Sources of management information and management reports

Sources of management information and management reports

1. Sources of management accounting information: Internal sources of information include the financial accounting records and other systems closely tied to the accounting system.

Capturing data/information from inside the organisation involves the following.

(a) A system for collecting or measuring transactions data – eg sales, purchases, inventory and revenue – which sets out procedures for what data is collected, how frequently, by whom and by what methods, and how it is processed and filed or communicated

(b) Informal communication of information between managers and staff (eg, by word of mouth or at meetings)

(c) Communication between managers

1.1 Sources of monetary and non-monetary information

1.1.1 The financial accounting records: You are by now very familiar with the idea of a system of sales ledgers and purchase ledgers, general ledgers, cash books, and so on. These records provide a history of an organisation's monetary transactions.

Some of this information is of great value outside the accounts department – most obviously, for example, sales information for the marketing function. Other information, like cheque numbers, is of purely administrative value within the accounts department.

You will also be aware that, to maintain the integrity of its financial accounting records, an organisation of any size will have systems for and controls over transactions. These also give rise to valuable information.

An inventory control system is the classic example: besides actually recording the monetary value of purchases and inventory in hand for external financial reporting purposes, the system will include purchase orders, goods received notes, goods returned notes, and so on, which can be analysed to provide management information about speed of delivery, say, or the quality of supplies.

1.1.2 Other internal sources: Much information that is not strictly part of the financial accounting records nevertheless is closely tied to the accounting system.

(a) Information about personnel will be linked to the payroll system. Additional information may be obtained from this source if, say, a project is being costed and it is necessary to ascertain the availability and rate of pay of different levels of staff.

(b) Much information will be produced by a production department about machine capacity, movement of materials and work in progress, set up times, maintenance requirements, and so on.

(c) Many service businesses – notably accountants and solicitors – need to keep detailed records of the time spent on various activities, both to justify fees to clients and to assess the efficiency of operations.

Staff themselves are one of the primary sources of internal information. Information may be obtained either informally in the course of day-to-day business or formally through meetings, interviews or questionnaires.

1.2 External sources of information: External information tends to be more relevant to strategic and tactical decisions than to operational decisions. (Benchmarking is an exception.)

Capturing information from outside the organisation might be carried out formally and entrusted to particular individuals, or might be 'informal'.

1.3. Formal collection of data from outside sources: There are many sources of external information.

(a) A company's tax specialists will be expected to gather information about changes in tax law and how this will affect the company.

(b) Obtaining information about any new legislation on health and safety at work, or employment regulations, must be the responsibility of a particular person – for example the company's legal expert or company secretary – who must then pass on the information to other managers affected by it.

(c) Research and development work often relies on information about other R&D work being done by another company or by government institutions. An R&D official might be made responsible for finding out about R&D work outside the company.

(d) Marketing managers need to know about the opinions and buying attitudes of potential customers. To obtain this information, they might carry out market research exercises.

Informal gathering of information from the environment goes on all the time, consciously or unconsciously, because the employees of an organisation learn what is going on in the world around them – perhaps from the media, meetings with business associates or the trade press.

Organisations hold external information, such as invoices and advertisements, from customers and suppliers. However, there are many occasions when an active search outside the organisation is necessary.

1.4 Specific external sources: Secondary data, such as government statistics or data provided by online databases, is not collected by or for the user. Primary data – more expensive than secondary data – is more tailored to the user's exact needs. Market research is an example.

1.4.1 Directories: Examples (of business directories) include the following (although there are many others).

(a) Kompass Register (Kompass)

(b) Who owns Whom (Dun & Bradstreet)

(c) Key British Enterprises (Dun & Bradstreet)

1.4.2 Associations: There are associations in almost every field of business and leisure activity, and ACCA itself is an organisation. Associations collect and publish data for their members that can be of great interest to other users. For example, although the services of the Road Haulage Association (RHA) are geared towards transport businesses, their analysis of fuel prices rises could be useful to all motorists.

1.4.3 Government agencies: The Government is a major source of economic information and information about industry and population trends. Examples of UK Government publications are as follows. Most of these are available online and can be downloaded for free.

