Here’s a brief snippet of my experience; all management information generated has a

manipulable margin that is used by the management as a buffer to smooth-out and

make more palatable the actual performance of the business. None of that is
controversial. It goes on all the time in all businesses. There are different words or
phrases for it but ‘teeming and ladling’ gives the best sense of what I mean. It is the
deliberate use of the wiggle-room that accounting systems have inherently built into
them in order to present narratives both inside and outside the management of the
business.

The practice normally applies to monthly, quarterly and annual reporting

requirements and is justified by the people responsible for reporting the results of the
business (division, branch or site) in terms of the avoidance of wasted time and effort;
why spend lots of onerous time and effort talking about, justifying and doing more
analytical work on aberrant singular results rather than presenting the smoother and
more predictable and comforting medium-term results? The ends justify the means
and no one is being lied to. If there has been a fairly consistent uplift in profitability
over the year then why not show that in each month’s results? There is no point in
showing April’s profit as being double the budget or planned amount and May’s
being 80% of it as you’ll just have to do a lot of work to explain why that should be
so. Just show April as a reasonable increment to plan and May as a continuation of
improvement as long as the accumulation of the results is there or thereabouts. Teem
a little of April’s bounty into your back pocket and ladle some of it back out again in
May to show the picture (or more normally the graph line) you want to. I’m not in any
way justifying this practice merely commenting upon it.

This phenomenon is the result of good but inexact methodological rules and structures
meeting human frailties of fear, laziness and self-interest. I won’t get into here what
happens when those rules are deliberately made very much more slack as the
inevitable results of large-scale fraud being enabled, by for example mark-to-market
accounting standards, has been well covered elsewhere. I’ll just concentrate on a
useful and practical prediction tool available to all who know and appreciate these
facts. One can sometimes start to see when the people who do the reporting are
running out of slack from which to teem and ladle.

Because this is the fundamental point that escapes some managers in these positions
with management responsibility; you can only teem and ladle around the actual results
of the business. Eventually you have to reflect reality because once you don’t, you are
into the progressively more dangerous waters of misrepresentation, illegality and
fraud. And one of the main issues that often leads people onto the slippery slope is
inherent to the reporting; you have to report each month/quarter/year before you know
what the next time period’s results are. Incidentally, for those unusual businesses or
situations where this is not the case, you can normally be quite sure that whatever is
reported for one time period is an accurate reflection of what the actual results were
for that one amended by the experience of time period T+1. But most people have to
take a view of what they expect to happen in the future without the benefit of the data
from reality.

Consider this example; results for the month have been slightly worse than plan or
budget. I won’t consider the case here where the systems and people involved are so
incompetent as to not know what the real results of the business are. What does the
management wish to do? Let’s assume that there is no further teem and ladle
provision left in the kitty (just ask the incoming Chancellor of the Exchequer if that
situation ever happens) so do you bite the bullet and report that the results are below
plan? What you will probably do is investigate further as to why they are not on plan
but in the meantime, before you have the analytical results, you have to report on the
month a few days after it ends so have to take a view. Let’s say you decide to take a
risk; it can’t be too bad, can it? It’s only £Xk or £Xm and you’ll probably generate
some ‘teem’ later on with which to bail yourself out and return to reporting the
actuality. So that’s what you do.

After another couple of time periods however the results continue on the same trend;
this is becoming a real issue. Your analysis indicates that the reasons for the
deteriorating results are not getting better in fact they are getting worse. You have
probably taken more than one time period to confirm this new trend and new set of
circumstances and in the meanwhile you have allowed yourself to report ‘no change
from plan’ and thus built up quite a sizeable ‘ladle’ requirement in order to get back to
accumulative reality. What happens now?

Here’s what happens; you take all your analysis and use it to prepare the ground for
the next reporting time period. You prepare to present the new reality but you have to
make it appear a little more abrupt and a little more definitive and a little more
compressed in timescale than was actually the case. You can’t say what you’ve found
out has been going on for a few months because naturally you’ll be asked why you
didn’t spot it. You can’t say that it is X big because some smart arse will say ‘But one
month times X effect only comes to Z and your saying we are now Y away from
plan’; you have to say it is A big (being the total of what you have observed over two
or three time periods and which brings you back to reality).

