Between 1970 and 2006, the average number of hours in a working year increased by 200. And most of the time, we sit behind our desks doing the same task over and over again. We are so occupied with our day to day office routine that we rarely stop in order to get a broader view on the dynamics and challenges of our profession.
Denis Kotov, Head of Subsidiary Controlling at GAZPROM Germania, knows exactly how negatively this can affect your work routine especially if you work at the financial department of one of the top oil & gas companies.
“I believe it is important to meet people and exchange opinions about actual and future developments in management accounting and finance as a whole. What are the challenges we should be prepared for? How can we do familiar things in an alternative way? Bringing together experts from different countries and industries provides an opportunity to learn alternative ways of doing familiar things and then ask ourselves what can be changed for the better in our own organization.”
Q: Denis, tell us a little about yourself
A: Right after my graduation, I joined PwC Moscow and was sent to the Russian Arctic for the interim audit of the Gazprom’s biggest exploration & production entity. If you think it was a rough start, you are right. It was an extreme career start for a junior consultant but it was worth it.
Over the past decade I worked on, managed and supervised various projects in oil & gas, pharma and petrochemical industries. My last stop was in the German subsidiary of Gazprom in Berlin – a holding company for downstream and gas transport business of Gazprom in Europe. In these 10 years, business models of the European energy utilities have experienced tremendous changes mainly driven by the European Commission.
As a consequence of the liberalization of gas and electricity markets, energy companies had to operate in a much more complex business environment with an ever increasing flood of information.
In the situations of high complexity and information overload, management decisions and judgements can be influenced by so called cognitive biases. Cognitive biases, if applied the wrong way, can cause planning mistakes and pitfalls in the interpretation of variance analysis. Some examples are:
- too optimistic estimation of future sales volumes
- unintentional selection of information that supports a business case
- self-attribution bias
In my presentation, I’d like to address these biases and their effects on the output of management accountants. We will go through several examples and learn tools and techniques to recognize and mitigate negative implications of biases.
Q: During your workshop session at the Financial Controlling Toolbox, you will talk about Behavioral Biases and Why Should Controllers Care About Them. Can you elaborate a little more on that?
A: In today’s complex business environment, our decisions are susceptible to behavioral biases of people involved in the collection, interpretation and preparation of facts and judgements on which the decisions are based.
Let’s talk about sales for example. A lot of sales people or project managers tend to overestimate the future benefits from their strategy or project and underestimate corresponding risks, time-to-completion and resources needed. This effect is known as overconfidence. If later their strategy or projects isn’t running according to the schedule, they will probably blame external non-controllable factors rather than their own miscalculations or effects of overconfidence.
Alternatively, if something unexpected happens, he or she can suddenly change her or his mind arguing that “I-knew-it-all-along” (hindsight bias).
Q: So what is the real problem with being overconfident?
A: The problem with biases is that people are unaware of their influences.
Even if we know about the existence of overconfidence, illusion of control or anchoring, there is nothing we can do about it.
What is invisible to us, can be seen by others. Since management accountants are supposed to support management in decision making, they are the ones to track biases and ensure the sound decision making process. In order to be able to do it effectively, management accountant should be familiar with the topic and be equipped with the respective tools and knowledge which can help them build good processes. That is what our workshop is devoted to.
Q: What are the most valuable lessons you learnt so far in your career?
A: Βe flexible in the way you get your job done and solve problems. Even if you found a solution that is satisfying enough, carry on. It is better to keep looking for another alternative solution instead of perfectly executing a bad one.
Think “slowly”. Day-to-day activities eventually become a routine. Have you ever stopped and wondered why you are doing everything “this” way and not “that” way? Status quo could be the optimal way but needs to be regularly checked. Think of all the reports and KPIs we produce: do they really make sense?
Denis was one of our speakers at the Financial Controlling Toolbox 2017 in Prague. To get the chance to learn more about behavioral biases, reserve your seat today at the Controlling Forum.