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Management Reporting

Management Reporting

Background

How does a CEO decide that the company should launch a new product?

How would the Board of Directors approve opening a new branch of the company?

How would the Marketing Director determine that we should now launch a new campaign?

What is the basis of all major decisions taken by the management of the entity?

Yes, you may have guessed it by now. It is the management reports which provide the basis for all these decisions. Based on the management reports, management would use their judgment, do the required discussion and would take the right business decision.

What is management reporting

Management reporting means the preparation of reports (mainly financial reports) and presenting them to the management. These reports contain essential information about income, expenses, assets and cash flow, etc. of the business. These reports help management to take the right business decisions.

For example, management reports will inform the management about how much profit is earned in last month or how much balance is available in the company’s bank account at a particular date. Management would use this information to prepare an action plan for the future.

Importance of management reporting

Management reporting is a vast area which plays a pivotal role in the performance management of the organization. It is one of the critical functions of a Finance Department where you can help top management to make the right decisions in the right direction.

Finance department usually has data and insights for the key performance indicators (KPIs) for fundamental processes. A carefully prepared financial analysis which briefly summarizes followings items would do a great job:

  • Current business results (comparison of different periods)

  • Key ratios and key performance indicators
  • Key areas which require improvement
  • Management commentary for the whole analysis

However, it is not only the finance department which is preparing management reports. Other departments also prepare and provide management reports. For example, a manufacturing department would prepare and produce reports about the manufacturing statistics. However, it depends how functions have been distributed in the organization.

Examples of some standard management reports

Management reports vary from industry to industry, company to company and management to management and person to person. However, there are some necessary reports which we can summarize below which would apply to most of the entities. Please note that the format, content, and extent of each of these reports would depend upon the size and scale of the organization and how management wants to view the information. Below descriptions are prepared from a general point of view.

Daily bank balance: Usually this report is the first report which some executives want to see on their table at the start of the day. They can assess the fund flow situation and make important decisions regarding payments and collections.

This report would be a table containing Sr #, Name of bank account, account number, opening balance, debits, credits and closing bank balance of previous day or even today.

Monthly MIS: This is a useful tool which primarily informs management on the income and expenses (sales and purchases) for a month. It might be a somewhat detailed report spanning 2-3 pages containing product-wise sales figure for the last month and cumulative figures for the year. This kind of MIS is more like an income statement but provides additional details.

Product-wise profitability report: This report, in its most straightforward format, would show a table of different products. For each product, critical financial figures like sales, cost, and profit shall be included in the table.

This report is usually suitable for manufacturing companies which are producing 5-10 products in their portfolio. You can imagine that in a large retail superstore, where the number of products is in thousands, this report may not be presentable on a product-level.

Customer-wise/project-wise profitability report: This report would mention customer-wise/project-wise profitability report. Both are different reports, but here we are explaining them as same as the concept is the same. The report would contain income and expenses related to each customer/project.

This report is quite a helpful report for the management to identify profitable customers/projects and decide future business terms for these customer/projects. For example, if a project is profitable, management will know that they have a reasonable margin for the price reduction (if a customer is insisting for that). However, for a customer who is already resulting in a loss to the company, reducing prices further for that customer may not be an ideal strategy.

Expense reporting: This is a crucial report when management is concerned about cost-cutting and budgetary control. This report would only contain details of the expenses under different heads for example printing cost, travel cost, legal expenses, utility expenses, etc.

This is a tool where management keeps track of the expenses incurred and compare them with the past period and the budgets. Wherever there is a significant variation, management would inquire the reason for the variation and would take rectifying measures to control the cost.

Flash report: A flash report is a flash (or a snapshot) of critical financial data for a particular date or a period. For example, it will contain sales, cash collected, expenses incurred, payments made on a particular date.

Management accounts: These are financial statements which are prepared for the company’s internal use only. These usually contain profit & loss account and balance sheet (among other data). However, there is no fixed/strict format for this (as it is for audited financial statements). Every entity decides the format and content of management accounts according to their needs.

Management accounts usually provide more details regarding specific products, services, and expenses. They may not cover all aspects of the financial reporting.

These can be contrasted with external Financial Statements which are shared with banks, regulators, shareholders, etc. and are prepared under IFRS/GAAP.



marine-harvest-asa-annual-report-2017
Source:http://marineharvest.com/about/news-and-media/news_new2/marine-harvest-asa-annual-report-2017/


Importance of industry knowledge in management reporting

The main problems with accountants preparing management reports is that they may not be aware of the insights of the industry or that particular sector. A good management report CANNOT be prepared merely with proper accounting and report writing concepts. It is pivotal to have a business and commercial acumen of that particular industry to assist management in taking right decisions.

Therefore, it is strongly suggested to all accounting & finance professionals to pay a focus on the business development and business understanding side of their respective company/sector. The better industry knowledge you have, the better you will be in management reporting.

Key Challenges in Management Report

  1. Businesses are continuously evolving, and the external environment is rapidly changing. It is imperative to keep yourself update with the changes in the environment so that you are aware of all risk factors.

  2. Management reports should cover all relevant factors which will affect the net results of the decisions. If any relevant factors have not been taken into account in the analysis, then the management report is insufficient and would not lead to the best decision.

  3. Critical assumptions used in preparing the reports should be well explained either in annexure or remarks so that management is aware of the limitations of the report.

  4. Management reports should be presented in a way understandable to management highlighted vital information in bright and bold fonts or charts.

  5. Sources from where data is taken should be reliable and accurate.

Structure of a management Report

If you are preparing a management report in a powerpoint presentation, we will guide you on the structure of the report. The structure of a good management report would depend on the nature of the industry and the geography of the company, however, following sequence may be adopted in a management report in general:

  1. Heading slide: This would include the title of the report, the period to which it relates and the preparers’ name and department.

  2. Key highlights: Ideally this should be some graph or chart of crucial ratios on one slide only where the key and most important results are provided in a tabular or graphical format.

  3. Executive Summary: This is a part which is often missed in financial management reports but it a pivotal role where Finance can give their input and play a core role in the company’s success. An executive summary should be a one (or max) two paged slides where the background of the situation, current analysis, and critical recommendations are provided.

  4. Detailed analysis: This would be a significant portion of the presentation and may span over several slides. The information on the detailed analysis should be in a structured format which is easy to read for the management, and it contains key

  5. Conclusion: The key actions which are being recommended to the management to tackle the situation
  6. Footer Slide: This would typically include a closing thank you note slide.

Financial Reporting Vs. Management Reporting

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Conclusion

Management reports are not limited to Finance / Accounting function only. Almost every department in the organization would be preparing and presenting management reports in their fashion. These management reports are prepared usually by mid-level professionals and are presented to Directors or top management. Top management would make critical business decisions taking inputs from the management reports.

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