hope you will let me know about them. I also hope that you have gotten value from this book.

INTRODUCTION

This Book is Not About Numbers—Honest!

The way you present says a lot about the way you think.

—Irwin Federman, venture capitalist

This book is not about numbers. This book is about presenting numbers, and doing it clearly, concisely, elegantly, and, most of all, effectively. This distinction between numbers and presenting numbers is critical, and to give you a glimpse of what’s to come, let me ask you some questions. When doing quantation,1 have you ever experienced the following:

Your audience simply didn’t “get it”?You spent too much time just explaining how to read and understand your tables, charts, or slides, instead of discussing the actual contents of your reports?You depended on people to read your materials before the meeting or presentation, and when they didn’t do it, you couldn’t achieve what you wanted?You caught some dumb mistakes, but only after it was too late to fix them? Or even worse, your audience caught your dumb mistakes?Your report/presentation had too much detail for your audience to zero in on the really important stuff? Or even worse, they simply gave up trying to understand?

If your answer is yes to any of these questions, then you’ve felt the agony and frustration of poor quantation. If you’ve been one of the “victims” in the audience,2 then you’ve known the sinking feeling of watching a presenter’s time and credibility painfully slip away.

Being “Literate”

Presenting numbers is the same as presenting any other information. If your audience can’t follow what you are presenting well enough to understand it, then you haven’t communicated. It doesn’t matter if your numbers are well-researched, organized with great effort, and correct. If no one understands what you’re trying to say, the problem is yours to fix.

Put another way, to do effective quantation you need to “be literate.” And I don’t just mean the more conventionally known definition of “being able to read.” Being literate means much more than that. Being literate is not merely about understanding words, but about comprehending any information presented to you—images, numbers, charts. It’s not just about comprehending information, but about how you present it. And it’s not just about what you know, but about people’s perceptions of what you know. In other words, being literate is about your knowledge, and your ability to present it so others perceive you as knowledgeable.

It’s What They Think That Matters

The previous point deserves some extra emphasis. An important part of being literate comes from other people’s perceptions of what you know. To help you understand how this works in real life, consider these questions:

When you see someone confuse its and it’s, do you form a general conclusion about the writer’s literacy or even about his or her intellect?Do you (like many other people) routinely reject job applicants who have even one typo in their résumé or cover letter?Do you form distracting and negative conclusions about people from their unintentionally hilarious errors?

Perception is important, and based on little things, people form global, and sometimes harsh, conclusions about you—about your intelligence, your literacy, your grasp of the subject matter, your professionalism, your ethical standards, and your respect for your audience (to name a few traits you probably value).

There’s one more thing about these little errors and embarrassments: the more important and influential people are, the more likely they are to form these snap judgments, and form them quickly. Not only are these people very busy, but they’re the kind of people who take pride in their speed and decisiveness. And the saddest part about the harshest conclusions is that people will rarely tell you. It’s like that little piece of spinach stuck between your teeth all evening at the annual company holiday party. No one mentioned it to you, but it sure was amusing conversation the next day in the hallways and the break room.3

So how do you avoid these negative perceptions and make sure that you are received as professionally as possible? If you’re communicating in words, you have lots of tools to guide you that you spent years learning: there’s vocabulary, grammar, diction, sentence structure, and paragraph organization. And if you use these tools well, your audience will consider you to be thoughtful and careful. But what about quantation? Are there rules and guidelines for presenting numbers? Of course there are, and that’s what this book is about.

What You Were Never Taught

The rules and practices that help you present numbers are similar to the rules and practices that make people effective writers and speakers. Unfortunately, very little of your education was probably devoted to developing these skills of quantation. This is especially unfortunate because typically when numbers are presented, significant decisions need to be made. These presentation skills are important even if you don’t present numbers often, because when you do have to present numbers, it’s likely that the stakes are going to be especially high.

Moreover, much of the value you reap from presenting numbers does not result from the time you spend compiling and generating the information, but rather from the time you take designing, organizing, and laying out the information you worked so hard to collect. The time that it takes to design, organize, and lay out your reports typically only takes 20% (or less) of your time. But then there’s that “80/20 Rule” that every MBA learns: 80% of the impact of any effort comes from only 20% of the time you spend on that effort. In a nutshell, this book is about spending that 20% of your time to your best advantage so you can become a better communicator of numbers, and therefore a better communicator in general.

