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the simplicity and effectiveness of Management Information
25 November 2020
Data’s all around us, systems are producing more information than ever before, sales ordering, enquiries, machine running times, sales pipelines etc. Every business creates management information (MI), even those who think they don’t, will be keeping track of enquires and potential sales. Other businesses will have mountains of information, too much for a business owner to keep a track of. We’re entering turbulent economic times, with the twin impacts of Brexit and COVID affecting every organisation in greater or lesser degrees. So, whether it’s too much or too little, the importance of MI’s never been greater.
So what do we mean by ‘management information’?
Simply put, it’s measures like management accounts, perhaps with some other useful information such as a sales pipeline. We’re not just talking about the profit and loss and balance sheet. For information to be genuinely useful in guiding and driving business decisions, it needs to be relevant, and succinct, so it’s not just looking at the accounts, but perhaps a closer views of margins. Then, once we’re looking at the margin, can we drill down to product type, geography and customer type? What are the drivers of profitability?
We work with many businesses where management accounts are produced infrequently and often many weeks or even months after the relating period. How then can the management team possibly make decisions and react to the information being presented to them if it’s already several months out of date? As a minimum, management accounts should really be available quarterly, and in an ideal world, it should be a monthly process. Having the information quickly to hand, allows time for review and for correction, should a change in strategy be required.
In terms of time frames, the initial target should be 10 working days after the month end, or even faster if possible. Our Fortus team previously worked with a large multi-national organisation that aimed for the local management accounts to be completed within 2 working days of the month end. Whilst this sounds like a tough target, with appropriate planning and preparation as well as a detailed timetable of activity, this crucial deadline was achieved.
Too much information’s good. Or is it?
As well as too little information, we also often see businesses producing way too much, more so than they actually need. Who’s got the time to review and digest a file full of figures? This often occurs because reports are added to over time on request without reviewing everything in the management pack and whether it’s still useful. Perhaps there used to be a focus on cash collection, so a report was produced to show performance, but now that report stretches back to 2012, is it needed and is it still relevant?
We live in a time of 140 character tweets, with instant reaction and simple to digest information, so who’d possibly want to read a reporting pack spanning dozens of pages, with the vital nugget of useful information buried on page 42? Keeping it simple’s an over-used phrase, but by adding two more key words in the form of ‘but effective’, summarises our approach to MI.
So, if you’re being presented with a large pack of information, ask yourself – does each report answer those important questions…Does that report allow you to make a decision, to influence where the business is going, does it aid your business strategy? If it’s simply interesting but irrelevant, then don’t be afraid to ditch it. Just because you can measure something, doesn’t mean you should.
Do the reports have too much detail? If a profit and loss report needs to be printed with a size 8 font in order to fit on a page, there’s most definitely too much detail on the report. Aggregating information to aid understanding helps remove clutter. Do you really need a line in the accounts to show there’s a £15 variance on postage this month?
Is perfection vital?
Over the years we’ve worked with firms, with varying levels of desire to achieve perfect information. Perfection takes time, and management accounts don’t need to be perfect, just accurate. Good enough really is good enough. Simply put, does the information presented, allow you to make the correct decision? Can we see the trend to understand performance, to see the successes or the failures? For example, a £20 million pound business may not be concerned if current sales being reported doesn’t include that last £5,000 invoice, whereas a smaller business will see this as vital. That’s not to say the larger company doesn’t want it to be included, but if the sale falls into next month, it won’t distort the view of performance for this month.
The aim, remember, is for quick and accurate information. Graphics, charts, and other visualisations can help. The guiding hand of finance can highlight key variances, by both £ and %, using red amber green traffic lights, arrows or other graphics to draw the eye to key information. But don’t overdo it, too many colours, fonts, and clutter can distract the user.