Management Information

Areas to be covered;
➢ DATA AND INFORMATION
➢ MANAGEMENT
➢ MANAGEMENT INFORMATION
➢ TYPES OF MANAGEMENT INFORMATION
➢ PURPOSE OF MANAGEMENT INFORMATION
➢ FEATURES OF MANAGEMENT INFORMATION
➢ REPORTING INFORMATION
➢ SOURCES OF INFORMATION
➢ MANAGEMENT ACCOUNTING VERSE FINANCIAL ACCOUNTING
➢ LIMITATIONS OF MANAGEMENT ACCOUNTING
➢ ROLE OF TRAINEE ACCOUNTANT
Data And Information
Data: is raw facts, figures, numbers and words relating to matters of an
organization.
• Raw material for processing.
• Sales in a month, number of tourists etc.

Information: is data processed to be meaningful and useful to

an organization.
• Information is also called processed data
• For example: questions asked in a questionnaire during a
survey are data-when those questions are processed and
analyzed, they become information.
Management

People in charge of running the business. For example, Managers or other organization, etc.

Management Information (MI): Information required by the managers for the purpose of

planning, control and decision making. Information required varies according to

responsibilities. For example a supervisor at a factory would require a daily output report. A

sales manager would require a weekly sales report etc.

Management

Information may be used for pricing, valuation of stock, determining profitability, deciding on

purchase of capital assets (fixed assets) etc. Examples of information the management:

• Cost to make a product

• Number of products sold every month

• Type of machinery required for production

Types of Management Information
Most organisations require the following types of Management information

Financial information: Measured in terms of money. For example, sales of $10,000 in May

Non-financial information: Not measured in terms of money. For example, customer

satisfaction, trends, quality, etc.

Combination of financial and non-financial information: Increase sales by $2,000 due to

good quality of product.

Purpose of Management Information
Major purpose of management information is

• Planning

• Control

• Decision-making
Planning
Planning involves the establishment of goals and objectives. It also involves selecting

appropriate strategies to achieve that objective. The management has to plan and

manage resources that will be required to achieve the objectives. Plan what resources

are required and how they will be used. It can be long term planning & short-term

planning.
Control:
When the plan is implemented, it should be evaluated by comparing actual results with plan

so that to identify derivation if any and investigate it.

Controls are at two stages: Detailed operational plans compared with actual results of

organization regularly, report any variance, and take corrective actions. It is the process by

which managers ensure that resources are obtained and used effectively and efficiently in

the accomplishment of the organization’s objectives.

Effectively: means that resources are used to achieve the organization’s objectives.

Efficiently: means that the optimum (best possible) output is produced from the resources

used.
Planning is required for good control and without control, planning is useless.

Decision Making: Decision-making involves a choice between different alternatives.

Management accountant provide good information for each alternative so that managers

take an informed decision. Decisions are taken at planning & control stages.
Features Of Management Information
Reliable: The source of the information should be reliable. For example if questionnaires in a

survey filled out by same persons, it will not present the correct picture of the market

demand.

Timely: It should be in time for the decisions to be made. Information should be provided

when required.

Relevant: It should be relevant according to the needs of the management.

Complete: It should have all required information for the job.

Features Of Management Information
Accurate: No unnecessary detail but should be accurate. Management information is not

absolutely accurate.

Clear: Information should be in understandable form, communicated properly, clearly

presented and use right communication channel. Avoid accounting jargons.

Timeliness: Time period covered by reports may vary. For example, monthly, weekly or daily

Cost effectiveness: The costs of providing the information must not outweigh the 'value

added' benefits derived from its use.

