Having worked with many different businesses over the years I have seen both the good and bad of management reporting. Even from large companies, too often management reports are pages and pages of figures that measure every conceivable thing possible but don’t tell management anything useful about how their business is performing.
Some of the common failures of management reports I’ve seen include:
- Reports include only traditional financial reports like profit and loss statements, balance sheets and cash flow statements.
- They include a very detailed analysis against a budget, but the level of detail or the budget may not be relevant
- Measures do not reflect the business’ strategic priorities
- Financial reports are prepared too long after the event
- Reports focus too much on past results rather than predict future performance
- Reports don’t highlight trends and emerging issues
An effective management report should provide a clear snapshot of how the business is performing in relation to its strategic and operational plans. The report should also provide feedback to management on whether previous actions put in place have delivered the expected outcomes.
All businesses have a mixture of “health” and “hygiene” financial measures (A term coined by David Maister in “Managing the Professional Service Firm”).
“Health” measures are more strategic and reflect the long term profitability of the business. Examples include measures relating to productivity, profitability and fee growth.
“Hygiene” measures reflect more short term profitability items like overhead costs, billing and collection activities.
Effective management reports should focus primarily on the “health” issues. It should answer questions like:
- What is the trend on these key measures?
- If a particular measure has changed, what has caused this change? Is this something we had planned or is this an unforeseen event that requires further understanding?
- What future actions are planned and the expected impact these actions should deliver?
This level of analysis provides a continuous feedback loop that informs management of the effectiveness of its actions.
Deciding on what these key measures should be needs to be a top down exercise. It should be based on the business’ strategy and the operational objectives to be achieved. In my experience, it is better to have only a couple of key measures to maintain sufficient management focus on the operational objectives that deliver the greatest long term profitability improvement.
As an example, many small law firms have senior lawyers that under-delegate and take on too many tasks that a junior lawyer or administrative assistant could do. If the firm invested the time to train the junior person to do these tasks well this would free up the senior lawyer’s time to take on more technical work which is a much better match to their level of technical expertise. Actions like this would become forecasted improvements in the realised hourly rates and tracked against in management reports.
The other really important point is that the take away messages from any management report needs to be clear and obvious to the reader. Whether this is done through the use of visual tools like graphs, dials or traffic lights or a short written summary the message should be clear.
There should also be critical analysis that provides management with an understanding of the causal effects and recommended future actions. Business owners and executives need this level of analysis to make informed decisions.
This is the time of the year when many businesses are reviewing their financial objectives for 2015. If you need assistance in establishing an effective reporting system contact me to today to discuss how we could help.
- Posted by Steve Pickering
- On July 28, 2014
- 0 Comments