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Management accounting: What next for the monthly pack?

1st May 2013
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It’s the month end again and boards around the country are already pressing their finance teams for the latest figures.

Traditionally this information is presented in a monthly management report or pack including profit and loss accounts, a cash flow statement, and other performance measures such as new prospects and customers.

Seven years ago AccountingWEB got a great response when we asked, What is the ideal management pack?

Factors shaping management reporting

● Changing board demands - instant insights; "one view of the truth"; more cost and margin visibility; exception/variance reporting

● FD business partnering - working more closely with other departments and advising on strategy to improve performance

● Increased regulatory reporting requirements

● Corporate social responsibility (CSR) and integrated reporting based on more non-financial information such as a company’s impact on the environment and society

● Technology innovations - including analytic business intelligence tools; mobile access to data; collaborative cloud computing; and business-focused social media

● Finance managers at small and medium-sized businesses are picking up techniques from their corporate peers, but Excel is still the dominant reporting tool.

Back then - when Facebook was mainly used by university students and Gordon Brown was prime minister - CIMA said that a typical monthly management pack should be between 10-20 pages and should include, among other things, an “executive summary” comprising key performance indicators (KPIs) and an action plan to sort any problems, CIMA said.

But veteran venture capitalist Jon Moulton and other seasoned accounts users wanted to cut the waffle and get one-page summary reports on their businesses. Another expert said senior management won’t read much more than headline figures in monthly reports.

But a lot has changed since then, with the arrival of social networking, mobile apps and interactive business analytics. In a series of articles over the next month or so, AccountingWEB is going to take a fresh look at management reporting to see whether these developments have changed reporting habits - and perhaps made the management pack a superfluous appendix to modern business practice.

This first article will examine trends in business, technology and financial reporting itself that are affecting management reports (see right). Other articles will look in more detail at how FDs produce monthly reports and pass on management reporting tips from FDs and entrepreneurs.

Technologies such as CRM, cloud computing and social media have made greatly increased the amounts of data available. The challenge for finance managers is making sense of it, and increasingly spreadsheets and static, paper-based report packs are not up to the job.

“Better information is required to manage in an era of complexity and uncertainty,” says Peter Simons, part of CIMA’s education team and a former senior manager at Bank of Ireland.

“Managers are keen to understand the drivers of cost risk and value so the nature of management information is evolving from hindsight (about how we did in the last period) through insight (into how operations and process are running now) to foresight (what might happen if).The range of data to be considered is expanding from financial to operational, customer and external data and the degree of analysis expected is rising from reporting to insightful analysis and even predictive analytics.”

And managers expect to get current information delivered to their computer or phone with an ability to interrogate variances or anomalies with a click through, he adds.

Business regulations, many of them designed to reduce the risk of another financial crisis, are also changing management reporting.

“The trend in regulatory reporting is towards providing more transparency about the business’s position, performance and prospects,” Simons says.

The push for transparency is filtering back through to management information because external reporting is becoming as informative as internal reporting.

With the external emphasis on predictive analysis from regulators internal managers and investors will also be looking to review and act on leading indicators before the results have to be disclosed externally.

In 2011, Leslie Kossoff argued that the way Google Analytics and tools like Chartbeat present real-time analytical information are changing expectations of what reports should look like. Chartbeat, for example, breaks down everything on one page and updates itself every second using colour-coded pulses.

It’s not enough to simply generate reports, she continued. Finance teams need to cater for changing tastes and the demand for easy-to-interpret graphics.

“This is not about whether your data are good or useful. That’s a given,” she advised. “This is all – and only – about whether the data you present is done in a way that ensures the best, fastest and most responsive decision-making possible.”

But for all the glitzy graphics tools on offer, David Carter, AccountingWEB’s expert on pivot-table driven management reporting, argues that Excel still rules the roost. Most FDs at small and medium-sized businesses still use spreadsheets to produce monthly reports because it’s in their “comfort zone”.

Another reason for sticking with spreadsheets is because much business software is designed for transactions (processing invoices, payments, orders quickly, accurately and reliably) rather than producing management reports, Carter argues.

“Bigger companies have IT departments, understand databases and pull together data from different places, but small businesses don’t have the IT skills,” Carter says.