- - - - - - - - - -

Let’s recap the key points so far:

1. When you present numbers, you are responsible for making sure your audience comprehends the information. Your audience will certainly hold you responsible.

2. If your audience fails to understand the information, your professional image and credibility will suffer. Moreover, you will waste time explaining what your information means instead of addressing your more important goals.

3. Small, innocent mistakes (in both language and numbers) have a disproportionately negative impact on how your skills, professionalism, and intellect are perceived by others.

4. The more important someone is, the more likely he or she is to reach these negative conclusions (about your presentation skills, professionalism, and/or intellect). And the more important someone is, the faster he or she will reach that conclusion.

5. All of the above points apply to presenting numbers as surely as they apply to any other communications; unfortunately, most of us haven’t been formally taught the skills to do effective quantation. That’s a shame, because quantation is a skill that can be taught and learned.

6. When a communication task involves quantation, doing it effectively is important both to the success of the task and to you personally: When you are presenting numbers, the stakes are usually high.If your job requires a lot of quantation (accounting, finance, or marketing analysis, for example) how you present numbers is a big part of your own professional image.If your job doesn’t require much quantation, when you do have to present numbers, the stakes are probably very high.

7. The quantation task is the least time-consuming task in a project involving collecting, summarizing, organizing, and presenting numbers. If it’s done poorly, all of your other good work goes to waste. But if it’s done well, it becomes the most important and valuable task in the project.

8. Quantation is not about numbers; it’s about communicating to an audience (and you don’t have to be the resident “numbers guy” to do it well). Generating clear, effective quantation is what this book is about.

I chose “The way you present says a lot about the way you think” as the epigraph for this Introduction because it relates to all of the reasons listed above. Perhaps Mr. Federman was specifically referring to standing up and giving an oral presentation, but I believe it is apt for any way you present information. When you present numbers, you expose every aspect of your thought process (or lack thereof) to your audience.

Please note: Nothing in this book is intended to be used as a cookbook. My goal is to give you the tools to enable you to design reports yourself that meet your quantation needs. Next is one example, of a printout I found taped to a table in the lobby of a county clerk’s office. By the end of this book, you’ll be able to identify everything that’s wrong with this document, and you’ll know how to improve it.

The Ultimate Goal

As any good artist or teacher will tell you, you don’t create a great painting because you went to the best art schools, used all the available colors, or knew the latest brushstroke techniques. The test of a great painting lies more in the answers to questions like: Does the painting tell a story? Is the viewer led to care about that story? Has the artist revealed the essential nature of the subject, regardless of how big or small the canvas is? My goal in Painting with Numbers is to give you all you need to know to communicate financials and other numbers so that you can tell your story in a way that is clear, comprehensible, concise, elegant, and, most of all, effective.

- - - - - - - - - -

Some Notes about Reading This Book

Painting with Numbers covers what you need to know to do quantation effectively. It’s divided into four sections: The Rules, The Tools, Real Mastery, and Wrap-Up.

Part I: The Rules discusses the rules and practices that can help you “be literate” when you’re doing quantation—much the same way understanding grammar and using it effectively help you communicate and “be literate” when you write or speak. It’s critically important for you to understand why these rules and practices work, so I’ll discuss that as well. The topics covered in this section are:

Chapter 1—numerals—describes how to use the Arabic numeral system, not just correctly, but to your advantage.Chapter 2—visual appearance—addresses how to convey information just by how you lay it out on the page, and how to use visual effects to enhance your reports.Chapter 3—words—examines the importance of getting the words right, and not just the numbers.Chapter 4—the audience—reveals how people in general, and your audience in particular, process information, what that means for the way you do quantation, and how the way you present information sends loud signals about your respect for your audience

Part II: The Tools offers a practical, tactical discussion about how to use the principal software tools to maximum advantage in your quantation.

