Posted: March 09, 2011
Transforming data into decisions
Here's what you need to knowBy Patrick Quinlan
Fact-based decision making. It can mean the difference between success or failure and is frequently a topic among today's business leaders. Using known information rather than a "hunch" is critical to successfully navigating a company's competitive landscape.
At first glance, making decisions based on data should be easier than in the past. The age of information has placed a staggering amount of facts and figures at our fingertips. Yet, it is precisely this vast amount of data that has made fact-based decision making so difficult.
Executives and managers need the ability to wade through information and analyze it in a meaningful way. They want to drill down into specifics, drill out to see the big picture and gain perspective by making comparisons across companies or industries. Unfortunately, without the ability to quickly gather data and put it into context, they become overloaded and revert back to making decisions based on assumptions.
XBRL Provides New Access to Information
The U.S. Securities and Exchange Commission (SEC) recently mandated that all public companies use eXtensible Business Reporting Language (XBRL) for their financial disclosures by 2011. Essentially, XBRL is a way to tag fields of data and text so they can be read by computers in a standard and consistent manner.
According to the SEC, standardizing financial statements with XBRL will make them more transparent and useful because the information can be downloaded into spreadsheets and easily analyzed. Although the benefits of XBRL go far beyond financial reporting, many executives become fixated on the perceived effort required to tag data in XBRL and miss the incredible business potential. This refusal to "see the forest through the trees" is why nearly a third of public companies have not yet adopted XBRL despite the SEC requirement.
In reality, XBRL implementation is not difficult. There are XBRL experts, like Rivet Software, who will tag and file data as a service or who provide software to companies wanting to do it themselves. Once data is standardized with XBRL it becomes interoperable, which means that data no longer needs to be translated from one system to another.
In a white paper titled Fact Based Business Decisions, Hitachi Consulting describes the process for making fact based decisions in the following way: "First, gather data. Then convert data into information easily understood. Next, interpret the information and, finally, take action." The paper attempts to convince readers that they only way this can happen is with the purchase of an expensive business intelligence software system along with thousands of consulting hours.
Admittedly, prior to the adoption of XBRL, accessing and processing the right types of data could be extremely difficult. Today, however, it's a new world. According to XBRL International, "Human effort can now switch to the higher, more value-added aspects of analysis, review, reporting and decision-making."
Benefits beyond Compliance
The smartest executives have embraced XBRL to make better, more informed decisions. Below are a few examples that illustrate XBRL's potential to deliver benefits throughout an organization.
• Internal Reporting
Tagging internal data in XBRL not only makes it accessible for external reporting, but also allows it to be accessed and analyzed for internal purposes. For example, companies are using XBRL data to evaluate the performance of individual departments and hold them accountable to ROI measurements.
With standardized financial information, users can access the most recent SEC filings and download them instantly for comparison and analysis against their own internal data. Benchmarking individual company performance to industry statistics provides insight and perspective previously unavailable.
• Holistic Reporting
Most businesses communicate with their stakeholders through a variety of reports. With XBRL, organizations can produce a single annual report that all data into a single document for a holistic view of performance.
• Credit and Risk Assessment
For financial institutions, XBRL-formatted data improves information sharing between borrowers and lenders. With more information available, credit analysis is more accurate. This allows creditors to make better informed decisions when making loans, saving money and improving the overall loan process.
• Investment Analysis
With one click, investors can download SEC financial data into Excel, and then filter the information to create charts and key ratios. XBRL transforms filings into an HTML "reporting book," which simplifies the comparison of data and deepens the analysis investors can perform.
• IR Communications
In a recent interview with IR Alert, Michelle Savage, and VP of Communications at XBRL describes the impact of XBRL on IR communications. "When an event happens like a merger, we're advocating it gets announced via XBRL," she said. "If it's a prospectus today, the document could have tags embedded or pieces of it pulled out to create those tags and separate elements."
XBRL makes it possible to share information instantly and directly within organizations and between companies. This data can be utilized by all stakeholders, regardless of the systems or software used. With XBRL, executives can easily and instantly tap into the information they need to decisions based on fact. The possibilities created with XBRL implementation are profound and will have far-reaching effects on businesses and the people working within them.
Patrick Quinlan is chief executive officer for Rivet Software, the pioneer in standards-based business reporting and analytics, serving more Fortune 500 companies than any other XBRL technology company and helping transform business communications worldwide. He can be reached at firstname.lastname@example.org