THE MANAGEMENT REPORTING SYSTEM
Historically, the accounting system was the first, and for a very long time the only,
information system in most organizations. This chapter discusses a much broader
information system, the management reporting system (MRS) which provides both
financial and non-financial information to aid managers to plan and control business
activity -- to make the right decisions. Of particular note is the fact the an MRS is
discretionary -- at least in the sense of not being mandated by any authoritative
body. It would be hard to argue, however, that an organization is free to choose not
to collect and report information that helps the organization meets its goals and
objectives.
The objectives of this chapter are:
•
to understand the management decision-making process;
•
to recognize the role of management principles in the design of information
systems;
•
to understand the effect of decision type and management level on
information needs;
•
to know the difference between structures and unstructured decisions;
•
to know the different report types and the attributes common to all reports;
•
to understand the elements of a responsibility accounting system; and
to be aware of the behavioral issues in management reporting.
I.
Factors That Influence the MRS
One of the greatest benefits of information technology has been the automating of the
routine bookkeeping tasks that in the past overwhelmed accountants and their staff. Now,
as information professionals, they have the time and resources to play a much greater role
in helping management make good business decisions. This chapter presents the
management reporting system as the significant support system that it is.
II.
The Decision-Making Process
You are probably familiar with the decision-making process from other courses. This section
discusses the process as being made up of four steps. Do not take this material for granted.
Read carefully all that is involved in each of the four steps:
1.
identification of the problem -- this is often more difficult than expected;
2.
evaluation of the alternative solutions;
3.
implementation of the best solution; and
4.
conduct a post-implementation review.
The example developed in the text is very good. Follow the reasoning. Of particular value
in future chapters will be an understanding of a post-implementation review.
III.
Management Principles
Depending on your experience with management courses, this section may be a review or
it may be eye-opening. Of particular value are the little sections “implications for the MRS.”
•
The importance of the formalization of tasks cannot be ignored. Control and
evaluation are difficult if tasks have not been well defined.
•
The link between responsibility and authority should be clear, but is not always so.
•
Span of control has a great deal of affect on a manager’s need for information and
the types of information that the manager needs. Be aware of the factors involved.
Management by exception focuses a managers attention on areas requiring attention.
IV.
Management Function, Level, and Decision Type
Chapter 1 introduced the idea that a manager’s need for information -- quantity, frequency,
level of aggregation -- is affected by the manager’s position in the organization and the type
of decisions he or she makes. This part of the chapter discusses four categories of planning
and control decisions:
•
strategic planning decisions made by top-level managers;
•
tactical planning decisions made by middle managers to implement strategic plans;
•
management control decisions raise some concerns about distinguishing between
the manager and the unit he or she manages; and
•
operational control decisions which aim to assure that the organization operates in
accord with preestablished criteria.
V.
Problem Structure
It should not be surprising that there are different types of problems. The text discusses
three elements or aspects of problems that determine whether a problem can be regarded
as structure or unstructured. These elements are:
•
the data related to the situation;
•
the procedures or decision rules used in solving the problem; and
•
the objectives that the decision maker has for solving the problem.
A.
When all elements are known with certainty, the problem is structured. The example
is quite clear.
When all elements are known, the solution to the problem is clear
and can be “programmed” within traditional data processing systems.
B.
Unstructured problems involve uncertainty on one or more of those elements. When
this is the case, the solution is not obvious. Judgement is important.
VI.
Types of Management Reports
This section discusses the characteristics of management reports -- information
communicated to managers regardless of the form it takes. The objectives of reports are
discussed first followed by description of programmed (scheduled and on-demand) reports
and ad hoc reports . One of the greatest benefits of new data base management systems
is the ease with which mangers can obtain answers to ad hoc questions themselves, without
the assistance of information professional -- the ability to get the information now.
The discussion of report attributes expands on ideas introduced in chapter 1. Recall the
reference to Statement of Financial Accounting Concepts Number 2.
VII.
Responsibility Accounting
Responsibility accounting is based on the concept that managers are accountable only for
items that they can control.
This section may revisit material from your cost accounting or
managerial accounting course. It emphasizes the importance of setting financial goals (that
nasty word budget, again), and measuring and reporting performance.
Part of the responsibility question leads to the identification of three types of responsibility
centers: cost center, profit centers, and investment centers. Even if you have met these
concepts before, be sure you understand them. They have definite implications for
information systems.
VIII.
Behavioral Considerations
This chapter has discussed the management reporting system and how it can help
managers and organizations make better decisions. But, decisions are made by people and
people are not as rational as programmed information systems. This last section raises
several questions of a behavioral nature.
Goal congruence refers to the need to match the goals of individuals (and the related
measures of performance) to overall organizational goals.
As information systems have become more complex and sophisticated, the possibility arises
that too much information is generated and provided to decision makers -- a situation called
information overload. [This may occur in some of your accounting courses!!!] In addition,
if inappropriate performance measures are selected, inappropriate decisions are made.
Read all of this material carefully.