Chapter 5—Instant Payoff Tips for spreadsheets—focuses on skills to help you to be a faster user of Excel, so that being under time pressure will not be a barrier to effective quantation. The Instant Payoff Tips will make your work go faster every time you create and deliver a spreadsheet.Chapter 6—Long-Term Payoff Tips for spreadsheets—focuses on how to use Excel to make your life easier when you revisit spreadsheets long after you first delivered them, and how to improve the lives of people who are users of your spreadsheets (or inherit your work).Chapter 7—graphs—discusses how to make visual information comprehensible and meaningful to your audience.Chapter 8—presentations and PowerPoint—addresses the special factors to consider when you’re presenting numbers to a live audience.

Part III: Real Mastery addresses the importance of subject-matter expertise when delivering quantation, examines practical applications of quantation, and provides examples of widely used reports, with particular emphasis on applying the rules and techniques from the chapters in Part I.

Chapter 9—real professionalism—discusses the perspective you’ll want to bring when you actually sit down to develop your own reports, and interact with your audience as a peer.Chapter 10—key indicators—discusses how to use ratios and other metrics together with the basic report information to add even more meaning to your quantation, and to make the information easier for your audience to understand.Chapter 11—the “natural P&L”—examines the challenge of management financial reporting, with a detailed review of the one report that is (or at least should be) the central management report for most organizations.Chapter 12—GAAP—provides a nontechnical examination of when and how management financial reporting differs from the reporting required by generally accepted accounting principles (GAAP). This chapter might be of particular interest and importance to readers with a professional accounting background, and those dealing with the reporting issues of publicly traded companies.Chapter 13—U.S. income taxes—reviews in detail how quantation can be used to clarify public policy issues, using the U.S. individual income taxation system as a case study.Chapter 14—quantation inordinary life—offers quantation examples from other, more mundane walks of life, and illustrates how quantation shows up in the news and other unexpected places, in ways you might not think of.

Part IV: Wrap-Up is exactly that. Chapter 15 includes my thoughts on ethics, honesty, character, and other cosmic issues, and how all that relates to quantation. Chapter 16 provides a summary of all that we covered, and includes a discussion of how good quantation begins. In the Appendix, we revisit all of the Deadly Sins (defined momentarily) in one place, and from some unusual perspectives.

Important Elements to Aid Your Memory. Throughout Painting with Numbers you will find structural elements intended to drive home the main points of the book. These elements can be collected in quick lists for future reference. The principal elements are “The Deadly Sins of Presenting Numbers” and “Strong Advice,” both of which appear sprinkled throughout these pages. There are also chapter-specific elements, including the “Instant Payoff Tips” and the “Long-Term Payoff Tips” for efficient and effective spreadsheet delivery, and the “Characteristics of a Well-Designed Natural P&L.”

The Deadly Sins of Presenting Numbers is my metaphor to drive home the notion that seemingly small errors can say more than you ever want (or deserve) about your thought process. The Deadly Sins are quantation errors that you should avoid at all costs, because they are:

Distracting, defocusing, or annoying to your audience (and not just something people recognize and disregard as a minor error)Relatively commonEasily avoidedIndications that you don’t respect your audience, don’t understand what they are looking for, or don’t have any idea how to help them understand your information

As an antidote to the Deadly Sins, from time to time I introduce suggestions labeled as Strong Advice. I make numerous suggestions in these pages, and most of them are just that—suggestions—but the “Strong Advice” items are counsels that you should always follow. When you do, they will make your quantation powerful indeed.

The chapter-specific elements are groups of suggestions that you will find useful in highly tactical situations. The “Instant Payoff Tips” and the “Long-Term Payoff Tips” will be of use in making you a faster spreadsheet user. In fact, you might find them most useful if you’re not a frequent or regular spreadsheet user and haven’t had a chance to build up your habits and your memory of the tricks of the trade. The “Characteristics of a Well-Designed Natural P&L” in Chapter 11 is a list of characteristics that will be useful when you have to design a management P&L, but also when you have to manage your organization from reports provided to you.