AccountingWEB member tom123 works for a business employing about 1,000 people and agreed with Carter that extracting information for management reports could be laborious. “Our ERP system requires a lot of information to be put in - but getting information out is a detective/forensic exercise.”

One comment he heard - possibly from another AccountingWEB member - was that the higher up the organisation, the less people would accept how much Excel was used as a key tool.

“The hypothetical CEO, who has signed off on the best of breed software, assumes all the data comes directly from it with very little intervention needed,” he said. “But there is a long way to go.”

We think the reality for most AccountingWEB members is somewhere between the different scenarios sketched out here. But we need more evidence. Let us know by commenting below about the kind of management information you prefer and how you go about creating and delivering it. We’ll include useful advice in the next instalments of this series.

Replies (5)

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By john cottam
02nd May 2013 11:15

Manangement Reporting

Boards can no longer wait a full month before knowing what the financial position is. The use of technolgy will enable companies to produce cash-flows and p&l information on demand. Month-end reporting will still be required to validate the data, but as a tool for managing the business it is becoming less relevant.

Thanks (2)
By arandall
02nd May 2013 12:07

Management Reporting

Interesting post to read, which I shall certainly follow.  Its true that small companies do not have the IT skills and/or knowledge to be able to produce the real-time, whizzy reports and Excel still is the pre-dominant tool in use.  However, the demands for up to the minute, predictive, analytical data is increasingly present and adds to the pressures of running a lean finance team.  At the moment, we are very much in the Excel camp and the more traditional type of reporting.  But this is under review and we are looking at how we can provide information on a wider platform and how we can make it more predictive and forward looking.  There is also so much more data available and concepts, such as Big Data, cannot be ignored, even for a small company.

Just a point, I looked at Chartbeat and their demo does not run in Internet Explorer.  It failed at the first hurdle!

Thanks (1)
By Trevor Scott
02nd May 2013 17:53

For many years...

.....the standard for one company I know has been ...Accounts to 5pm each weekday, produced by hopefully 6pm (For which the directors often stay late; especially a Monday) but no later than 10am the next day.

Another company has accounts to 7pm, the time of closure for their last retail units, on the desk of managers by 10am the next day.

Another company has accounts produced at noon and close of each day; actually quite easy, the figures mainly dependent upon orders received.

In 1988, yes 1988, I knew of a large company in which the accountants were always on top of things and were never more than an hour away from being able to produce very accurate accounts; mainly using Lotus 123.

With good management such things are straight forward.

I once met a person who claimed to have real-time accounts production; ie available at the press of a key at any time. But, I cannot see how such is possible as the critical element between mere data and accounts information is professional judgement; which does take time.

Thanks (3)
By Paul Holborow
03rd May 2013 15:55

Management reporting ...

To say smaller companies don't have the IT expertise can be solved with a little investment. Its pretty easy to construct reports in Excel using direct connections to accounting systems - just check out Glenn Feechans blog. And as users/resellers of Access Accounts, I know many of my users, who are SME's, just need to invest 1/2 day of consulting time to acquite the expertise to connect Access Dimensions to say Excel or other reporting tools and they can have nice whizzy graphs and dashboards really easily.

Where I do agree is with the difficulty in gathering non-financial info to include in report packs. SME's often have disparate systems and the data isn't easily accessible, if available at all. SME's I think also need help identifying what their KPI's actually are. Finance Directors and managers focus on the accounting numbers, which really should be the easy bit by now, it's the other indicators of business success that need identifying and included in report packs that's important too.



Thanks (1)
By Hannahmc8
09th May 2013 11:22

management accounts for the hospitality trade

This issue of "excel being the comfort zone" has its limitations. Traditional management accounting processes require repetition of data entry and time lag awaiting month-end. This costs in many ways.

Frustrated with what was on offer to help SME single and multiple-site pub and restaurant businesses in viewing management metrics instantly and the associated costs incurred we built 

Fully integrated back office processes using the daily information already recorded by management. Time spent inputting data is reduced, internal reporting vastly improved and as KPI's are analysed across all departments, sites and the entire company instantly, operators can act quickly on the information at hand.

I love excel, but low-cost, high-impact, fully integrated cloud solutions have to be the way forward.

Thanks (1)