(a) National Statistics, divided into 12 separate themes such as economy, health and labour

(b) The Digest of UK Energy Statistics (published annually)

(c) Housing and Construction Statistics (published quarterly)

(d) Financial Statistics (monthly)

(e) Economic Trends now published with Labour Market Trends in the Economic Labour Market Review

(f) Public Sector Employment Trends (annual) gives details of employment in the public sector in the UK

(g) A variety of publications on the Department for Business, Innovation and Skills website give data on industrial and commercial trends at home and overseas

(h) Social Trends (annual)

Official statistics are also published by other government bodies, such as the European Union, the United Nations and local authorities.

1.4.4 Other published sources: This group includes all other publications, including some digests and pocket books and periodicals (often available in public libraries).

1.4.5 Syndicated services: The sources of secondary data we have looked at so far have generally been free because they are in the public domain. Inexpensiveness is an advantage that can be offset by the fact that the information is unspecific and needs considerable analysis before being useable. A middle step between adapting secondary data and commissioning primary research is the purchase of data collected by market research companies. The data tend to be expensive but less costly than primary research.

1.4.6 Consumer panels: A form of continuous research which result in secondary data often bought in by marketers is that generated by consumer panels. These constitute a representative sample of individuals and households whose buying activity in a defined area is monitored either continuously (every day, with results aggregated) or at regular intervals, over a period of time. There are panels set up to monitor purchases of groceries, consumer durables, cars, baby products and many others.

1.5 Information from customers: Customers can provide useful information.

(a) Firms send out satisfaction questionnaires and market research.

(b) Customer comments and complaints sent voluntarily can suggest improvements.

1.6 Information from suppliers: Supplier information comes in several categories.

Information	Comment
'Bid' information	A supplier pitching for a product will detail products, services and prices. This is before a deal is done.
Operational information	If a firm has placed a particular job or contract with a supplier, the supplier may provide details of the stages in the manufacturing process, eg the delivery time.
Pricing information	Component prices vary from industry to industry; some are volatile.
Technology	Technological developments in the supplier's industry can affect the type of input components, their cost and their availability.

1.7 The internet: The internet increases the richness of external data and reduces the cost of searching for it. The internet is a global network connecting millions of computers. The internet offers efficient, fast and cost-effective email, and massive information search and retrieval facilities. There is a great deal of financial information available and users can also access publications and news releases issued by the Treasury and other government departments.

Businesses are also using it to provide information (cheaply) about their own products and services and to conduct research into their competitors' activities.

The internet offers a speedy and impersonal way of getting to know the basics (or even the details) of the services that a company provides.

The internet is commonly used to access information about suppliers.

(a) A firm can visit a supplier's website for details of products and services.

(b) The user can search a number of websites through a browser. Note that the internet may not contain every supplier; arguably it should not be relied on as the sole source.

(c) A number of business to business sites have been opened. Participating members offer their services, and can offer quotes. A lot of the communication search problem is avoided.

1.8 Database information: A management information system or database should provide managers with a useful flow of relevant information which is easy to use and easy to access. Information is an important corporate resource.

Managed and used effectively, it can provide considerable competitive advantage and so it is a worthwhile investment.

It is now possible to access large volumes of generally available information through databases held by public bodies and businesses.

(a) Some companies, such as LexisNexis, charge users a subscription fee to access their electronic database. LexisNexis' clients come primarily from within the legal and accountancy profession, who use the service to access legal and public records related information.

(b) Public databases are also available for inspection.

Dun & Bradstreet provides general business information. AC Nielsen operates online information regarding products and market share.

Developments in information technology allow businesses to have access to the databases of external organisations. Reuters, for example, provides an online information system about money market interest rates and foreign exchange rates to firms involved in money market and foreign exchange dealings, and to the treasury departments of a large number of companies. The growing adoption of technology at point of sale provides a potentially invaluable source of data to both retailer and manufacturer.