The Exhibits: No Previous Accounting Experience or Graphics Arts Talent Needed. The majority of the exhibits and corresponding discussions relate to a variety of business situations, but I have designed them so that the discussion will be meaningful even if you have had only a passing exposure to financial statements and no technical accounting experience at all. Moreover, the purpose of the exhibits is to illustrate presentation techniques and not the underlying accounting. So if, when it comes to numbers, you think of yourself as a “poet,” take heart—this book is for you, too. There may be a couple of chapters late in the book that you might choose not to focus on, but that would be because they lack relevance to you, not because they’re over your head.

Just as I believe that financial and accounting experience are not prerequisites to reading and understanding Painting with Numbers, neither is any skill in graphics arts. Every single exhibit in this book was created by me, a real non-artist, using off-the-shelf Microsoft Excel 2010 with an ordinary font (Arial 10 points), and then pasted into the pages of this book. In other words, these exhibits look exactly like reports that you might generate yourself in Excel. I’ve tried to make sure that the print in all of the Excel exhibits was sized equally; because of the space limitations of a book page, that meant a somewhat smaller print size than you would see on a paper printout, but the exhibits are still easily readable. For the few exhibits that needed further size reduction, my apologies, but please understand that the main point for those exhibits was about layout, and the readability of the numbers themselves was of less concern. The spreadsheet design practices used here are nothing more than habits I’ve developed in the nearly 30 years since I was first exposed to spreadsheets. Producing good-looking, clear, and effective quantation doesn’t require talent, but it does require attention to detail, a passion for delivering a high-quality product, and—something that gets more than a passing mention in this book—building habits and setting standards for yourself that enable you to produce beautiful information every time you sit down to design a report.

The Footnotes—Sometimes Informative, Sometimes Entertaining, Not Necessarily Essential. Throughout this book I have added technical and other details that you might find useful. They offer historical or theoretical context for points made in the text, or they are my own opinions or other relevant personal observations. While I hope you will find them interesting and valuable, I present them as footnotes because they are not essential to the narrative flow of the text, and you will not miss any of the fundamental essence of Painting with Numbers by ignoring them.

NOTES

1.quantation (kwn-t’-shn) n. [English, c. 2008, from QUANTitative + communic-ATION]. The act of presenting numbers, such as financial results, electronically or in written form for the purpose of informing an audience. (Note: Quantation is the word I coined to describe the subject of this book, because no single word for it exists. It is not a word you will find in the dictionary, as of this writing.)

2. By “audience,” we don’t just mean a live audience at an oral presentation. Your audience could be reading hardcopy printouts, receiving e-mail messages, or sitting right next to you.

3. With these types of reaction in mind, if you don’t know whether its or it’s is appropriate in any given situation, do yourself a favor: Find out. Right now. It’s a mistake that rarely makes a sentence hard to understand, but even so it might be the English grammar mistake most likely to cause you to be perceived as stupid and illiterate. For a similar perspective on this topic from the perspective of someone who cares deeply about the quality of written English, I highly recommend Eats, Shoots & Leave: The Zero Tolerance Approach to Punctuation, by Lynne Truss. A close second to the its/it’s error are the your/you’re exacta and the there/their/they’re trifecta. Moreover, if you’re relying on the built-in error-checking features in today’s word processing software to protect you from boneheaded mistakes, guess again—all of the mistakes I’ve cited are very unlikely to be caught by built-in software.

PART I

THE RULES

CHAPTER 1

Numerals Matter

A facial expression of total astonishment.

—How a tribe in South America expresses numbers greater than 3, since their language has no word for those numbers (1963 Guinness Book of World Records)

You never know where a great idea will come from. That’s why I’d like to start this chapter with a heartfelt thank-you to the Arabs. Let’s consider what this summary of Vaporware and Software Technologies Corp.’s six-year financials might have looked like if history had been a little different (Report 1-1).

REPORT 1-1: VASTCo MCMXCVIII–MMIII Financial Highlights

So, is VASTCo doing well? Would you buy their stock? Do you have any idea what this table is saying?

Let’s try this again with a slightly different look at the same set of VASTCo financials (Report 1-2).

