[Music] welcome to my class today we're going to discuss the management reporting system [Music] the management reporting system management reporting is often called discretionary reporting because it is not mandated as is financial reporting so management reporting is furnishing relevant information to management by means of reports constantly so mrs directs management's attention to problems on a timely basis so one essential one of the essentials of a good risk reporting system is promptness so there is a need that management report should be provided on time to the management why because it helps the management take good business decisions and as much as it helps identify the problem evaluate alternate solutions implement the best solution and review implementation next mrs promotes effective management it is because mrs helps capture data needed by managers to run the business effectively and with mrs the business is able to check its performance its effectivity and also its efficiency another is mrs supports the organization's business objectives primary object of management reporting is to obtain information about the operating results of the organization regularly in order to use them for further planning and control and this is geared toward the organization's business objectives so our management reports should be patterned to the business goals especially that we are checking the performance of the company [Music] so an effective management reporting system helps in decision making in management effectiveness and responsiveness to issues and in the efficiency of resources [Music] designing an effective mrs requires an understanding of the information that managers need to deal with the problems they face and now let's discuss one by one the factors that influence mrs namely management principles management function level and decision type problem structure types of management reports responsibility accounting and behavioral considerations [Music] for the first factor management principles management principles provide insight into management information needs so among the management principles let's name it formalization of tasks responsibility and authority span of control and management by exemption [Music] first formalization of tasks it suggests that management should structure the firm around the tasks it performs rather than around individuals with unique skills under this principle organizational areas are subdivided into tasks that represent full-time job positions and have clearly defined limits of responsibility so in a company it is very important to define and align the key responsibility areas so [Music] for the acronym we have this kra so you this define the duties and responsibilities if there are side duties it is important to mention some of the side duties and the general as required and as needed by the management so implication for mrs formalizing the tasks of the firm allow formal specification of the information needed to support the task when you prepare the duties and responsibilities you will not prepare it based on the current person or employee assigned you have to define the duties and responsibilities based on the position thus when a personal change occurs the information the new employee will need is essentially the same as for his or her predecessor so what are the tasks of the outgoing employee are the same as the incoming employee should perform so that's for formalization of task next is responsibility and authority so the principle of responsibility refers to an individual's obligation to achieve desired results so responsibility is closely related to the principle of authority so if a manager delegates responsibility to his subordinate he or she must also grant the subordinate the authority to make decision within the limits of that responsibility so in a business organization managers delegate responsibility and authority downward through the organizational hierarchy or structure meaning from superior to subordinates so implication for mrs so the principles of responsibility and authority define the vertical reporting channels of the firm through which information flows so it is a vertical information flow so managers at lower levels receive information that is more detailed than the highest normally the president or general manager usually require more summarized information [Music] the third principle is span of control so it refers to the number of subordinates directly under his or her control so the size of the span has an impact on the organization's physical structure so a firm with a narrow span of control has fewer subordinates reporting directly to managers then firms with broad spans of control or more subordinates reporting to each manager tend to have wider structures with fewer levels of management so implication for mrs managers with narrow spans of control are closely involved with the details of the operation and with specific decisions while broad spans of control remove managers from these details so organizational behavior research suggests that span of control is preferable because it allows more employee autonomy in decision making thus this translates into better employee moral and increased motivation but it depends on the nature of the task because the more routine and structured the task the more subordinates one manager can control next is and the last principle is management by exception so the principle of management by exception suggests that managers should limit their attention to potential problem areas that is exceptions rather than being involved with every activity or decision so this means managers maintain control without being overwhelmed by the details implication for mrs managers need information that identifies operations or resources at risk of going out of control so the report should support management by exception by focusing on changes in key factors that are symptomatic of potential problems providing managers [Music] with unnecessary details may draw them away from the important facts and these unnecessary details must be excluded from the reports [Music] the second factor that influence mrs is the management function level and decision type so the management functions of planning and control have a profound effect on the mrs here the planning function is concerned