introduction to management information

8/4/2019 Introduction to Management Information

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Chapter 6 Introduction to

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topic istlntroduction

Data and nformation

The purpose f management nformation

Th e eatures f useful management nformation

Sources nd categories f information

Management ccounting nd inancial eporting

The imitations f cost and management ccounting nformation

Th e accounting echnician's ole n a cost accounting ystem

followingstudy sessions are covered in this chapter:

Discuss he purpose fmanagement nformation:lanning, ontrol nddecision-making

Distinguishetween ata and nformation

Describehe eatures f usefulmanagement nformation

Describe nd dentify ources nd categories f nformation

Compare ostand management ccounting ith external inancialreporting

Explainhe imitations f cost and management ccountingnformation

Describehe accountingechnician's ole n a cost and managementaccounting ystem

managem nt info mation

Syllabus eference

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Part B: Management nformation

INTRODUCTION

The main aim of this chapter is toinformation and in particular, explainneeded. Let's start from basics.

DATA AND INFORMATION

introduce you to the subject ofwhat management information is and why it

What is data?

Z.L Examples of data nclude the following.

. The numberof tourists who visit Hong Kong each

year. The sales urnovers of all restaurants nZambia. The number of people (with black hair) who pass heir driving test each year

What is information?

Information is sometimes referred to as processed data. The terms 'information' and'data'are often used interchangeably. Let us consider the following situation in which data iscollected and then processed in order to produce meaningful information.

Many companies providing a product or service research consumer opinion to ensure heyprovide what customers and potential customers want and will buy. A typical marketresearch survey employs a number of researchers who request a sample of the public toanswer questions relating to the product. Several hundred questionnaires may becompleted. The questionnaires are usually input into a computer system or analysis.

Individually, a completed questionnaire would not tell the company very much, only theviews of one consumer. n this case, he individual questionnaires are data. Once they havebeen processed and analysed, he resulting report is information. The people who run thebusiness can consider the report and use the information to make decisions regarding theproduct, such as whether to improve it or scrap t.

Management is the term used or the people n charge of running a business managers) orother organisation.

Management information can therefore be described as information that is given to thepeople who are in charge

of running an organisation. The report described above is oneexample of management nformation.

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To run a business successfully depends upon making the right decisions. Information isvital to enable good decisions to be made. Examples of the some of the questions thatmanagement might wish to have answers o include:

. How much does t cost to produce the product(s) or service(s) hey supply.

. How many product(s)/service(s) hey sold last month.

. How much was spent on wages ast year.

. How many staff the company currently employs.

Management nformation is often classified nto two types:

r Financial information (measured n terms of money). Non-financial information (not measured n terms of money)

THE PURPOSE OF MANAGEMENT INFORMATION

In order to manage heir resources, managers n any organisation need to know on a regular.basis how their particular department or section s performing. They will also wish to know

whether activities are going as planned and whether any problems have arisen. Accounting:*yst.-s must therefore provide them with reliable, up-to-date information which isrelevant to the decisions they have o take.

Management nformation has the following purposes.

. Planningr Control

,l Decision making

Planning. Management needs to decide what the obiectives of the company are and howthey can be achieved. Management information is used to help management plan theresources hat a business will require and how they will be used.

Once management puts a plancontrol over the business's activities to

of action into operation, there needs to be somemake sure that they are carrying out the original

n making. Management at all levels within an organisation take decisions. Decisionalways involves a choice between alternatives. Information is required that

management o reach an informed decision.

The information required by a manager will vary according to the nature of theorganisation and their individual responsibilities. Look at the following examples.

-;Ka) Senior management will usually be interested n the financial statements balance sheetand profit and oss account), on a monthly basis.

(b) A supervisor in a large factory may want a daily output report for every productionshift.

(c) A sales manager may want a weekly report of orders achieved by the sales eam.

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Management information is used for a wide variety of purposes. In aaccounting context, planning control and decision making activities include:

PricingValuing stockAssessing rofitabilityDeciding on the purchase f capital assets

In the present business environment where the rate of change is increasing,management nformation systems are seen by many as the key to success. Althoughsystems give a basis for improved management decisions they do not guarantea.,management. Poor information, however, s likely to reduce a manager's chances of

3.9 Ife have looked at why management nformation is needed. Let's have a look nowmanagement information is collected by an organisation.

Activity6.1The management ccountant ompares he profitabilityf wo products, and Q, and concludesis the best product o make. He writes report f his indings or he board f directors. hisprimarilyaid management n

A Decision-making

B PlanningC ControllingD lmplementing

THE FEATURES OF USEFUL MANAGEMENT INFORMATION

Good management nformation helps managers make informed decisions. To do thisinformation should be:

r Reliable. It is important that management have an accurate picture of what ishappening.

o Timely. Information should be available n time for decisions o be made.

r Relevant. Management nformation should be relevant to the needs of theand the individual manager.

. Complete. The manager should have all the information he needs to do theproperly without being overwhelmed by information.

