When Numbers Don't Tie

One of the great sages I worked with for many years was fond of saying, "If you're not in control, you're out of control." I still have yet to find an acceptable shade of gray in this space. The space under consideration here is one of the most necessary, most costly, and most ill-executed processes in all of human finance - reconciliation.

As a definition, reconciliation is the process of verifying the equality of two values of data - each owned by a separate party - and performing the necessary actions to bring those values to equality.

More informally, in our work and our lives we are responsible for performing reconciliation in many disciplines:

- Verifying the same numbers produced on two reports with different purposes, but sourced from the same data
- Aligning debits and credits on a general ledger
- Confirming the current values of our investment portfolios
- Balancing the checkbook
- Ensuring that if one child has 10 pieces of candy, the other children get 10 pieces of candy

We willingly perform reconciliation because our organizations depend on it for their effective operation, and because as humans we have a constant craving for order and control over our lives.

Despite this, we constantly hear about organizations underestimating their own customer bases, misstating profits and losses, missing earnings reports, and going under due to incorrectly tracked assets and liabilities. If we are so naturally inclined towards reconciliation and order, then why are we so bad at it?

The three stages of reconciliation below may shed some light on an answer to this question:

- Avoidance of diligent and periodic reconciliation
- Reconciliation with the appearance of order - number and value matching without investigating underlying causes
- Reconciliation with the explanation of order - values and their differences are explained

Why would we avoid such a process that we naturally incline towards? We avoid it because it tells a truth of equality - one made of order - but not one that always puts ourselves or our organizations in the best light. And we avoid it because it requires a daily disciplined diligence that we feel we don't always have room for in our lives.

The appearance of order is our most common product of reconciliation, as the psychological payoff is immediate. Numbers and values that look the same on paper must be for the same purpose, we tell ourselves. Children feel they are equals when all have the same number of candies. An organization's performance numbers look better when certain values are stripped, weighted, or ignored. As we become psychologically satisfied, we stop searching deeper for the truth of equality as we have reached a truth of satisfaction which is "good enough".

With the explanation of order there is an explanation for the difference in mismatching values, the expected actions needed to resolve the mismatches, and an expected date of resolution. From personal experience, I know just how much hard work this can entail to assemble this explanation, and follow up and make sure the mismatches are resolved. And although we humans do crave order, our brains are more satisfied making numbers match together in our minds, versus seeking out the true purposes of the values and the reasons for the mismatches.

The explanation of order is the hard work that puts us in control, lets us make the most effective decisions for our organizations, and prevents damaging assumptions from taking hold. But when numbers don't tie, we fall out of control. Organizations falter, humans miss their goals and satisfaction targets, and economies collapse.

So - are you in control?