Reporting is a most useful and inevitable part of management accounting today, in terms of information- and decision support to those responsible for running a company. It is particularly important at a time when task complexity is rising and so is the available data, both quantitatively and qualitatively. Yet, reporting in business practice is often still implemented and done suboptimally.
Therefore, in this three-part article series, we will have a closer look at the 10 biggest mistakes that management accountants might make while performing their significant reporting tasks—including the potential ways of dealing with them.
Mistake #1: Reporting does not focus on a target group
While creating and implementing reports the management accountant should think about the recipients and beneficiaries. In practice, however, the contrary happens way too often. Reports are aimed at providing the highest possible information density to the biggest possible recipient group (so that everyone can grab at least a small bit of useful information).
That practice comes with two negative implications. First, there is an unjustified amount of work for each management accountant. Imagine investing great personal and temporal resources into creating a specific and extensive report—and eventually, half of its contents are not read properly because it is lacking in recipient focus and information relevance. Second, readers are cheesed off. No one likes to work through lengthy reports and zero in on a little bit of relevant information by themselves. Normally, stressed out readers have neither the time nor the inclination to study nonessential figures and facts.
The report-makers should always try to prepare information and data in the context of a specific audience—say, target-group-related or target-oriented. Take for instance a report about the organization’s R&D activities; usually, the upper management level needs more condensed information and data compared with the technical departments’ information demands. In other words, you have to define a clear goal and explicit subjects for each report, asking yourself first, “What do I want to represent with my report, and to whom do I want to present it?”
To receive a reply to subsequent questions—such as “Does anyone need or benefit from the provided information, and if not, what do the potential recipients expect?” or “In which form should we ideally prepare the data?”—management accountants need to have a close dialogue with the report’s target group. Only if both parties—the management accountant and the information recipient—consult each other on the reader’s information requirements (operating figures, temporal dimensions, value types, etc.) as well as the accountant’s reporting options (technical, content-wise, etc. *), reports can be exactly tailored to the needs of their target audience.
* Which of the recipient’s information needs can be implemented adequately and with reasonable effort (favorable cost-benefit ratio)? Is it necessary to make large modifications to the operational systems to guarantee the report’s data quality?
For a heterogeneous target group—say, the management and the technical department—it is obviously quite hard to find a common denominator for the information requirements. As a solution, you could consider a report layout featuring sections with condensed and more general information (relevant for all recipients), as well as marked and more specialized ones (for a specific group of readers).
To sum it up, management accountants, as well as the report recipients, could avoid talking past each other, and therefore, frustration. Reports tailored to their readers’ needs have some additional benefits; readers are relatively more satisfied with these (at least if the operational figures are not too bad) and also gather most of the details. If the management accountant reports in a target-oriented way, he/she does not waste resources on reports that end up unread in the recipient’s paper stack.
Mistake #2: Report layout: Variety instead of standardization
Usually, it is not one and the same person, or rather division, that creates and updates all the separate reports of the entire enterprise reporting. Management accounting, or other departments, have different employees participating in report generation—each of them with an individual, differing “personal preference” concerning the favorable layout of a report.
In business practice, however, individual liking should give way to a more standardized reporting layout. To help readers focus on the underlying contents, they should be spared the burden of going through heterogeneous, confusing structures and representations whenever possible. By adopting binding reporting standards, each report will feature a recognizable appearance—for instance, a uniform cover sheet and a formally consistent report structure, corresponding use of fonts and markings, analog graphical representation of (key) figures and variations, no use of unnecessary coloring, and so on.
The advantages of such standardization in report design (notation standards) cannot be dismissed:
- The usage of corresponding templates and guidelines enables management accountants to create reports much more effectively and efficiently.
- Report recipients mostly realize the essential contents faster—for example, if uniform creative items have been used to highlight the important points.
- Recurring report items and structures diminish wiggle room (or even misinterpretations) of statements and improve readability in general.
- Standardized layout and structure offer better ways to compare data over several reports.
Mistake #3: Bloated reporting structures
Today’s software solutions like data warehouses and business intelligence tools in financial and management accounting help end-users to export and analyze even big amounts of data quite quickly. In principle, both simplicity and flexibility in data and information extraction are good and useful.
However, these possibilities might also incite the management accountant to continuously extend the report spectrum for the company’s decision-makers—purely because of the technical options as well as to legitimize a former investment (“We have invested a lot of money in our software systems, so let us make use of it!”). In fact, other departments or the management itself may also initiate that process; fearing a loss of control and knowledge gaps, quite as much data and information as available might be requested from the management accounting in a report form.
By and by, the recipients find themselves flooded by reports—many of those providing them with little or no (additional) benefit. This takes us back to the facts already described under “Mistake #1”—a lack of target-group orientation at the expense of a value-creating reporting system.
It is essentially in the management accountant’s hands to prevent such a situation. In cooperation and close dialogue with each other, a reporting strategy and reporting matrix should be set up, without bloating either information supply or demand. This usually generates real additional benefit (in terms of relevant control impulses), which leads to more high-quality decisions.
Read on in Part 2:
How to Avoid the 10 Biggest Mistakes in Reporting (Part 2)
- Mistake #4: Excess of gobbledygook or technical jargon
- Mistake #5: Missing the courage to change, and a lack of flexibility
- Mistake #6: Self-reporting: Everyone does his own thing
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Must-read blog posts about management accounting and financial control—classical topics, as well as modern subjects, latest trends, and current challenges in the management accounting discipline. Aimed to inform, inspire, and entertain management accountants and anyone with a deeper interest in management accounting.