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r Accurate. Incorrect information may lead to incorrect decisions. However,unnecessary ccuracy or detail is pointless.

r Clear. It must be communicated well and understood.

Reports to managers should enable them to manage the resources for which they are

responsible, and give the required level ofdetail.

If management information does hot contain enough detail, it may fail to highlightproblems within the organisation. On the other hand, too much detail may mean that the

most mportant information is not seen.

Numbers are often rounded to make reports easier o read, eg money may be expressed o

the nearest S100, 1,000 or f10,000 depending on the size ofthe organisation.

The time periods covered by reports will also vary for different organisations and for

different managers within them. Some computer systems allow managers access toinformation on a real time basis and/or to construct their own reports as necessary.

It is more common for reports to be provided by the accounting department of anorganisation every week or month (or any specified period).

Reporting information requires the active co-operation of the following groups.

r End users: managers and supervisors

o The accounts department: which usually processes he information

. The information technology department: which usually sets up and makes changes othe computer system

Difficulties may arise when these groups fail to communicate effectively or when thesystem itself is not flexible enough to respond to changing needs. Informationrequirements must be clearly specified.

Activity6.2Good management nformation s

A Relevant, egular and reliableB Timely, egular and sufficientC Reliable, imelyand relevantD Relevant. onvenient nd material

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MANAGEMENT REPORT

This type of report is often backed up with appendices. An appendix would givedetails of costs and income to help the trustees decide what to do about the shortfall fbrmonth. The charity has spent f,800 more than it received n the month underIndividual managers for fund raising, the catering project, the hostel etc) will needreceivemore detailed eports or their own activities.

Management information

4.10 Management nformation eports might also show he following.

Comparisons between planned results (budgets) and actual resultsYear-to-date cumulative information)Comparison of company results and competitor resultsComparison between cunent year and previous year's esultsThe profitability of a product or service or the whole organisationThe value of stocks of goods hat are still held in store at the end of a period

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SUMMARY MONTHLY REPORT TO TRUSTEES OF A CHARITY FORTHE HOMELESS

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6: Introduction to management nformation

SOURCES AND CATEGORIES OF INFORMATION

do organisations need information?

If we take a wider view, and look at information in general rather than just informationused specifically by management, we could say that organisations require information for

fivepurposes. The five purposes listed below include three (planning, controlling and

decision-making) that we have already talked about in the context of managementinformation.

r Planningo Controllingo Recordingtransactionso Overall performance measuremento Decision making

Planning requires a knowledge of, among other things, available resources, possible time-scales for implementation and the likely outcome under alternative scenarios.

Information is required to assess whether things are going to plan, or whether there issome unexpected deviation from plan. It may consequently be necessary o take some formofcorrective action.

ffansactions

Information about each transaction or event is required for a number of reasons.Documentation of transactions can be used as evidence in a case of dispute. There may be alegal requirement to record transactions, for example for accounting and audit purposes.Detailed information on production costs can be built up, allowing a better assessment ofprofitability.

perfmm"ane rneusur ment

Just as ndividual operations need to be controlled, a wider picture of performance is also

required, for example to enable comparisons against budget to be carried out. Thisrequires nformation on, for example, costs, evenues, olumes, time-scale and profitability.

making

As we discussed earlier, information required to allow informed decision making.

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The qualities of good information

5.7 The qualities of good information are outlined below'accurate'. These general qualities are similar to theinformation iscussed n the previous ection.

beneficial

- in the form of afeatures of useful

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Quality Example

A ccurate Figures should add up, the degree frounding should bethere hould e no mistakes.

C omplete Information should include all relevant information -that is correct but excludes something important is likely to belittle value. For example external data or comparative informamay be required.

C osr- It should not cost mofe to obtain the information than thederived from having it.

U ser-targeted The needs of the user should be borne in mind, for instancemanagers may require summaries.

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elevant Information that is not relevant should be omitted.

uthoritative

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asy o use Information should be clearly presented, not excessively long

The source of the information should be reputable and reliable.

The information should be available when it is needed.

sent using the right communication channel (e-mail,intranet, hard-copy report etc).

Internal information

Data and information come from sources both inside and outside an organisation.information system should be designed so as to obtain - or capture - relevant informafrom whatever source. Capturing data/information from inside the organisation involvesthe following.

(a) A system for collecting anflor measuring transaction data - for examplepurchases, tock turnover etc.

(b) Informal communication of information between managers and staff(for example, b$word-of-mouth r at meetings).

(c) Communication between taffat all levels.

Internal data sources

The accounting ecords

5.9 Sales edgers, urchase edgers, eneral edgers, ash books etc hold information hatbe of great value outside he accounts epartment, or example, ales nformation ormarketing unction.

5.10 To maintain the integrity of its accounting records, an organisation requires controlstransactions. These also give rise to valuable information. A stock control system

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example will include details of purchase rders, goods eceived otes, goods eturned

introduction to management information

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