The Management Reporting System

The Management Reporting System

-Management reporting has long been recognized as a critical element of an organization’s internal control structure.

-An MRS that directs management’s attention to problems on a timely basis promotes effective management and thus supports the organization’s business objectives

FACTORS THAT INFLUENCE THE MRS

1.Management Principles

-Formalization of Tasks: The formalization of tasks principle suggests that management should structure the firm around the tasks it performs rather than around individuals with unique skills. Each position must have clearly defined limits of responsibility. When a personnel change occurs, the information the new employee will need is essentially the same as for his or her predecessor. The information system must focus on the task, not the individual performing the task.

-Responsibility and Authority: If a manager delegates responsibility to a subordinate, he or she must also grant the subordinate the authority to make decisions within the limits of that responsibility.In a business organization, managers delegate responsibility and authority downward through the organizational hierarchy from superior to subordinates

-Span of Control: A manager’s span of control refers to the number of subordinates directly under his or her control. The size of the span has an impact on the organization’s physical structure.

-Management by Exception: The principle of management by exception suggests that managers should limit their attention to potential problem areas (that is, exceptions) rather than being involved with every activity or decision. Managers thus maintain control without being overwhelmed by the details.

2.Management Function, Level, And Decision Type

-Planning can be long range or short range. Long-range planning usually encompasses a period of between 1 and 5 years, but this varies among industries. Long-range planning involves a variety of tasks, including setting the goals and objectives of the firm, planning the growth and optimum size of the firm, and deciding on the degree of diversification among the firm’s products. Short-term planning involves the implementation of specific plans that are needed to achieve the objectives of the long-range plan

-Tactical planning decisions are subordinate to strategic decisions and are made by middle management

-The supervising manager compares the performance of his or her subordinate manager to pre-established standards management control decisions because it is difficult to separate the manager’s performance from that of his or her operational unit

-Operational control decisions are narrower and more focused than tactical decisions because they are concerned with the routine tasks of operations. Operational control decisions are more structured than management control decisions, more dependent on details than planning decisions, and have a shorter time frame than tactical or strategic decisions.

-Strategic Planning Decisions : Setting the goals and objectives of the firm, determining the scope of business activities, such as desired market share, markets the firm wishes to enter or abandon, the addition of new product lines and the termination of old ones, and merger and acquisition decisions, determining or modifying the organization’s structure, and setting the management philosophy

3.Problem Structure

-The structure of a problem reflects how well the decision maker understands the problem. Structure has three elements.

1.Data—the values used to represent factors that are relevant to the problem.

2.Procedures—the sequence of steps or decision rules used in solving the problem.

3.Objectives—the results the decision maker desires to attain by solving the problem.

-When all three elements are known with certainty, the problem is structured. Payroll calculation is an example of a structured problem:

1.We can identify the data for this calculation with certainty (hours worked, hourly rate, withholdings, tax rate, and so on).

2.Payroll procedures are known with certainty:

Gross pay = Hours worked x Pay rate

Net pay = Gross pay - Taxes - Withholdings

3.The objective of payroll is to discharge the firm’s financial obligation to its employees.

4.Types Of Management Reports

-A management report may be a paper document or a digital image displayed on a computer terminal reports must have information content. Their value is the effect they have on users. This is expressed in two general reporting objectives:

1.To reduce the level of uncertainty associated with a problem facing the decision maker, and

2.To influence the decision maker’s behavior in a positive way.

-Programmed reports provide information to solve problems that users have anticipated. There are two sub classes of programmed reports: scheduled reports and on-demand reports. The MRS produces scheduled reports according to an established time frame. On-demand reports are triggered by events, not by the passage of time.

-A report must possess the following attributes: relevance, summarization, exception orientation, accuracy, completeness, timeliness, and conciseness.

-Managers with limited computer background can quickly produce ad hoc reports from a terminal or PC, without the assistance of data processing professionals. This data resource is now being tapped to support ad hoc reporting needs through a concept known as data mining.

-Data mining is the process of selecting, exploring, and modeling large amounts of data to uncover relationships and global patterns that exist in large databases but are hidden among the vast amount of facts.

5.Responsibility Accounting

-A large part of management reporting involves responsibility accounting. This concept implies that every economic event that affects the organization is the responsibility of and can be traced to an individual manager.

-These top-down and bottom-up information flowsrepresent the two phases of responsibility accounting:

(1) Creating a set of financial performance goals(budgets) pertinent to the manager’s responsibilities, and

(2)Reporting and measuring actual performance as compared to these goals.

-Setting Financial Goals: The Budget Process - The budget process helps management achieve its financial objectives by establishing measurable goals for each organizational segment.

-Measuring and Reporting Performance - Performance measurement and reporting take place at each operational segment in the firm. This information flows upward as responsibility reports to senior levels of management.

-Responsibility Centers- To achieve accountability, business entities frequently organize their operations into units called responsibility centers. The most common forms of responsibility centers are cost centers (A cost center is an organizational unit with responsibility for cost management within budgetary limits.), profit centers (A profit center manager has responsibility for both cost control and revenue generation.), and investment centers (The manager of an investment center has the general authority to make decisions that profoundly affect the organization).

6.Behavioral Considerations

-Goal Congruence- Lower-level managers pursuing their own objectives contribute in a positive way to the objectives of their superiors.

-Information Overload- Information overload occurs when a manager receives more information than he or she can assimilate. This happens when designers of the reporting system do not properly consider the manager’s organizational level and span of control.

-Inappropriate Performance Measures- Recall that one purpose of a report is to stimulate behavior consistent with the objectives of the firm. When inappropriate performance measures are used, however, the report can have the opposite effect. The use of any single-criterion performance measure can impose personal goals on managers that conflict with organizational goals and result in dysfunctional behavior.

-Performance measures should consider all relevant aspects of a manager’s responsibility. In addition to measures of general performance(such as ROI), management should measure trends in key variables such as sales, cost of goods sold, operating expenses, and asset levels. Non financial measures such as product leadership, personnel development, employee attitudes, and public responsibility may also be relevant in assessing management performance.