Home Business & Finance Executive finance and strategy
Why does the management report exist?
Undoubtedly, many businesses over-report and much reporting is due to the regulated world we live in, but internal financial reporting is of our own making. Reasons for excessive reporting include links with internal controls, that is, the issuing and response to a report is an internal control. As with many situations in life, we clutter, add to controls and reports but never find time to review and eliminate what has now become redundant. Reasons for writing reports are:
- to inform;
- to explain, to teach/instruct;
- to advise;
- to persuade;
- to ensure action;
- to discuss/argue;
- to query/question;
- to sell.
When designing financial reports, a test of the necessity for the report is to ask why it is being written and disseminated. Many reports do convey necessary information for the short or long term; however, financial reports, meaning those with numbers for which the recipient is in some way responsible, really have one purpose. That purpose is to ensure action, which of course may well mean doing nothing if all is on track. The point is that financial reporting should be focused on delivery of objectives through detailed strategies and tactics.
Appropriate design of reports is important
This text is not a manual on how to design an accounting system, but reports are key to delivering strategy. When used in live presentations, the example below still elicits surprise from senior people - the question being, why report?
Look at Tables 9.1 to 9.3. Table 9.1 makes it clear that this is a 'bad' report. Why bad? Very obviously the welter of information; this is migraine-inducing. To improve this, you should remove either the monthly columns or the cumulative; both sets of data may well be relevant but to different users at different times. For example, the cumulative figures would be more relevant to a project with a life of months or years, but monthly figures for production. I often say to audiences: 'You would never be presented with a report like this' - smiles all round, as this is exactly what they are given. The reason is that the report is indeed used by executives with different responsibilities and thus only part of the report is relevant - time for the highlighter!
A frequently occurring reason for executives labouring with such reports is that while the accounting software sales folk give a slick presentation of how you can summarize and drill down, the purchaser has neither the time nor the money to implement the system properly. The next example (Table 9.2) focuses on the sales area of the above report and is much better in that only the large numbers are now displayed; the percentage difference from budget may also help - but the absolute amount of difference needs also to be considered.
There is now a column containing '???'. The question I pose is: 'What is the title of this column?'
The first answers are often 'explanation', 'reason' or 'cause'. My first retort will be 'No, it is the excuse column' - again smiles all round.
The answer is as shown in Table 9.3 - it should be the 'action' column. There may be the need for two columns, firstly, the reason or explanation for the variances, but then the column with the action the person responsible proposes. The efficacy of the proposed action can then be tracked and the executive held to account. How this is done and with what censure is a matter of company culture (this is considered under budgeting in Chapter 10).
TABLE 9.1 A BAD report
TABLE 9.2 A better, summarized report
TABLE 9.3 A GOOD report-requiring ACTION
A checklist to assist with making clear, actionable reports
- How is the report to be distributed?
- Are language and terminology clear to all users of the report?
- Would ratios or graphs make the point and be sufficient?
- How are recipients to respond?
- What follow-up is there?
Styles of reports are evolving; there may be more exception reporting and intelligent reporting, which lets program make the decision for action.
Accounting continues to evolve and 'cloud' accounting is a current development. However, cloud accounting is neither new nor revolutionary, as some software sellers would have us believe. What remote storage (your cloud may well be a salt mine) with remote access means is that all relevant executives and managers can at all times access current data and respond accordingly.
Access by all (relevant) executives at all times to pertinent reports should improve delivery of strategy.
|< Prev||CONTENTS||Next >|