1.8.1 Online databases: Most external databases are online databases, which are very large computer files of information supplied by database providers and managed by 'host' companies whose business revenue is generated through charges made to users. Access to such databases is open to anyone prepared to pay and who is equipped with a PC plus internet access and communication software. These days there are an increasing number of companies offering free internet access. Most databases can be accessed around the clock.

1.9 Data warehouses: A data warehouse contains data from a range of internal (for instance sales order processing system, nominal ledger) and external sources. One reason for including individual transaction data in a data warehouse is that the user can drill down to access transaction-level detail if necessary. Data is increasingly obtained from newer channels, such as customer care systems, outside agencies or websites.

The warehouse provides a coherent set of information to be used across the organisation for management analysis and decision-making. The reporting and query tools available within the warehouse should facilitate management reporting and analysis. This analysis can be enhanced through using data mining software to identify trends and patterns in the data.

2. Information for control purposes: Much control is achieved through the feedback of internal information.

Control is dependent on the receipt and processing of information, both to plan in the first place and to compare actual results against the plan, so as to judge what control measures are needed.

Plans will be based on an awareness of the environment (from externally sourced information) and on the current performance of the organisation (based on internal information such as, for example, sales volumes and costs).

Control is achieved through feedback – information about actual results produced from within the organisation (that is, internal information) such as variance control reports for the purpose of helping management with control decisions.

The sources of information outlined earlier in the chapter are used to supply management with data for control.

For instance, payroll records give information on the total cost of staff and a breakdown into cost by function, role, bonuses, taxes, and so on which can show management how different cost areas are performing. As payroll is often a large cost and to some extent discretionary or variable, it is important to monitor and control.

Equally, information on wage payments will also be relevant to an organisation's cash flow planning. As far as possible, organisations like to keep their cash balances within certain limits. So, by knowing the amount and timing of wages and salary payments, the organisation can make any adjustments to ensure cash balances remain within the desired limits.

Information about inventory levels can also be instructive. For example, some lines of inventory may be slow moving, but management will need to establish why this is. Has a competitor introduced a rival product, or reduced its prices? Have there been any quality issues with the product which have damaged its reputation in the marketplace? Is the product in a long-term decline and should production of it be discontinued? In this respect, information about quantities of a product sold compared with quantities produced could also be very useful. For example, if a product is selling very well, production may need to be increased so that demand can be satisfied and any stock-outs avoided.

Customer data is vital in any business that strives to focus on customers. Thus data on buying habits, where customers shop, what they buy and who the main customers are all give feedback for control purposes.

Equally, data from customer sales accounts can provide useful information on how customer debts are aged. A report on the ageing of debt can provide management with information on how successful its receivables control policy is. Management's response will be different if half the customer debt has been outstanding for more than say, 60 days, compared with only 5% of the debt being outstanding for more than 60 days.

External data is useful for benchmarking provided the correct or appropriate benchmarks are selected.

3. Costs of information: Be aware of the cost of inefficient use of information.

The costs to an organisation of the collection, processing and production of internal information can be divided into three types. These are direct data capture costs, process costs, and indirect costs of producing internal information.

Cost	Examples
Direct data capture	·       Use of bar coding and scanners (eg in retailing and manufacturing) ·       Employee time spent filling in timesheets ·       Secretary time spent taking minutes at a meeting
Processing	·       Payroll department time spent processing and analysing personnel costs ·       Time for personnel to input data (eg in relation to production) on to the MIS
Inefficient use of information	·       Information collected but not needed ·       Information stored long after it is needed ·       Information disseminated more widely than necessary ·       Collection of the same information by more than one method ·       Duplication of information

4. Costs, benefits and limitations of external information: There are specific costs not only in obtaining data but also in maintaining the infrastructure supporting data collection and distribution.

