Management Information

Free FIA MA1 Notes

Click here to download

Introduction to Management Information

This chapter looks at management information: its purpose, sources, categories, desirable qualities and potential problems. It finishes by considering the role of a trainee accountant in a cost and management accounting system

The purpose of management information

Management information is used by managers to

• Plan the future of the business. For example, future cash flows and whether borrowing will need to be arranged;  whether more employees need to be recruited.
• Control the progress of the business. For example whether budgets set in the planning stage will be met.
• Decision making. For example, what to produce or which branch to close.

Obviously, managers of different departments will usually require different information. However, managers at different levels within a department will also need different information. For example, senior managers will often require more summarised information so as to see ‘the whole picture’, whereas more junior managers often need more details.

Cost and management accounting compared with external financial reporting

The main differences are:

Data and information

In the previous chapter the following diagram of a computerised accounting system was shown:

Note that a distinction has been made between data and information.

Data is ‘raw fact’; information is data with meaning. For example, a record of the height of everyone living in a certain city would be data (not much use). Once that data is processed and, for example summarised into average heights of men, women etc, then the data becomes more interesting and useful.

Similarly a list of all unpaid invoices is data which only become meaningful, i.e. informative, once sorted by customer to show what each owes and also, perhaps, presented in descending order so that the customers owing most are shown at the top of any list.

The features of useful management information

The features of good management information are often described and remembered using the word ‘ACCURATE’.

Accurate. Certainly accurate enough for managers to use confidently. Some managers need information accurate to the last cent whilst other are happy with accuracy to the nearest $1,000.

Complete. Missing information can be very serious. For example, omitting a cash outflow that will happen next month could be fatal for a business.

Cost-beneficial There is little point having information which costs more to provide than any benefit that arises from it.

User-targeted The information should be what users need. For example, senior managers often have to be planning for the future so need forward-looking information.

Relevant Too much information causes information overload and might mean that important matters are overlooked.

Authoritative What is the information’s source and reliability? Just because you find something by ‘Googling’ the internet does not mean the information is correct.

Timely The information should be received quickly enough to be of use to the decision-maker. Real-time on-line systems can speed up the supply of information.

Easy-to-use The information should be well-set out and described.

Sources and categories of information

The main sources of information are:

• Internal information
• External information

In addition to internal/external, information can be categorised as:

• Financial/non-financial
• Quantitative/non-quantitative
• Historical/future estimates
• Routine/ad hoc (as and when needed)
• Numerical/graphical

The limitations of cost and management accounting information

The limitations of cost and management accounting information are:

• Potentially all the matters covered by ACCURATE (Accurate, Complete, Cost-beneficial, User-targeted, Relevant, Authoritative, Timely, Easy-to-use.)
• Difficulty making future estimates.
• Often quantitative and financial only, but undoubtedly matters such as quality and customer service levels will be important.
• Can be difficult for manager with no financial training to understand.
• Often too inward-looking. For example, perhaps it does not give information about competitors’ selling prices.

The role of a trainee accountant in a cost and management accounting system.

A trainee accountant is likely to have the following roles in a cost and management system:

• Recording transactions. For example, making posting to the ledgers.
• Extracting information and presenting it for management use. For example, a comparison of budget and actual figures for a period.
• Investigating financial matters. For example, looking into an overrun in a cost.
• Helping with budget preparation.
• Helping and supervising more junior staff.

Note that a trainee accountant will generally not be closely involved in decision-making and planning as these functions will normally be carried out by more senior staff.