Everyone that has a part to play in running a business will be familiar with the concept of the traditional Profit and Loss account, the all-important P&L. Businesses set their yearly targets and strategies around the P&L as it is a measure of the outputs of a business, and is great for tracking the financial aspects of the company.
A profit and loss account is of course a recognised, tried and tested concise way of presenting the financial performance of a business. It cannot lie – the truth is in the numbers. If revenue generation is strong and expenses well managed, we can all congratulate ourselves on good profits which will subject to able management and good credit control lead to good cash generation. So, if it is that good why would you restrict such an excellent tool to just the accountants?
Looking purely at the financial P&L to gauge the success of a business produces a one-dimensional view, and doesn’t take into account the people element. To generate a 360-degree view, businesses should look at what we call the ‘The 2nd P&L’ – a focus on People and Leadership and how this impacts on the more traditional P&L of a business.
A 2nd P&L report looks at the performance of a key element of a business, say line management, and compares the current performance with the same period last year to provide a year on year comparison. This insight is starting to highlight the links between the traditional and 2nd P&L, uncovering clearer relationships between People and Profit, and Leadership and Loss.
The insight from ‘The 2nd P&L’ generates an alternative return on investment, a concept called “Return on People”.
By applying targets to key questions (on topics such as culture, vision and wellbeing) and tracking the performance of that question, companies are able to generate a figure that shows the Return on People. By using pulse technology to gauge metrics that shows performance in a financial year, HR teams can compare it to another year to show the percentage loss or gain. This then enables businesses to generate a second ‘return on people’ figure by taking the current year’s performance and comparing it with the target.
Talk to us on 0203 865 0989 to talk more about creating a 2nd P&L for your organisation.