with making decisions about the future activities of the organization while the control function ensures that activities of the firm conform the plan this entails evaluating the operational process against a predetermined standard and when necessary taking corrective action [Music] let's discuss the four categories of planning and control decisions so to name them we have strategic planning decisions the tactical planning decisions the management control decisions and the operational control decisions so to start with strategic planning decisions here top level managers make strategic planning decisions including setting the goals and objectives of the firm determining the scope of the business activities such as desired market share markets the firm wishes to enter our abandon the addition of new product lines and the termination of old ones and merger and acquisition decisions another is determining or modifying the organization structure and setting the management philosophy so strategic planning decisions have the following characteristics so first they have long term time frames because they deal with the future managers make strategic decisions that require information supporting forecasting next they require highly summarized information strategic decisions focus on general trends rather than detailed activities next they tend to be non-recurring which means these are usually one time events also strategic decisions are associated with a high degree of uncertainty the decision maker must rely on insight and intuition so judgment is often central to the success of the decision next they are broad in scope and have a profound impact on the firm so once the strategic decision is made it permanently affects all the levels of the organization and last strategic decisions require external as well as internal sources of information so that's for strategic planning decisions [Music] tactical planning decisions these decisions are subordinate to strategic decisions and are made by middle management so the characteristics of tactical planning decisions are shorter term more specific recurring have more certain outcomes have a lesser impact on the firm than strategic decisions so let's say i'm the manager of the manufacturing firm my target is to have an increased sales and production by 100 000 units this year compared to last year so the production manager would likely have a tactical decision of setting the monthly production schedule in order to achieve the goal of an increased production of a hundred thousand units more than last year so that's an example of a tactical planning decision next for management control decisions so management control involves motivating managers in all functional areas to use resources including materials personal and financial assets as productively as possible so you have these standards when you're supporting it was unable to meet that standards so you as the manager may take corrective action on that particular supporting or rather you will find the causes why the subordinate wasn't able to meet that standard but when your subordinate meets or exceeds your expectations of course take note you will not sacrifice the quality of your product or services the subordinate may be rewarded so that's an example for management control decisions operational control decisions so operational control ensures that the firm operates in accordance with a pre-established criteria operations managers exercise operational control so the characteristics are it is narrower and more focused than tactical decisions because they are concerned with the routine task of operations next is it is more structured than management control decisions [Music] it is more dependent on details than planning decisions and it has a shorter time frame 10 tactical or strategic decisions so we have the three basic elements of operational control decisions these are setting standards evaluating performance and taking corrective action [Music] the first basic element of operational control decision are standards standards or pre-established levels of performance that managers believe are attainable so standards apply to all aspects of operations such as sales volume quality control over production cost for inventory items material usage in the production of products and labor cost and production so once established these standards become the basis for evaluating performance so let's say i'm the manager of the manufacturing firm and i assigned my production manager to target a 10 000 units production per month so the production manager will do his best coordinate with his team that the manager wanted to have a target production which will be your standard production for the month but then to realize at the end of the month that you only achieve half of the standard so what are the possible causes of non-meeting the standard production as required by the manager your general manager so it may be caused by the machineries or equipments it may be caused by the raw materials or it may be caused by the personnel so that is an example for standards next is performance evaluation so the decision maker compares the performance of the operation in question against the standard so the difference between the two is say a price variance for an inventory item or a raw material so we have this expected price which is your standard price and we have this price actually paid so if your actual price is greater than the standard that results to unfavorable price variance why because it will contribute to a higher product per unit cost but if the actual price is less than the standard the variance is favorable so for the third element we have taking corrective action so after comparing the performance to the standard the manager takes action to remedy any out of control condition however that we must apply shrimp caution when taking corrective action an inappropriate response to performance measures may have undesirable results so with reference to example number two to achieve a preferable price variance your purchaser would prefer to buy from the low price vendors in order in order to save money and contribute but with that move of the purchaser he may be sacrificing the quality of the outputs so if the lower quality low raw materials result in excessive quantities being used in production and