REPORT 1-2: VASTCo 1998–2003 Financial Highlights

Now this table is a lot easier to understand. As it turns out, VASTCo is one hot company, with revenues growing and profit growing even faster. And the reason this table is so much more comprehensible is because of the Arabic numerals. So what makes Arabic numerals so special?

You need to know only ten symbols. In the Arabic numeral system, you need to know only the numerals 0 through 9 to recognize every single number, no matter how big or small. These ten symbols are also simple to learn, even for a child.It’s easy to spot the biggest (or the smallest) numbers. More digits always means larger, and if two numbers have the same number of digits, you simply compare the leftmost digit.A quick glance can tell you everything you need to know. By taking advantage of these two features together, you can pick out key information in the blink of an eye.

The point here is that our number system is an immensely powerful communications tool when we take full advantage of it. Thank you, Arabs!1 To understand just how effectively you can communicate when you present numbers correctly—and how ineffectively you communicate if you don’t—let’s look at some more examples.

Lining Up the Numbers

Report 1-3 shows a company’s sales by product. The three columns (Versions A, B, and C) contain identical numbers, but differ in presentation. Look at each version by itself, covering up the other two, and try to pick out at a glance which products have the highest and which have the lowest sales.

REPORT 1-3, VERSIONS A,B,C: Corporate Sales by Product

Almost everyone will say that getting the essence of the information in the table in Report 1-3 is much easier in Version A than Versions B or C. Why is that?

The largest numbers (Charlie, Echo, Hotel) stand out visually. In the Arabic numeral system, numbers with more digits always have a larger absolute value than those with fewer digits, so Charlie, Echo, and Hotel have the most digits. The same goes for the smallest number (India) but in reverse. The visual discrimination is harder in Version B, because half of the length difference in the numbers shows up on the left side and half on the right.The numerals visually sticking out are the important numerals. In Version A, it’s easy to see that Echo has the biggest sales, followed by Hotel, and then Charlie, simply by looking at the leftmost digits: a 3, a 2, and a 1, respectively. In Version C, the rightmost digits stick out, and these rightmost digits are the least significant.The commas line up vertically only in Version A. If the commas (or the decimal points, for that matter) line up, that also means the 1’s digits all line up, and the 10’s, and the 100’s, and so on.2 Also, when the commas don’t line up, it simply looks strange to the eye.The format mirrors the way we were taught. Think back to how we’ve been taught to add a column of numbers, or multiply two numbers together. How were you taught? Do you line up the numbers at the left edge or at the right?

These observations bring us to the first Deadly Sin of Presenting Numbers:

Deadly Sin #1

Not right-justifying a column of numbers

You might think this mistake is too obvious to mention, but alas, it isn’t. I see this particular error in board meetings, financial reports, and sales presentations all the time. As you’ve just experienced, making a point always to right-justify is one of those small formatting choices that has a powerful impact on the readability of your information, and on your audience’s ability to comprehend it quickly.

The Units of Measure

As long as we’re talking about how the placement of your numbers on the page can affect audience understanding (and speed of comprehension), let’s take a look at different ways to present the units your numbers are measuring, such as dollars, or square inches, or miles per hour. Here’s Report 1-3 again, with three new versions. This time, all three have right-justified numbers, but they show different ways of presenting the units of measure. As with the previous presentation of this report, look at each version by itself, covering up the other two, and form an opinion about which is the easiest to read.

REPORT 1-3, VERSIONS D,E,F: Corporate Sales by Product

Almost everyone will say that Version D is by far the hardest to read, because it takes extra effort to separate visually the numeric digits from the currency symbol. Moreover, the currency symbol is obscuring the leftmost digit, which is the single most important digit in the number. It would help a little if there were a space or two between the currency symbol and the digits, but not much, and furthermore you should ask yourself: Is the dollar sign really necessary for each number?3

Version E addresses these issues with the convention commonly used in formal accounting reports, which is to (1) put the currency symbol at the left edge of the column, far from the digits, and (2) include the currency symbol only next to the number at the top of the column and with the total at the bottom. This approach works fine visually, but it involves some extra effort by the presenter because it means formatting two cells—the one at the top of the column and the total at the bottom—differently from the other cells in the column.

