All businesses try to manage their operations as efficiently as possible in order to meet their goals and objectives. For profit-oriented entities, that goal is usually profit maximization.
Without information, leaders and managers of a business will be steering their ship blindly. Management reporting is “the process of making reports for the managers that contain useful management information relevant to the needs of respective managers”.
Management reporting is quite different from financial reporting, which is usually prepared as per some accounting standards or generally accepted accounting principles. It is entirely an internal matter of a business, and businesses are not required by law to do management reporting.
The purpose of management reporting is to provide relevant information to the managers so that they can utilize the entity’s resources efficiently and effectively.
Types of management reports
Based on the information requirements of the managers, management reports can be classified into two types:
- Routine reports
- Ad-hoc reports (on need basis)
Managers need information for planning, controlling and other decision-making. In planning, entities usually have a practice to make annual or quarterly budgets. Similarly, for controlling the activities, budget vs actual reports are often prepared on monthly or quarterly basis. These are examples of routing reports.
In addition to the routine reports, there can be one-off events and decisions required from managers, and for such decisions, managers will ask the staff to prepare ad-hoc reports providing information that they need. For instance, ad-hoc reports will be required for following matters:
- Evaluating a long-term investment or a project
- Purchasing capital assets
- Business segment/product closure decisions
Qualities of good management reports
Management reports are purely focused on the information needs of the managers, so they should be made as per the requirements of the managers. Furthermore, the level of detail in the reports should be appropriate to the information needs of the managers.
For instance, a report may lack details that are important for the decision-making needs of the manager. On the other hand, a report may be over-loaded with too much information, that there are chances of critical information being overlooked by the manager.
Therefore, the level of detail should be in accordance with the information needs of the managers.
Here are some qualities of good management information that CATER (accommodate) the managers’ needs.
C – Cost beneficial and Complete
A – Accurate
T – Timely
E – Easy to understand
R – Relevant