The reason why smart people need a checklist

“I know what I am doing, I don’t need a checklist.”

This thought might come up in your mind often, or it might be manifesting more subtly in your behavior instead. Admittedly, I’ve caught myself more than once in the second category. Even after building integrated circuits, with their ‘tapeout checklists’, and implementing Stage Gate™ development processes, with their ‘stage checklists’, I did not think it was necessary to write down the steps I took monthly to close the accounting period. Then I read The Checklist Manifesto by Atul Gawande.

I tend to read books for various, and sometimes, completely random reasons. This particular book, The Checklist Manifesto, is given to summer interns at Square. “That’s peculiar,” I thought. I understood why Bloomberg by Bloomberg was given to Bloomberg interns, but why would Square give computer science interns a book about checklists? I intended to pass on this one until someone mentioned a section in the book on Finance and Mohnish Pabrai, managing partner in Pabrai Investment Funds. As I read through the section, I was struck by the following quote:

“The checklist gets the dumb stuff out of the way, the routines your brain shouldn’t have to occupy itself with, and lets it rise above to focus on the hard stuff.” P. 177

I wondered, what was the “dumb stuff” I was doing that I could have avoided had I been using checklists? The monthly financial close immediately came to mind. This should come as no surprise to accountants on the typical career path, but for a post-MBA finance person who has stayed up till 3am the night before a board meeting trying to produce financial statements, the realization was earth shattering.

A few weeks after completing the book, I had lunch with a friend who is the assistant controller of a large multi-national software company. I was about to implement month-end close checklists at each of my clients and was curious what a good “close-date” target was for early-stage software startups. At this point, I was content in my ability to consistently close the books of a software startup in less than 30 days.

“We close the books in 5 days,” he said early in the discussion.

“How do you do that?” I asked, half expecting to hear of some new cloud-based accounting package, a legion of accountants, and a handful of secret shortcuts.

“We have a checklist” was his simple response.

Accounting is about consistency, and, in my opinion, accounting becomes quite simple when that consistency is implemented. Creating checklists has forced me to look deeply into the accounting processes for my clients. After creating and improving on a checklist for one client, I was able to move the close from 30 days down to 5. I have measured that the time required to step through the checklist is typically less than four hours.

Spending less time on the “dumb stuff”, as Pabrai put it, has allowed me to focus on higher value-added tasks, such as building financial models that accurately represent the current reality of the business. With consistent tracking and timely reporting, I can now speak into the financial implications of a strategic decision. What “dumb stuff” is getting in the way of your true value-add?

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