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Finance Team: Reimagine Your Checklists

James Caruso, CPABy James J. Caruso, CPA, CGMA

Finance teams manage multiple projects, processes, and workstreams; repeat routines from memory; and trust ourselves to remember what’s important. But we are fallible humans. In complex and dynamic environments, we make mistakes. We forget. Things fall through the cracks.

Perhaps most financial mistakes are not life threatening, but maybe we can learn from professions where they are, such as health care and aviation. Specifically, consider the lowly checklist. In The Checklist Manifesto: How to Get Things Right, Atul Gawande, a surgeon, professor, and public health leader, promotes checklists as powerful tools for managing complexity and minimizing errors and omissions.

According to Gawande, we don’t make mistakes because we lack knowledge. Instead, volume and complexity challenge our ability to apply knowledge correctly, at the right times, and without fail. Our brains are good at focusing attentively and daydreaming creatively, but not for keeping stuff in random access memory like computers. We either forget important steps or considerations, or waste bandwidth remembering them at the expense of higher-order thinking. Besides, no one has omniscient awareness of all relevant facts and circumstances. Siloed teams or individuals will make decisions that conflict or have unintended consequences. Our complex environments, Gawande explains, present two main difficulties. First, human memory and attention is fallible, especially when it comes to mundane, routine matters that are easily overlooked due to stress or pressing priorities. Second, even when we do remember everything, we tell ourselves we can skip certain steps that don’t matter – but one day, they will.

Big check on 3-D check boxesChecklists are ubiquitous in CPA firms: audit programs, consulting project plans, software configuration checklists, etc. By contrast, the finance functions of middle-market companies generally do not have a checklist culture. Without such tools to apply knowledge or replicate processes, we rely on faulty memories and recreate the wheel each time. Why do we do it this way? Is there that much hate out there for checklists?

Sure, checklists can be tedious and time-consuming. I always found audit programs cumbersome because they are too long, narratively dense, and intermingle tasks of varying contexts that cannot be performed sequentially. But maybe the real resistance to checklists is deeper: do we find them demeaning to our pride and egos? Our jobs are too complex to be reduced to a rigid checklist! We use professional judgment; we don’t need instruction manuals! We are not mindless automatons!

The irony is that optimizing creativity and judgment is the point of checklists. Checklists externalize memory – they get the “dumb stuff” out of your head and free bandwidth for thinking, creativity, and judgment. Checklists are memory joggers that codify knowledge, clarify priorities, and provide what Gawande calls a “cognitive net” to catch human errors resulting from failures of memory, attention, and thoroughness. Checklists make the intangible tangible, make tacit knowledge explicit, bring structure to the amorphous, and bring order to chaos. Checklists promote a culture of collaboration, accountability, verification, and discipline. Complexity is not routine, but checklists help make the management of complexity routine. According to Todd Henry, entrepreneur, author, and speaker, “The messiness of creative work requires a supportive structure, lest everything devolve into chaos. … Rituals … provide solid ground when facing the uncertainty of your daily work … (and) context for your work so that you can spend the majority of your energy focusing on the problems you’re trying to solve.” Running through a checklist creates a ritual.

Gawande identifies two types of checklists: “Read-Do,” where you run through the checklist and execute each task, and “Do-Confirm,” where you work normally but then confirm nothing was missed. No checklist can anticipate everything, so communication steps on the checklist ensure that people talk to resolve issues or confirm agreement from their individual perspectives. Gawande says you do not necessarily have to physically check things off, although in my view this may be important in situations where attestation and documentation are required. Citing his research on aviation checklists, Gawande notes there is inherent tension between length and effectiveness. Ideally, a good checklist is a quick and simple one-pager. Separate, brief checklists for different scenarios (such as aviation malfunctions or emergencies) are better than a long, comprehensive one that tries to address everything and becomes distracting or prone to shortcuts. In other contexts, such as construction, checklists may be longer. A project plan is a sort of checklist, but can be broken down into smaller, nested “plans within a plan.”

Checklists are not intended to be “instruction manuals.” A pilot’s checklist is not a guide on how to fly the plane. Include only the most important steps that even experts might miss or skip. Rather than a dense narrative, Gawande recommends making checklists quick and easy to read by using simple, precise wording in the lingo of the profession or organization, in both uppercase and lowercase text, while avoiding clutter and unnecessary colors. When those close to a process develop the checklist, relevance and buy-in will result. Continuously refine checklists to incorporate new knowledge and lessons learned: an obsolete checklist is more hindrance than help.

Gawande writes about a surgical team that placed a little metal tent over the scalpel in their surgical kit – a reminder to run through the checklist before the first incision. This is an example of defining a “pause point.” In a business setting, this could be as simple as a scheduled meeting or call to run the checklist.

Even a pilot with 10,000 flight hours runs through a preflight checklist. Replace pride and ego with intellectual humility; accept the reality of human fallibility and adopt checklists in your individual workflow and on your teams.

James J. Caruso, CPA, CGMA, is CFO of Simplura Health Group in Yardley, Pa. He can be reached at jcaruso@simplura.com

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