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Don't Drown Directors In Data-Give Them A Bird's Eye View

How does it feel when you attempt to read volumes of information pertinent to your job? The best way to beat that feeling is to prioritize, filter and simplify. This is why the dashboard idea is so compelling. I have recommended dashboards to audiences and clients for years.

It is critical to the movement's success that our boards and executives have essential information quickly, and that tells a story.

I felt compelled to write about this because of the article appearing in the March 12 issue of the Credit Union Journal, "How Navy FCU Uses iDashboard To Focus on Key Indicators." The article focused on how management uses the system. That's fine, but can you also see what comes next? Boards may request or management may provide access to that same dashboard. Intentions will be good and the results mixed.

Once the dashboard system is in place for managers, it's easy to print it out and give it to the board. There's a danger in that. The overabundance of new information with no feel for its meaning can make boards less knowledgeable and weaken their ability to govern.

The ideal is that our boards of directors possess sufficient knowledge about their credit unions to specify the information they need to be aware of its major affairs.

The reality is that, generally, directors feel inadequate to that task. Their executives fill the void, caringly and in good faith. Most often, it results in an overload of data; executives must err on the side of too much rather than risk giving too little.

Too much information is like a dense fog that hides the lighthouse beam. That applies to managers, too. Executives need to satisfy their boards that they have prioritized and focused their management information systems to provide early warnings.

If the credit union is on a balanced scorecard, there will be measure beyond financial. For this article, I'll illustrate with financial measures. "Essential" means it's on the board's dashboard no matter how the businesses plan reads.

About 11 financial ratios can have continuous meaning. I say "about" because it depends on whom I consult. In this case, I consulted with Greg Doner of FIMAC Solutions, LLC. The ratios are: net worth, return on average assets, gross margin, loans to assets, current ratio, volatile funds ratio, allowance for loan losses to total loans, net charge offs to average loans, delinquency, net expense to assets, and earning assets to total assets. A board with a complex balance sheet may need all 10; a simple balance sheet may warrant four or five.

The dashboard analogy is effective because we all drive vehicles and rely on our dashboards to keep us within the law (or close to it) and to monitor the health of our vehicles. In addition to the gauges, there are things we call "idiot lights." The light will only turn on after a malfunction occurs. Manufacturers replaced gauges with lights because the average car owner didn't know how to interpret the gauges for warning signs.

Directors have a fiduciary duty that rises above the car analogy. Being accountable for a credit union requires more than a condition report and a notice of a malfunction. An effective board needs to see trends in the essential measures, and hold the executive accountable for the rest of it.

We need to rely on the executive to monitor all the other indicators to catch negative trends before a "malfunction." The executive will tell the board about any negative trends and explain the corrective measures she has implemented.

Line charts showing 13 quarters do a great job of displaying trends. A board also needs to decide the nominal or desired range for each essential measurement. For example, let's say a credit union board is comfortable when net worth is in the range of 8% to 11%. The net worth chart will show the actual ratio and those lower and upper limits.

That brings me to another point about all this. In my opinion, quarterly data tracking by the board is sufficient when all the essentials are in their nominal ranges. Even if a board wants its dashboard monthly, the data-points can be 3-month moving averages. This averaging eliminates sharp peaks and valleys making trends easier to see.

Let's not get too caught up in the "wow" of available technology such that we end up drinking from a fire hydrant to quench a normal thirst. Management needs a depth of information and detail to maintain the viability of the credit union. The board needs a fraction of that to accomplish its fiduciary responsibilities.

Dan Clark is a planning and governance consultant operating from Tallahassee, Fla. For additional materials on this subject go to www.danclark.com/cujournal.htm, or write dan<at>danclark.com.

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