Personally, I prefer the approach in Version F, which completely omits the currency symbol from the numbers in the body of the report, and includes it in the column heading instead. I like this approach because it’s clean, minimizes extraneous characters, and requires a little less column width, which may come in handy in reports where space is a concern. (And frankly, you can usually assume that everyone in your audience knows the national currency of your financials!) But even when you use a minimalist approach, it’s important to remember:

Strong Advice

Always make sure that your audience has a way to determine the unit of measure for all of the numbers in your reports. You can never be certain who will look at your reports, and what they do and don’t know.

This discussion of how to identify the units of measure, especially currency notation, can sound like nitpicking, but it illustrates two larger points. First, small differences in formatting can have a large enough impact on the readability of your information to be worth considering carefully. Failing to get this right can alienate your audience, if only subconsciously. Second, you have choices. This will be a recurring theme in this chapter and throughout this book. Even with something as mundane as formatting spreadsheet cells, the choices you make will enable you to make information clearer and your presentations more effective.

Note

The choices you make will enable you to put your own personal stamp on the way you present numbers. You should never make presentation choices solely to make your reports unnaturally distinctive, but you still have an opportunity to create a “personal brand identity” by generating reports that are always well-organized and easy-to-read (an opportunity we discuss extensively in Painting with Numbers). Ideally, you could become one of those people who gets comments like “I always enjoy getting your reports; the news is not always good, but I can always understand what the numbers mean!”

Precision

But wait, there’s more! You also have choices as to the level of detail you offer the audience, depending on the purpose of your presentation. Let’s revisit the same VASTCo financial highlights we first saw in Reports 1-1 and 1-2. Take a look at five versions of the same report (Reports 1-4A through E), and form your own conclusions about how readable each one is, and how effectively it presents information. (There is no one right answer here, since all the reports present exactly the same data.)

REPORT 1-4, VERSIONS A,B,C,D,E: VASTCo 1998–2003 Financial Highlights

Which ones work for you? Personally, I find Version A (in millions, with no decimal places) completely useless, because it provides no sense of year-to-year variations that might be of great interest and importance to the reader. And Version E (numbers down to the penny) is almost as bad, because the additional digits just get in the way of visual comprehension without adding any useful information whatsoever.

My own preference is the middle one, Version C (in thousands, with no decimal places), which the astute observer will notice is identical to Report 1-2, because it’s a well-balanced combination of readability and precision. But remember that I was a chief financial officer for many years, and while CFOs need to have more than just a passing acquaintance with the numbers, they don’t pay us the big bucks to get mired down in details. In other words, I like this report because it’s at the level of detail a typical CFO needs, which just proves the adage, “Where you stand depends on where you sit.”

On the other hand, a member of the board of directors might be completely satisfied with Version B (in millions, with one decimal place), because it certainly provides enough precision to enable the reader to identify significant trends. And for the same reasons this is most likely the right level of detail for a presentation to investors. Moreover, investor presentations are often slideshows or PowerPoint documents, where you don’t have room for lots of digits and characters, and where you don’t want the conversation to go down the details rat hole.4

At the opposite extreme is someone reconciling different financial reports to each other, or using the report to determine compensation. I say this because when you are dealing with paychecks, people can be comforted to know that amounts are being calculated exactly. For these particular purposes, the level of detail shown in Version D (to the nearest dollar) might be essential.

There are two important lessons to learn from this discussion about the number of digits:

1. “Precision” and “accuracy” are not the same concept. To illustrate this point, suppose you are holding a jar containing 6,037 jellybeans, and you ask two friends to tell you how many jellybeans are in the jar. Friend A says, “8,488,” and Friend B says, “About 6,000.” Friend A’s answer is the more precise one, but Friend B’s is the more accurate one. The various versions of Report 1-4 above are all equally accurate, but differ greatly in precision.

2. You have choices! The differences between the five versions of Report 1-4 are a simple matter of Excel formatting,5 and no additional time or effort is involved. There are valid reasons for choosing at least three of the five versions (and some highly compulsive person could probably justify Version E as well). Your choice depends on factors such as how the audience is using the information, the forum for presenting the information, and how much time is available for the presentation.6

Note

One suggestion: An experienced and highly practical finance manager I know addresses the decision about precision with a very simple rule: no number in a reportshould have more than five digits. While this may not be the right choice if consistency is one of your presentation objectives (more on that topic later), her instincts are spot-on for what is comprehensible to an audience.

