Performance Measurement

 

Global Head of Risk: “Now we really know what’s going on in our organisation”

Global Finance Director(to the Chairman and Chief Executive):
“We have just completed a long, costly and painful budgeting process. But there was little point as every year Mike’s charts have been more accurate than our Budget”

 

The Stratos approach has been tried and tested over twenty years and employed in a range of blue chip banks as well as in smaller organisations and investment funds.

What Is Stratos?

Stratos is a combination of a strategic management information tool and a strategic management consultancy project. It based on a top-down approach to risk – looking not at modelling the inputs to business but the outputs – the P&L streams that business produce. It is quite unique – in twenty years I have not seen anything else like it. The top-down approach can answer questions that all the conventional approaches – amazingly – cannot. For example, “what is the chance of a loss next quarter”? All risk models in existence, extraordinarily, do not look at the risk of not meeting the expenses – they purely focus on the income line. But for all businesses the risk over months, quarters, years is that income falls below the expense level, not falls below zero! It’s actually very bizarre if one thinks about this – but it is a shining example of the conformity of the banking Risk industry under the pressure to “follow regulatory rules”. It’s also a shining example of the measure of the incompleteness of those rules.

What Are The Uses Of Stratos?

  • Business Overview – aids understanding, presentation and key issue identification.
  • Strategic Management – a mechanism for allocating resources, selecting strategies and monitoring the impact of such decisions.
  • Performance Measurement – produces consistent performance measures across all businesses or funds.

What Practical Problems Does Stratos Seek To Address?

  • Management information is often voluminous particularly in complex or diverse businesses. This is time-consuming to absorb and hinders comprehension.
  • Information for supporting strategic decision making is often accounting or technically based. This hinders decision making.
  • Companies often lack a consistent measure of the quality of earnings across business lines. Earnings information is often presented in isolation. Conventionally, risks are measured selectively. This leads to an incomplete and distorted view of performances across business lines.

How Does Stratos Address These Issues?

  • Stratos analyses existing management account earnings data.
  • The presentation format ensures that the ‘message’ rather than the ‘data’ is predominant. Results are presented in a graphical fashion giving a clear picture of medium and longer term trends.
  • Stratos reports are decision-orientated – for example facilitating issues such as ‘to grow or shrink a problem department?’ or ‘more diversification or greater focus?’

Stratos has an integrated approach to measuring levels of, and trends in, earnings, the quality of earnings, and the uncertainty of earnings. Stratos measures the overall impact of all factors on the uncertainty of earnings – for example expenses, fee volatility, and skill.

As the approach is well tried and tested the main bottleneck is distribution. I am always looking to work with individuals and companies on an associate basis to expand distribution and share revenues. For further information – not least of which as its a visual tool! – contact me on the email address below.

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