your waste is higher than the normal of course the company will experience an unfavorable material usage variants so that unfavorable material usage variance [Music] will completely upset the favorable price variance and it will result to an unfavorable total variance so if we link the examples result of number three example would correlate to our sample number one so that may be one of the possible causes why the production department wasn't able to meet a standard production of 10 000 units per month but dropped down to half of the production so that is all about the operational control decisions [Music] as presented here we have the classification of decision times by decision characteristics so we have the decision characteristic column then the strategic planning tactical planning management control and operational control so as you see for the time frame strategic planning is long term tactical planning is medium turn management medium term while operational control is short-term as the scope strategic planning has a high impact tactical planning has a medium impact while management control and operational control happily low impacts where operational control is the lowest the level of details strategic plan is highly summarized while tactical planning is detailed management control may be moderately summarized while operational control is highly detailed as to recurrence strategic planning is non-recurring tactical planning is periodic recurring also for management control while operational control is frequent recurring as to certainty strategic planning and management control are uncertain while tactical planning and operational control are highly certain [Music] so the third factor that influence mrs is the problem structure so the structure of the problem reflects how well the decision maker understands the problem a structure has three elements the data which is the values used to represent factors that are relevant to the problem [Music] second is the procedures which are the sequence of steps or decision rules used in solving the problem and third objectives which are the results the decision maker desires to attain by solving the problem [Music] so for the structured problem when all the three elements data procedures and objectives are known with certainty the problem is structured so structured problems do not present unique situations to the decision maker and because their information requirements can be anticipated they are well suited for traditional data processing techniques so in effect the designer who specifies the procedures and codes the program solve the problem example of a structured problem is payroll calculation so for the data we can identify it with certainty so we have the housework hourly rate with holdings tax rate and so on for the payroll next procedures are also known with certainty so to complete the group cost pay you have hours work times pay rate and for the net pay so we have the gross pay minus taxes minus withholdings and any other deductions and the third objective of payroll is to discharge the firm's financial obligation to its employees so for um for the unstructured problem it is when any of the three characteristics identified previously are not known with certainty so in other words an unstructured problem is one for which you have no precise solution techniques either the data requirements are uncertain or the procedures are not specified or the solution objectives have not been fully developed so such a problem is normally complex and engages the decision maker in a unique situation so even the systems analyst cannot fully anticipate user information needs rendering traditional data processing techniques ineffective so that's for the problem structure [Music] the fourth factor that influence mris are the types of management reports so reports are the formal vehicles for conveying information to managers and reports tend to imply a written message presented on sheets of paper well we can express a report either verbally in numerical form in graphs or charts or a combination of those and our management reports may be on sheets of paper or any digital image so for the report objectives recall that information leads the user to an option and a report should have information content for it to be useful and their value is the effect that they have on users so reports of two general objectives the first is to reduce the level of uncertainty associated with the problem facing the decision maker and the second is to influence the decision maker's behavior in a positive way so if the reports fail to accomplish these two objectives therefore your report lacks information content and is of no value so a report to be effective it should have this report attributes so we have relevance summarization exception orientation accuracy completeness timeliness and conciseness so for advance this means that each element of the information in your report must support the manager's decision so as much as possible information must be details next is summarization so reports should be summarized according to the level of the manager so in the organizational higher organizational hierarchy you're going to report to the ceo or the general manager so your report must be in a summarized format but if you the report is for the lower level management the report must be more detailed for exception orientation control reports should identify activities that are at risk of going out of control and should ignore activities that are under control so example the purchaser with ordering responsibility of 10 000 different invertoriable items so he would report as part of his exception oriented report he would only identify those inventory items that had fallen to their reorder levels and from there he could easily prepare purchase orders so no need to enumerate all the inventories you pick up those who are now at their recorder points so for accuracy so no question for reporting accuracy is really a must so information in reports must be free of material errors because a material error may cause a wrong decision or a failure next is completeness so information of course must be complete as possible ensure that essential information should not be missing in the report so that's for completeness next is for timeliness of course management requires