Negative Numbers: What Do They Mean?

No discussion of numbers and numerals would be complete without at least a passing mention of negative numbers. And here, too, you have an opportunity to add meaning and clarity to your quantation7by making intelligent choices. When you see a column of a table where the numbers could be either positive or negative, what exactly does the distinction between positive and negative mean? Here are some examples (note that the first and the last are applicable to single numbers, but the other three require a comparison of one number to another):

What the number means if it is…

PositiveNegativeExamplesGreater than zeroLess than zeroProfitCash flowMore than another numberLess than another numberComparison to a “standard” (target, quota, etc.)Increasing over timeDecreasing over timeComparison to the prior period (year, quarter, month, etc.)“Good”“Bad”Budget varianceOpinion scoringDebitCreditAccounting systems8

Sometimes the right choice is obvious. For example, if you’re presenting net income or cash flow, virtually everyone understands that positive and negative numbers discriminate between turning a profit and losing money, or generating cash and burning cash. This is an example where the distinction between “more than zero” and “less than zero” is straightforward and well understood.

To appreciate some of the distinctions in the above table, and to illustrate the choices you have, let’s take a look at a couple of examples, starting with Report 1-5.

REPORT 1-5: VASTCo Results for 2001 and 2002

Looking at the “Y/Y Change” column, we see that VASTCo’s change in Sales & Marketing expense between 2001 and 2002 was $411,000—a positive number. This aligns with the way we naturally think. We say to ourselves, “From 2001 to 2002, VASTCo Sales & Marketing expense increased by $411,000,” and not, “2001 Sales & Marketing expense was less than the 2002 number by $411,000.” In contrast, for General & Administrative expense, which decreased slightly from 2001 to 2002, the change shows up as a negative number.

Well, that was easy. We always think about year-over-year change as the later-year number minus the earlier-year number, and not the other way around. But sometimes you should stop and think about how to do the arithmetic, and the best example of that is the budget variance.

A budget variance is the difference between the actual result for a period and the amount that was budgeted. This is a corner of the quantation world where good and evil actually do exist, because the difference between actual and budget is sometimes good and sometimes bad. At the same time, consider that we have strong connotations with the words positive and negative when they are used in a nonmathematical sense. So you have a golden opportunity to merge your left brain with your right brain in a single seamless act of quantation! (See Report 1-6.)

REPORT 1-6, VERSIONS A and B: VASTCo 2002 Results, Actual versus Budget

The two versions of Report 1-6 show two ways of calculating budget variances. In Version A, the variance is calculated the same way for every line, just like “Y/Y Change” in Report 1-5: the variance is the 2002 Actual number, minus the 2002 Budget number. Now, for Revenues, we would all say that the 2002 Actual of $2,910,000 is better than the Budget of $2,800,000. So far, so good. But when we come to Sales & Marketing expense, we see an Actual of $1,287,000, and a Budget of $1,125,000. When you spend more than you budgeted, is that a good thing? Probably not! And yet, the variance shows up as positive $162,000.

Version B fixes this error (and error is definitely the right word to use here) by calculating the variance as Actual minus Budget for the revenue and profit line items, but Budget minus Actual for the expense lines. Using this method, negative variances indicate problems (that is, Actuals that are worse than Budget), and positive numbers indicate results that are okay (that is, Actuals that are better than Budget). Please note the Var F(U) column caption. F(U) is commonly used notation to indicate that positive numbers are “Favorable” and negative numbers are “Unfavorable.” The notation B(W) is sometimes used as well, to indicate whether the Actual result is “Better” or “Worse” than Budget. This captioning choice would have been inappropriate for Version A, since there is no subjective notion associated with whether the number is positive or negative, so the column caption is simply Var. instead.