4.1 Costs: Identifying the costs of obtaining external data is not difficult. Effectively there are five types of cost.

Cost	Examples
Direct search costs	·             Cost of a marketing research survey (this can be considerable) ·             Subscriptions to online databases ·             Subscriptions to magazines, services ·             Download fees
Indirect access costs	·            Management and employee time spent finding useful information ·            Wasted management and employee time on unsuccessful searches for information ·            Spurious accuracy / redundancy ·            Wasted management and employee time on excessive searching ·            Wasted time on trying to find spurious accuracy
Management costs	·             Recording, processing and dissemination of external information ·             Wasted time due to information overload ·             Wasted time on excessive processing
Infrastructure costs	·             Installation and maintenance of computer networks, servers, landlines, etc to facilitate internet searching and internal electronic communication
Time theft	·            Wasted time caused by abuse of internet and email access facilities ·            Lost time ·            Cost of monitoring and disciplinary procedures ·            Information overload

As can be seen from the earlier case example, the internet can significantly reduce search time and cost. More information can be had for less money.

a.2   Benefits and limitations of external data: The benefits can be quantified in the following terms.

(a) The quality of decisions that the data has influenced

(b) Risk/uncertainties avoided by having the data

(c) The organisation's ability to respond appropriately to the environment or to improve its performance

One of the principal limitations of external data is that its quality cannot be guaranteed. Its quality will depend on the following characteristics.

(a) The producers of the data (they may have an axe to grind; trade associations may not include data which runs counter to the interests of its members)

(b) The reason for the data being collected in the first place

(c) The collection method (random samples with a poor response rate are particularly questionable)

(d) The age of the data (government statistics and information based on them are often relatively dated, though information technology has speeded up the process)

(e) How parameters were defined (for instance, the definition of family used by some researchers could well be very different to that used by others)

Using poor quality external data can have disastrous consequences: projects may proceed on the basis of overstated demand levels; opportunities may not be grasped because data is out of date and does not show the true state of the market.

4.2.1 Advantages arising from the use of secondary (as opposed to primary) data

(a) The data may solve the problem without the need for any primary research: time and money is thereby saved.

(b) Cost savings can be substantial because secondary data sources are a great deal cheaper than those for primary research.

(c) Secondary data, while not necessarily fulfilling all the needs of the business, can be of great use:

(i) Setting the parameters, defining a hypothesis, highlighting variables; in other words, helping to focus on the central problem

(ii) Providing guidance, by showing past methods of research and so on, for primary data collection

(iii) Helping to assimilate the primary research with past research, highlighting trends and the like

(iv) Defining sampling parameters (target populations, variables, and so on)

a.2.2          Disadvantages to the use of secondary data

(a) Relevance. The data may not be relevant to the research objectives in terms of the data content itself, classifications used or units of measurement.

(b) Cost. Although secondary data is usually cheaper than primary data, some specialist reports can cost large amounts of money. A cost-benefit analysis will determine whether such secondary data should be used or whether primary research would be more economical.

(c) Availability. Secondary data may not exist in the specific product or market area.

(d) Bias. The secondary data may be biased, depending on who originally carried it out and for what purpose. Attempts should be made to obtain the most original source of the data, to assess it for such bias.

(e) Accuracy. The accuracy of the data should be questioned.

The golden rule when using secondary data is use only meaningful data. It is obviously sensible to begin with internal sources and a firm with a good management information system should be able to provide a great deal of data. External information should be consulted in order of ease and speed of access.

5. Controls over generating and distributing internal information

Controls need to be in place over the generation of internal information in routine and ad-hoc reports.

5.1   Controls over generating internal information in routine reports

(a) Carry out a cost-benefit analysis. How easy is the report to prepare compared with the usefulness of the decisions that can be taken as a result of its production? The cost of preparing the report will in part be determined by who is preparing it. The cost can be reduced if its preparation can be delegated by a director to a junior member of staff.

(b) A trial preparation process should be carried out and a prototype prepared. Users should be asked to confirm that their requirements will be met.

(c) A consistent format and consistent definitions should be used to ensure that reporting is accurate and the chance of misinterpretation is minimised. Standard house styles will ensure that time is not wasted by managers, staff and report writers on designing alternative layouts.

(d) The originator of the report should be clearly identified so that users' queries can be dealt with quickly.

(e) The report should clearly set out limits to the action that users can take as a result of the information in the report. This will ensure that the organisation's system of responsibilities is maintained.