since these are required by manager and these are needed by managers to address issues and concerns in a particular area or to the organization as a whole it should be provided on time so timely information that is sufficiently complete and accurate is more valuable than the information that is so perfect but it arrived too late and the harm has been done to the company so mrs must provide managers with timely information [Music] next is conciseness so reports should be presented concisely if you have coding schemes [Music] you can use it on your report as long as it should clearly present the data you want to [Music] convey in your report so that's for the report attributes and now we're gonna discuss the two subclasses [Music] or the two types of management reports which are the program reports and the ad hoc reports [Music] so program reporting programmed reports provide information to solve problems that users have anticipated so two subclasses of program reports we have scheduled reports that are reduced according to an established time frame and could be daily weekly quarterly and so on while on-demand reports are triggered by events not by the passage of time so as per illustration we have the types of report and classified as to scheduled and on demand so for planning reports the financial budget sale forecast reports and projected cash flow reports are considered scheduled reports while materials requirement reports and production schedules are on demand for the control reports the cost center reports profits and reports profitability by line of product labor distribution reports and equipment utilization reports are considered scheduled while quality control reports and inventory exception reports are on demand so generally looking at the illustration what are classified as scheduled or on demand you can see on the on demand column the reports are mostly related to production so more on the [Music] although the other are operational but [Music] it focuses on the production [Music] processes production reports [Music] next for the ad hoc reporting so adopt reporting is a business intelligence process used to quickly create reports on as needed basis so ad hoc reports are generally created for one-time use to find the answer to specific business question so managers with limited computer background preferably prepares ad hoc reports so data mining is a concept of data resource tab to support ad hoc reporting needs so data mining is the process of selecting exploring and modeling large amounts of data to uncover relationships and global patterns that exist in large databases but are heated among the vast amount of facts this involves sophisticated techniques such as database queries and artificial intelligence that model real world phenomena from data collected from a variety of resources including transaction processing system customer history databases and demographics data from external sources such as credit viewers so two general approaches of data mining are verification model which uses the drill down technique to either verify or reject a user's hypothesis and the discovery model that uses data mining to discover previously unknown but important of information that is hidden within the data so this model employs inductive learning to infer information from detailed area little data i mean by searching for recurring patterns trends and generalizations so this approach is fundamentally different from the verification model in that the data are searched with no specific hypothesis driving the process so the fifth factor that influence mrs is responsibility accounting so for the meaning and definitions responsibility accounting is a system of management accounting under which accountability is established according to the responsibility delegated to various levels of management and a management information and reporting system instituted to give adequate feedback in terms of the delegated responsibility so 100 system divisions or units of an organization under a specific authority in a person are developed as responsibility centers and evaluated individually for their performance one grid defines responsibility accounting as a system of accounting that recognizes various responsibility centers throughout the organization and reflects the plans and actions of each of these centers by assigning particular revenues and costs to the one having the pertinent responsibility it is also called profitability accounting and activity accounting so according to this definition the organization is divided into various responsibility centers and each center is responsible for its cost the performance of each responsibility center is regularly measured [Music] [Music] so the concept of responsibility accounting is that it is used to measure performance of divisions of an organization rather than the organization as a whole so it is a system of control where responsibility is assigned for the control of cost and there are persons made responsible for its control proper authority is given to the person so that they are able to keep up their performance and in case the performance is not according to the predetermined standards then the persons who are assigned this duty will be personally responsible for it so in responsibility accounting the emphasis is on men rather than on systems responsibility accounting collects and reports planned and actual accounting information about the inputs and outputs of responsibility centers responsibility accounting must be designed to suit the existing structure of the organization responsibility should be coupled with authority an organization structure with clear assignment of authorities and responsibilities should exist for the successful functioning of the responsibility accounting system the performance of each manager is evaluated in terms of such factors essential features of responsibility accounting first the inputs and outputs or cost and revenues so the implementation and maintenance of responsibility accounting system is based upon information relating to inputs and outputs which are expressed as cost and revenues respectively thus responsibility accounting is based on cost and revenue information next setting financial goals the budget process so the budget process helps management achieve its financial objectives by