Field notes ·
Setting materiality thresholds that survive a board challenge
A field note on choosing absolute and percentage thresholds for budget variance analysis that directors will accept.
A threshold that only uses percentages will hide large absolute misses on small lines and exaggerate tiny percentage moves on large lines. Use both an absolute floor and a percentage trigger.
Agree the thresholds before the period starts. Changing them after results land looks like narrative management, even when the change is well intentioned.
For multi-entity groups, set a group threshold and a local threshold. Local teams should still explain lines that matter locally even if they fall below group materiality.
Document who can waive a threshold for a given close. Ambiguity here creates last-minute debate when the pack is already late.