Management reporting is a critical process that gives your entity’s leaders the information they need to make important decisions. This means it is crucial to present the right information in the right way at the right time. Effective reporting allows management to understand what is happening and why, and gives them evidence to make informed decisions. Conversely, poor reporting weakens accountability and hampers efforts to improve performance.
This blog article provides an overview of what you should consider when preparing effective management reports to help your entity achieve its goals and objectives.
Qualities of the right information
There are fundamental qualities that make information the right information:
- Reliability – have you checked the information’s accuracy before presenting it?
- Comparability – have you measured the information using consistent methods from report-to-report, and between report metrics?
- Alignment – have you linked the information to your entity’s key governance documents? Does it align with business, operational and/or strategic plans; individual key performance indicators (KPIs); or risk tolerances?
- Conciseness – have you removed any distracting or irrelevant information?
- Relevancy – have you tailored the information to the specific needs of your entity’s leaders? Does it help them address issues and improve the business, or is it too granular? Have you communicated the ‘so what?’
- Completeness – have you ensured you haven’t omitted any information your entity’s leaders require, and that all stakeholders have had the opportunity to contribute to the information presented?
- Understandability – have you presented the information in a clear and readable manner, drawing the reader’s attention to key areas of concern? And is it free from technical jargon?
The right financial information
Quality management reporting should contain the financial information your entity’s leaders need, without clutter from unnecessary details. This makes it easy for them to focus on what’s important and find the information they need to make good decisions. Which specific financial items you include will depend on the nature of your entity and your leaders’ preferences; however, typically it should include, as a minimum:
- the income statement and balance sheet – year-to-date, budget, and forecast – prepared on the same basis as your entity’s external reporting requirements. Include a reconciliation to your basis of external reporting if management reports are presented differently
- spending on significant capital projects, operational projects, and grant programs – year-to-date, budget, and forecast
- narrative on the root causes of significant budget variances, the potential impacts, and suggested remedial actions
- the current cash position, budgeted cash position, commitments for future expenditure, and forecast cash positions, identifying any potential future liquidity issues.
You may include key financial ratios to enhance your reporting, and you should tailor these to your entity and its objectives. However, it is important that you present all measures and metrics in context with a benchmark – whether that be a budgeted value, KPI target, or an industry or sector benchmark.
The right non-financial information
Importantly, you should complement the financial information with non‑financial information to provide a holistic perspective. Not doing so could lead to an incomplete picture. For example, your entity could be tracking below budget because it has not invested sufficient resources to meet operational targets; not because these were more efficient than expected. Non-financial information can be a mix of narrative and measurable metrics.
You should link metrics to your entity’s strategic and operational objectives. Often these will be measures such as the SDS service standards or performance standards from your corporate plan.
Like financial metrics, it’s important to present non-financial metrics in context with a benchmark figure, whether that be a SDS target, corporate plan target, or a sector or industry benchmark. Any metrics you use should also cover your entity’s:
- business-as-usual service delivery
- implementation of new government commitments
- human resources (such as vacant positions or availability of staff capacity).
Selecting the right metrics is crucial. The differences between some metrics can appear subtle on the surface, despite measuring entirely different things. For example, ‘percentage of complaints resolved within legislative time frames’ (a measure of service quality) is very different to ‘number of complaints investigated’ (a measure of staff effort and workload).
The right way
Finding the right balance for your audience is important, as it can help readers focus on areas of concern. For example, the level of detail you include may differ when you report to a management group (where more detail may be preferable) versus a board (where less detail, but focused on strategic outcomes, may be more appropriate).
You can also use the format and layout of the report to point readers to areas of concern. As a starting point, concise commentary should help readers concentrate on what matters, with the support of graphics, charts, and use of colour.
Most importantly, as a preparer of management reporting, you should be continuously seeking feedback from users to ensure your reports add value.
Technology allows management reporting to go beyond traditional static documents. Dynamic reports or dashboard reporting can allow your entity’s leaders to view information at their preferred level of detail with ‘drill-down’ and visualisation capabilities.
Integrating your business intelligence software with your financial information system can be a step towards automating many parts of report preparation. This can also enable the same source data to be fed into different report formats – tailored to different levels of management or governance. Furthermore, you may be able to present ‘real-time’ information to your entity’s leaders.
At the right time
Timely reporting to management is just as important as what you report. The sooner you provide information to management, the sooner it can make decisions and take necessary action. But you need to balance the need for speed with accuracy.
You should develop a repeatable process that maximises automation and allows you to quickly and easily collect information across the business. This includes streamlining, and where possible automating, your month-end process to have up-to-date and reconciled financial information (such as accrued revenue and expenses, and capital work-in-progress reports).
Think about how you can easily collect non‑financial information from across your entity, often from different systems, then clearly define what metrics you need each month and link this to your reporting tools. And consider how you will get status updates and narrative information for your reports from different areas of the business – can this be entered into one source?