establishing measurable goals for each organizational segment this mechanism conveys to the segment managers the standards that senior managers will use for measuring their performance budget information flows downward and becomes increasingly detailed as it moves to lower levels of management effective responsibility accounting requires both planned and actual financial information so this is what we call budget it is not only the historical cost and revenue data but also the planned future data which is essential for the implementation of responsibility accounting system responsibility centers so the whole concept of responsibility accounting is focused around identification of responsibility centers so these responsibilities centers represent the sphere of authority or decision points in an organization a responsibility center is under the control of an individual who is responsible for the control of activities of that subunit of the organization however general guideline is that the unit of the organization should be separable and identifiable for operating purposes and its performance measurement possible so we have here the responsibility centers we have cost centers revenue centers rocket centers and investment centers so as the name of the responsibility center itself defines its meaning so for call centers it is responsible for the cost management within budgetary limits revenue centers of course responsible for generating sales revenue profits centers is responsible for both cost control and revenue generation while investment centers has the general authority to make decisions that profoundly affect the organization specifically on investments [Music] relationship between organization structure and responsibility accounting system a sound organization structures with clear cut lines of authority responsibility relationships are prerequisite for establishing successful responsibility accounting system so for responsibility accounting system it must be designed to suit the organization structure of the organization it must be founded upon the existing authority responsibility relationships in the organization so the responsibility accounting should paradigm the organizational structure to provide financial information to evaluate actual results of each individual responsible for a function next is assigning costs to individuals and limiting their efforts to control the whole cost so after identifying responsibility centers and establishing authority responsibility relationships responsibility accounting system involves assigning of costs and revenues to individuals so only those those costs and revenues over which an individual has a definite control can be assigned to him or her for evaluating performance [Music] and last measuring and reporting performance so in order for a control system to be effective the divisions from the plans must be reported at the earliest time possible so that corrective actions will be taken for the future and these debations are known only when the performance is reported so responsibility accounting system is focused on performance reports and it is also known as responsibility reports prepared for each responsibility union so unlike authority which flows from top to bottom reports should be addressed to appropriate persons in respective responsibility centers so this report should contain information in comparative form budget versus actual and details of variances should be given relating to the specific center then those variances that are uncontrollable at a particular responsibility center should also be mentioned separately in the report so to be effective reports should be clear and simple you may use diagrams charts illustrations graphs and tables to make them attractive and understandable [Music] the last factor that influence mrs are behavioral considerations so for goal congruence goal congruence is a situation in which people in multiple levels of an organization share the same goal so a well thought out organization design causes goal congruence and results in an organization being able to work together to accomplish a strategy so a carefully structured mrs plays an important role in promoting and preserving goal congruence on the other hand a badly designed mrs can cause dysfunctional actions that are impos in opposition to the organization's objectives so as individual managers they must serve their own best interests so that they also serve the best interest of the organization so for information overload this occurs when a manager receives more information that he or she can assimilate so this happens when designers of the reporting system do not properly consider the manager's organizational level and spun up control so for example the information volume that would flow to the president if the reports were not properly summarized would be so detailed and those details should have been provided to the lower level managers so providing the president for example detailed reports so it would quickly overload the president's decision making process so as discussed in the report attributes the report should be complete accurate timely and concise so it is proper that report to president should be properly summarized inappropriate performance measures so one purpose of the report is to stimulate behavior and it should be consistent with the objectives of the organization so when approp inappropriate performance measures are used the report can have the opposite effect so performance measures should consider all relevant aspects of a manager's responsibility and in addition to these measures of general performance like roi management should measure trends in key variables such as sales cost of goods sold operating expenses and asset levels so non-financial measures such as product leadership personnel development employee attitudes and public responsibility may also be relevant in assessing management performance so performance measures can be grouped into two basic types so we have results which are the outputs or outcomes such as competitiveness or financial performance and the other one is determinants which are the inputs such as quality flexibility resource utilization and innovation so this suggests that performance measurement frameworks can be built around the concepts of results and determinants [Music]