(f) The usefulness of the report should be assessed on a periodic basis to ensure that its production is necessary.

5.2   Controls over generating internal information in ad hoc reports

(a) Carry out a cost-benefit analysis as above.

(b) Ensure that the required information does not already exist in another format.

(c) Brief the report writer so that only the relevant information is provided.

(d) Ensure that the originator is clearly identified.

(e) Ensure that report writers have access to the most up-to-date information.

5.3 Controls over distributing internal information: A procedures manual sets out controls over distributing internal information.

(a) Procedures manual (for standard reports)

(i) Indicates what standard reports should be issued and when (eg budgetary control report for department X on a monthly basis)

(ii) Sets out the format of standard reports

(iii) Makes clear who should receive particular standard reports

(iv) Indicates whether reports should be shredded (if confidential) or just binned

(v) Makes clear what information should be regarded as highly confidential

(b) Other controls

(i) Payroll and personnel information should be kept in a locked cabinet or be protected by password access on a computer system.

(ii) All employees should be contractually required not to divulge confidential information.

(iii) The internal mail system should make use of 'private and confidential' stamps.

(iv) An appropriate email policy should be set up.

1. Email is best suited to short messages rather than detailed operational problems.

2. Email provides a relatively permanent means of communication, which may be undesirable for confidential/'off-the-record' exchanges.

3. Staff may suffer from information overload.

4. It is uncomfortable to read more than a full screen of information. Longer messages will either not be read properly or will be printed out (in which case they may just as well have been circulated in hard-copy form).

(v) Physical computer security

Internal security. Management can regulate which staff members have access to different types of data. For instance, access to HR records may be restricted to members of the HR team by keeping these records on a separate server or database. In this way, only certain terminals may access servers with sensitive or confidential data stored on them.

External security. The organisation can also protect its data from external access by using firewalls.

A firewall is designed to restrict access to a network by selectively allowing or blocking inbound traffic to parts of an organisation's system. It examines messages entering and exiting the system and blocks any that do not conform to specified criteria. In this way, firewalls can be used to protect data and databases from being accessed by unauthorised people or terminals. For example, access to key servers could be restricted to a small number of terminals only.

5.3   If information is held on a server

(a) Controls over viruses and hacking

(b) Clearly understood policy on the use of emails and corporate IT

(c) Password system to restrict access to particular files

6. Security and confidential information:  Disaffected employees have potential to do deliberate damage to valuable corporate data or systems, especially if the information system is networked, because they may have access to parts of the system that they are not really authorised to use.

If the organisation is linked to an external network, people outside the company (hackers) may also be able to get into the company's internal network, either to steal data or to damage the system.

Various procedures are therefore necessary to ensure the security of highly confidential information that is not for external consumption.

6.1 Passwords: Passwords are a set of characters allocated to a person, terminal or facility which have to be keyed into the system before further access is permitted.

In order to access a system the user first needs to enter a string of characters. If what is entered matches a password issued to an authorised user or valid for that particular terminal, the system permits access. Otherwise the system shuts down and may record the attempted unauthorised access.

Keeping track of these attempts can alert managers to repeated efforts to break into the system; in these cases the culprits might be caught, particularly if there is an apparent pattern to their efforts.

The restriction of access to a system with passwords is effective and widely used but the widespread and growing use of PCs and networks is making physical isolation virtually impossible. The wider use of information systems requires that access to the system becomes equally widespread and easy.

Requirements for system security must be balanced by the operational requirements for access: rigidly enforced isolation of the system may significantly reduce the value of the system.

6.2 Logical access systems: While physical access control (doors, locks, and so on) is concerned with the prevention of unauthorised persons gaining access to the hardware, logical access control is concerned with preventing those who already have access to a terminal or a computer from gaining access to data or software.

In a logical access system, data and software or individual computer systems will be classified according to the sensitivity and confidentiality of data.

(a) Payroll data or details of the draft corporate budget for the coming year may thus be perceived as highly sensitive and made available to identified individuals only.

(b) Other financial information may be made available to certain groups of staff only, for example members of the finance function or a certain grade of management.