You might be able to veer away from real results for an extended time if you’re lucky,
have slack accounting rules, employ biddable auditors (whether internal or external)
and have no conscience but you cannot do it indefinitely; the variations from reality
accumulate and as electrical potential in storm clouds, will take any opportunity to
earth themselves and correct the differentials between the reports or ‘books’ and
reality. Hence the tendency for managers to welcome the trend of fast-paced frequent
changes of job tenure over the last thirty years; the accumulated potential earths on
someone else’s watch and they are over the horizon counting their loot.

Notice two things from the simplistic scenario I’ve presented above; the period of
reporting to plan (expectations) before the management appreciates that a divergence
has occurred and the period right before the accumulative divergence is reported by
the management in which the preparation work is going on. Both of these are
opportunities for prediction on your part.

If you know more than the reporting entity about the actual circumstances you have
an information advantage that is real.This is what competitors, suppliers, employees,
politicians and hedge fund managers do all the time. They act on information they
have that others do not. But you could also be watchful for situations in which you
might think that circumstances have changed but where the reporting has been
unchanged, eerily so, and that period is followed by extensive preparation-work
before another reporting period. You can spot with practice the tide change between
one narrative and another as it is being prepared.

Consider the latest official statistics along with a selection of their reporting. Always
bear in mind that it is entirely normal and accepted practice to revise these figures
subsequently once reported. The normal reasons given for subsequent revision is that
figures were not available (and so estimates were inserted and the ‘actuals’ when
received proved to be somewhat variant) and/or slight (but significant) errors were
made (in rounding etc) that accumulated into a variance that now needs to be
reported. These are the mechanics of what I called before the manipulable margin
inherent in collecting and reporting the figures.

Employment rate (%) 70.7 Period; Jan-Mar 11 Delta 3 month; 0.2% Delta 1 year;
0.4%

Unemployment rate (%) 7.7 Period; Jan-Mar 11 Delta 3 month; -0.1% Delta I year;
-0.3%

Vacancies (Thousands) 469 Period; Feb-Apr 11 Delta 3 month; -30 Delta 1 year; 3

UK Gross Domestic Product

(chained volume measure £ billion) 330.6 Period; Q1 11 Delta 3 month; 0.5 Delta 1
year; 1.8

Productivity - Whole economy (2006=100) 99.2 Period; Q4 10 Delta 3 month; -0.3

Delta 1 year; 0.8

By all means use those links and read the official commentary and points made.

Now see what narrative was produced around these reported figures.

http://www.bbc.co.uk/news/business-13206430
http://www.mindfulmoney.co.uk/4112/investing-strategy/uk-economy-avoids-double-
dip-recession-according-to-ons-report.html
http://www.bbc.co.uk/blogs/dailypolitics/andrewneil/2011/04/uk_avoids_a_double-
dip.html
http://www.fundweb.co.uk/uk-avoids-double-dip-with-05-growth/1030120.article

To paraphrase;

‘The ever-so-slightly up nature of these numbers means that the economy is on course
for growth and we won’t suffer a double-dip recession.’

Look out for two things before the next set of figures is reported in July; news reports
from people in the construction industry, hedge fund managers and politicians who
are taking the view that the stagnation of performance that we are actually
experiencing and have been since 2008, with insufficient stimulus in train and in fact
the anticipation of the effects of cuts starting to be felt, means that we will experience
a plateau of economic results before a further drop in performance (rising
unemployment, widening deficits, lower confidence) hits the reporting figures before
the end of 2011. And secondly look out for revisions downwards to the official
statistics for Q4 2010 and Q1 2011 coupled with government news stories about our
economy being hit by external factors (Euro zone instability, PIIGS uncertainty, lack
of an IMF leader, global slump in demand, ash clod over Iceland, rainy summer
weather etc) that unfortunately mean that our economic performance will be worse
than we want it to be.

The first sightings are people who know more than the official narrative and the
second is the new reality narrative being prepared.