Features Of Management Information
Costs of information

• Cost of collecting data

• Cost of processing data

• Cost of storing data

• Opportunity cost of management time

Features Of Management Information
Benefits of information

• Helps in decision making

• Values arising from good decision

• Reduces unnecessary cost

• Adoption of better marketing strategies

REPORTING INFORMATION
Effective Communication of Management Reports: Reporting
management information in an effective way requires the
cooperation of the 3 main parties involved:

End Users: managers, supervisors-who will be using that

information for planning, control and decisions making

Accounts Department: who processes the information to bring it in

a form relevant to the needs of the end users

The IT Department: sets up computer systems and make changes

to the systems when required Problems that may arise:
• Ineffective and untimely communication
• Systems may not be flexible enough to respond to changes
that may be required
Sources of data and information
Data and information come from many sources - both internal (inside the business) and

external.

Internal Information: A lot of internal information is connected to accounting systems, but is

not directly part of them. for example:

• Records of the people employed by the business (personal details; what they get paid;

skills and experience; training records)

• Data on the costs associated with business processes (e.g. costing for contracts entered

into by the business)

Sources of data and information
• Data from the production department (e.g. number of machines; capacity; repair

record)

• Data from activities in direct contact with the customer (e.g. analysis of calls received

and missed in a call centre)

• A lot of internal information is also provided informally. For example, regular meetings of

staff and management will result in the communication of relevant information.

External Information:
As the term implies, this is information that is obtained from outside the business. There are

several categories of external information:

• Business needs to obtain regular information about the taxation system (e.g. PAYE, VAT,

Corporation Tax)

• Business needs to be aware of key legal areas (e.g. environmental legislation; health &

safety regulation; employment law).

External Information:
• Most of the external information that a business needs can be obtained from marketing

research. Marketing research can help a business do one or more of the following:

o Gain a more detailed understanding of consumers’ needs

o Reduce the risk of product/business failure

o Forecast future trends

 Management Accounting Versus Financial Accounting

Management Accounting: use to provide management with

information to help them manage resources efficiently and
make sensible decisions. There are no specific rules for
management accounting. Depends on needs of organizations

Financial Accounting: Use to Purpose: to provide accurate

financial information for the company accounts which will be
used by the senior management (Balance Sheet and Profit and
Loss) and external parties (e.g. investors)

Data used to prepare management accounts & financial accounts

are same but analyzed differently.
 Financial Accounts Management Accounts
• External user • Only internal user
• Prepare after a defined period • It can be prepare daily,
mostly yearly weekly, monthly or
periodically
• Companies have legal • No legal requirement to
requirement to prepare it prepare it
• Have a pre-determined formats. • No specific format. Format is
Format is defined by IAS, IFRS, decided by management
and Law
• It is about whole organization • It is about activities of
organization
• It is mostly financial information • It includes financial & non-
financial information
• Historical and current picture of • Historical, current & future
business planning of business.
• Help in planning, control &
decision making
Limitations of Management Accounting Information
• If any feature of management information is not present then this will be limit the usefulness

of information.

• It does not need to be accurate down to every penny/paisa. Management accounting

information is not absolutely accurate it is just accurate.

• Decisions taken will depend on how frequently the reports are produced. For example of a

report comparing actual with budgeted is produced every month, information regarding

any problems that are found will be useful in the next month not in the current month.

• When comparisons are being made between different time periods, care has to be taken

that price changes are taken into consideration.

Limitations of Management Accounting Information
• If managers do not communicate with the cost and management accountant, the

information provided by the accountant might not be the type or of the format that the

manager requires.

• Most managers are not accountants so the cost accountant should ensure that the

information that he/she is giving to the manager doesn’t contain any accountancy jargon

and explains matters in non-accountancy terms wherever possible so that it is understood

by the manager.

• If the non-financial factors are not considered, a correct picture might not be obtained.
ROLE OF THE TRAINEE ACCOUNTANT
The trainee accountant is likely to involve in collecting and
processing of data to measure the cost of organization’s
activity, products and services. Trainee accountant can be
involved in measuring and analyzing:

• Cost of raw materials used in production.

• Value of inventories (raw material, work in progress and

finished goods).

• Cost of labour.

• Cost of expenses.

• Total cost of a product.

• Cost per unit sold.

• Profitability from each product.

Practice Questions: Home Assignment