(c) Other data may be unrestricted.

A logical access system performs three operations when access is requested.

(a) Identification of the user

(b) Authentication of user identity

(c) Check on user authority

6.3 Database controls: Databases present a particular problem for computer security. In theory, the database can be accessed by large numbers of people, and so the possibility of alteration, unauthorised disclosure or fraud is so much greater than with application-specific files.

It is possible to construct complicated password systems, and the system can be programmed to give a limited view of its contents to particular users or restrict the disclosure of certain types of information to particular times of day. It is possible to build a set of privileges into the system, allowing authorised users with a particular password to access more information.

There are problems ensuring that individuals do not circumvent the database by means of inference, however. If you ask enough questions, you should be able to infer from the replies the information you are really seeking.

For example, the database forbids you to ask if John is employee Category A. However, if you know there are only three employee categories, A, B, and C, and there is no prohibition on asking about categories B and C, you can work out the members of category A by process of elimination (ie neither B, nor C, therefore A).

These so-called inference controls exist to make this difficult by limiting the number of queries, or by controlling the overlap between questions.

6.4 Firewalls: Systems can have firewalls to prevent unauthorised access into company systems. Firewalls can be implemented in both hardware and software, or a combination of both. Firewalls are frequently used to prevent unauthorised internet users from accessing private networks connected to the internet, especially intranets. All messages entering or leaving the intranet pass through the firewall, which examines each message and blocks those that do not meet specified security criteria.

As well as preventing unauthorised access onto company systems, firewalls can also be used to help protect a company's data from corruption by viruses.

6.5 Encryption: Information transmitted from one part of an organisation to another may be intercepted. Data can be encrypted (scrambled) in an attempt to make it unintelligible to eavesdroppers.

6.6 Other safety measures: Authentication is a technique for making sure that a message has come from an authorised sender.

Dial back security operates by requiring the person wanting access to the network to dial into it and identify themselves first. The system then dials the person back on their authorised number before allowing them access.

All attempted violations of security should be automatically logged and the log checked regularly. In a multi-user system, the terminal attempting the violation may be automatically disconnected.

6.7 Personal data: In recent years there has been a growing popular fear that information about individuals which is stored on computer files and processed by computer can be misused.

In particular, it is felt that an individual could easily be harmed by the existence of computerised data about themselves which was inaccurate or misleading and which could be transferred to unauthorised third parties at high speed and little cost.

As a result, most countries have introduced legislation designed to protect the individual. In the UK, the current legislation is the Data Protection Act 1998.

6.8 Personnel security planning: Certain employees will always be placed in a position of trust; for example, senior systems analysts, the database administrator and the computer security officer. With the growth of networks, almost all employees may be in a position to do damage to a computer system. A recent report claims that 80% of hacking is done by employees.

Although most employees are honest and well intentioned, it may be relatively easy for individuals to compromise the security of an organisation if they wish to do so. The following types of measure are therefore necessary.

(a) Careful recruitment

(b) Job rotation

(c) Supervision and observation by a superior

(d) Review of computer usage (eg via systems logs)

(e) Enforced vacations

The key is that security should depend on the minimum possible number of personnel. Although this is a weakness, it is also a strength.

6.9 Anti-virus and anti-spyware software: The growth of the internet has led to increased exposure to security risks. Two particular risks derive from exposure to computer viruses and to spyware.

Computer viruses typically arrive by email and are triggered when the user opens the email and an attachment. The virus is a self-replicating computer program that infiltrates and then damages a computer system.

Spyware is a type of program that watches what users do with their computer and then sends that information over the internet to a third party. Customers of online bank accounts have experienced particular problems with spyware when their personal financial data has been captured by keylogging software.

Software has been developed to counteract these risks. Anti-virus software works to achieve this by:

(a) Scanning files to look for known viruses

(b) Identifying suspicious behaviour from any computer program that might indicate infection

Anti-spyware software combats spyware in two ways.

(a) Real-time protection which prevents the installation of spyware by blocking software and activities known to represent spyware

(b) Detection and removal of spyware by scanning software and removing files and entries that match known spyware