I can tell you that the wrong budget variance presentation choice has provided me with many hours of cathartic irritation over the years. And I am not alone: almost every senior manager and corporate director I’ve talked to gets very annoyed when they see budget variances presented as in Version A of Report 1-5, because they can’t pick out the “problem” variances at a glance just by looking for the negative numbers in the variance column.

What’s important here is that it takes only a small amount of effort to get the spreadsheet formulas to present the variances correctly, and it’s a nice thing to do for people who sometimes have to measure the time they can spend reviewing reports like this in seconds. And if you don’t provide this courtesy, you risk having your audience conclude from a teensy oversight that you are lazy, not to mention totally unaware of how information gets used by an audience.

- - - - - - - - - -

Let’s recap the main points from this chapter: Our number system is based on the Arabic numeral system, which makes it incredibly easy to present numbers in a way that they can be understood visually and intuitively.If you want to take full advantage of the capabilities of the Arabic numeral system, right-justify columns of numbers!Be thoughtful about gunking up the numbers with units-of-measurement notations such as dollar signs. Ask yourself whether you’re adding distinctions that justify making the numbers themselves harder to read.Precision and accuracy are not the same thing. How many digits you show your audience depends on how much space you have on the page, who your audience is, and what the report is going to be used for.The distinction between negative and positive numbers is important and informative. Remember that it matters, and present accordingly.In all aspects of quantation, you have choices. Making wise choices will dramatically improve the effectiveness of the information you present.

Understanding how to use numbers to do effective quantation is important. It’s as important as good grammar and proper spelling are to effective writing. It’s hard to be a truly effective communicator if you don’t know have these skills, because grammar and spelling errors disturb the natural reading flow and may even make it harder for people to read and understand your writing. Similarly, you can’t be an effective presenter if you don’t know how to present numbers so that people can understand them quickly and get the maximum meaning from them.

But lest you think I am being unduly negative here, let me offer one more way to think about it: Numbers are just words presented with a different set of characters. And in the same way you choose your words carefully to have an impact, the choices you make in presenting numbers will make a big difference in how well your audience understands your message.

- - - - - - - - - -

NOTES

1. To be completely fair, India deserves credit, too. Positional notation (that is, having the amount that a digit represents depend on its relative position within the number) was first developed by the Indians, and then spread throughout the western world by the Arabs. In fact, the Arabic term for this system actually translates as “Indian numerals.” Originally, there were only nine numerals until the crucial addition of the zero in the ninth century, most likely by the Arabs. In any case, the invention of “Arabic numerals” is no different from any other great invention: we usually associate it with the person who sold it to us, not the one who invented it in the first place.

2. The convention in some European countries for commas and periods is the reverse of U.S. usage. They use a comma as the decimal point and a period as a separator between thousands, millions, and so forth. Don’t get confused.

3. For single-character currency notations like $, €, or ¥, you have some real trade-offs. For other dimensions, such as lbs., sq. ft., or units, that’s less true, because the dimension notation takes up too much space just to tell readers what they probably already know. Even if the notation is only next to a couple of the numbers in the column, the entire column has to be wider to accommodate it, which uses up space on the page you may not be able to spare.

4. If you just can’t get enough of this fascinating topic, or you don’t have anything better to do, I will observe that the difference between thousands and millions is subtle, but occasionally important. Note that I use the notation MM to indicate millions, and 000 to indicate thousands. In the United States, M is also common notation for millions, and K for thousands. In many European countries, M means thousands (remember the Roman numeral M?) and MM means millions (i.e., thousand thousands). Avoiding the M notation for either amount eliminates any ambiguity.

5. All of the exhibits in this book are produced by the Microsoft Office® products Excel and PowerPoint. The raw numbers are identical in Reports 1-1, 1-2, and 1-4 (all five versions)—the only difference is how they are formatted (with the exception of the Roman numerals, which uses the ROMAN( ) function). You can even use Excel to truncate the last three or six or nine digits to present numbers in thousands, millions, or billions, respectively. Use the Format.Cells.Numbers command sequence. Check it out!

6. This is a book about presenting information, and so my focus is on the choices you can make about precision. But if this book were instead about collecting information, there might be a similar discussion about the choices around the accuracy