“You can’t handle the truth!”

This is a great line from a great movie and in so many ways it rings true both in life and in business.

For instance, it’s interesting how we look at business performance very differently than we view our personal health and wellbeing. Why? If you were being tested for a life threatening illness, wouldn’t you want the best and most accurate evaluation? However, when it comes to company performance, why is it that we would prefer whichever evaluation method makes our performance look better, regardless of the truth? Maybe, it’s because we “…can’t handle the truth!”

OK, before you begin throwing the “but” statements at me, work with me on the point I’m trying to make here. When things are going well in business, you know it. But, management teams are still hesitant to accept a more accurate and thorough evaluation; they appear to be content to “not know what they don’t know.” When times are bad, management still resists, looking for any kernel of good news. Here’s my theory: I think we are programmed to look at catastrophic events as the things that kill business, not the things that make us stumble. But, just like in our personal health and wellbeing, if we wait too long to see a doctor, it may be too late to cure the disease. It’s the hidden things that may kill us, not the obvious ones.

ARQ™ (or Aggregate Risk Quantification™) is a new and patented risk accounting and performance measure that helps management to discover the “truth” regarding business performance. It creates a “5th Financial Statement” that can be accurately applied and repeated for a historical snapshot every accounting period, along side of the other traditional financial reports. The method is also designed to work in a budgeting, forecasting, strategic planning and enterprise risk assessment context. Together, these various reporting contexts evaluate company performance at the “molecular-level”, exposing the true drivers behind final results and the prospects for future performance.

Here’s an example of how ARQ™ exposes performance truth. I once worked with a $600 Million business communications company that was experiencing tremendous growth in a relatively short period of time. When I began my engagement with them, they were in the 4th year of a 5 year growth spurt. They were touted by their parent company as the stars of the Corporation. Significant bonuses and special recognition were given to their management team at all levels. They were an “all american” success story, right? Not so fast. The ARQ™ Statement of Risk exposed peculiar anomalies in their performance results. One major contract seemed to account for all of the “over achievement” they experienced above the performance targets set for each of the 4 years under review. Furthermore, when that single relationship was removed from the equation, the balance of the business had been in decline for the last 7 years. To make matters worse, the contract was entering its 5th and final year.

For 4 years, this company had enjoyed great accolades and performance recognition, when in reality it was slowly dying from within. A classic example of how easy it is to overlook the true health of a business when things appear to be going so well. In the example above, a major shift in business model and product mix was deployed in the 5th year of their major contract in an attempt to reposition them for future growth. After only one year of transitional performance, the company found itself back on track and growing again.  There is no way for anyone to know for sure what could have happened if ARQ™ had not exposed the truth.  But, it is clear that risk and performance diagnostic tools like ARQ™ are critical today to expose the underlying truth (critical information) needed to assure your long-term success and competitive edge.

About the author: Gary Bierc is the founder and CEO of rPM3 Solutions, LLC, and the inventor of its patented ARQ™ risk accounting and performance measure. Gary is a respected innovator and published thought leader in the enterprise risk management space for over 14 years.

Copyright © 2011, rPM3 Solutions, LLC. All rights reserved.

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