In Part 1 of this article series, we have already introduced three potential sources of error that might rob both the recipients and the creators (in most cases management accountants) of the benefits of reporting. Part 2 goes on with that: other possible mistakes are shown, and courses of action and methods to enhance the overall reporting situation are provided.
Read Part 1 first:
How to Avoid the 10 Biggest Mistakes in Reporting (Part 1)
- Mistake #1: Reporting does not focus on a target group
- Mistake #2: Report layout: Variety instead of standardization
- Mistake #3: Bloated reporting structures
Mistake #4: Excess of gobbledygook or technical jargon
The management accountant usually knows best about the company’s figures, KPIs and prospects. So, there’s no harm in making clear what you know and in underscoring everything with appropriate technical terms, right? Well, not quite so.
It is obvious that management accountants position themselves as some kind of information and knowledge authority in daily business—otherwise they could not aim for a role as “business partners” for the management. But while generating reports, management accountants should not forget that the report readers may be less good with numbers and may not have an economics background.
It’s most likely that the employees of departments that are technically more “distant from management accounting” will only shrug if asked about the functional difference between cost center and cost object or the conceptual definition of technical terms like “contribution margin” and “breakeven point”. (To be fair, management accountants fight a losing battle if, for instance, engineering problems in production are discussed in detail during a meeting with manufacturing departments.)
Therefore, it is important that the reports do not need too much management accounting knowledge on the part of the recipients. To help the recipients understand the report as well as to communicate the statements simply and swiftly, you could check whether the “management accounting jargon” within the reports might be reduced at least a little bit. You could also think about offering a management accounting glossary (e.g. freely accessible via intranet or attached to the reports) that would explain technical terms or subject-specific abbreviations in detail.
Of course, the principle of reducing technical jargon also has to be applied if the report’s contents are, for instance, swamped by technical terms of the engineering department, but eventually, the reports are mainly transmitted to commercial clerks.
Mistake #5: Missing the courage to change, and a lack of flexibility
Over the last 10 years, a few things about reporting have changed drastically—not least because of new software and database systems, which often allow faster consolidation of mounds of data in real time as well as report-generation at the push of a button (at least in our wishes).
Similarly, needs and demands of information recipients have changed too. Ad hoc requests emerging from spontaneous information requirements elsewhere have to be fulfilled on a short-term basis. Besides, reporting periods have also been shortened. Reports that would be presented monthly are nowadays transmitted to decision-makers weekly or even daily.
Things won’t stand still in the future either. Management accountants need to be flexible and prepared to adapt regularly to changing business environments and other far-reaching situations. Organizations that are growing intensely are especially characterized by continuously varying information demands concerning data quantity and quality. Acquisitions and new foundations give rise to complex groups. The number of decision-makers increases as well, eventually resulting in an incremental appetite for knowledge and information that reporting tries to cover. The organizationally implemented reporting system and its main actors should be flexible enough to deal with these uncertainties.
Accordingly, you have to note the fact that the reporting system will grow conveniently alongside. If you do not extend the associated reporting mechanisms, the number of incorrect decisions will ultimately rise, too, because of a critical information undersupply. A randomized expansion of existing reporting structures, however, is also not correct; making a new report for each newly occurring decision situation would only result in a multitude of reports with similar content, and thus, an unnecessary inflation of overall reporting (also see “Mistake #3: Bloated reporting structures”).
Mistake #6: Self-reporting: Everyone does his own thing
Business intelligence tools often enable the end-users of any department to directly inspect and export relevant data out of the system into their own. In principle, this opportunity can definitely be rated as positive because it allows temporal independence of decision-makers as well as flexibility in terms of their information demand.
Nevertheless, management accountants should pull all the strings centrally. The management accountant, in close dialogue with the management, or rather, the other departments, defines and manages the basic structure of the reports that are displayed in the system and are exportable. The operational units specify their need for report-based control information to management accounting, which then proceeds with a check of the options available in the system (feasibility study), the realization, if applicable, as well as the data handling. To sensitize the report recipients to certain issues, the management accountant eventually bears responsibility for the information to be reported; this includes critical report statements.
Centralizing the responsibility for the overall reporting system especially gains significance in bigger groups. In such environments, it is not beneficial to allow every subsidiary to use individual reports. Report contents have to be comparable for several entities within the group, condensing the data of multiple firms easily and quickly and transferring those to a higher group level. Just think about reports for central group management and their particular demands for information, which allows them to supervise across companies.
Read on in Part 3:
How to Avoid the 10 Biggest Mistakes in Reporting (Part 3)
- Mistake #7: Not commenting on operating figures
- Mistake #8: Much does not always help much: Information overload
- Mistake #9: Reporting is only looking into the past
- Mistake #10: Reporting is not making recommendations for action
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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.