Management Information

Areas to be covered;
 Data And Information
 Types Of Data
 Management
 Purpose Of Management Information
 Levels Of Management And Information Requirements
 Features Of Management Information
 Sources Of Data And Information
 Types Of Sources Of Information
 Management Accounting Versus Financial Accounting
 Role Of Management Accountant
 Responsibility Accounting
 Types Of Codes
Data And Information
Data: is raw facts, figures, numbers and words relating to matters of an organization.

Information is data processed to be meaningful and useful to an organization.

Types Of Data: The data can be further classified as

• Primary and secondary data

• Quantitative and qualitative data

• Sample and population data

Data And Information

Primary and secondary data

Primary data: is data collected for specific purpose; raw data is basically primary data.

Example: list of numbers.

Secondary data: is data which have already been collected elsewhere for some other

purpose, but which can be used or adapted for the survey being conducted.
Quantitative data and Qualitative data

• Qualitative data: is data that cannot be measured and expressed in numbers but may

reflect distinguishing characteristics. For example, the quality of labour used to produce

the unit of output like skilled or semi-skilled workers.

• Quantitative data: is data that can be measured and expressed in numbers. For

example, the standard labour hours required to produce one unit of output.
Quantitative data and Qualitative data
 Quantitative data can be further classified into discrete and continuous data

• Discrete and continuous data

• Discrete data: is data which only takes finite or countable number of values within given

range. For example, number of goals scored by a foot ball player in last world cup, shoe

size, no of students etc.

• Continuous data: is data, which can take on any value they are measured rather than

counted. For example, height of all members of your family, etc.

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.

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.
Long term planning: It is also known as Corporate Planning. It involves;
• Selecting appropriate strategies for preparing long-term plans to achieve objectives. It is
usually for 3, 5, 7, 10 or more years.
• Detailed planning.
• Lengthy process.
• Decisions are taken by senior management or top-level management and approved by
Board of Directors.

Short term or tactical planning: Long term plans should be sub-divided into short-
term plans for operational purposes usually converted it into one year’s planning. It is
shorter usually one year like budgets.
• Planning at departmental or functional level.
• By achieving short-term plans, organization can achieve its long-term plans.
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.
Generally planning and control cycle has following steps:

Identify goals and objectives

Identify alternative solutions/opportunities which

might contribute towards achieving the objective

Collect and analyze data relevant to each

opportunity and choose the best option

Plan and Implement the decision and monitor the

performance

Obtain data about actual results

Compare actual results with plan and control action

should be taken if there are any variances
Levels Of Management And Information
Requirements
There are three levels of management

Strategic level: Strategic or high level management is involved in strategic planning,

control and decision making. At this level of management, senior managers decide or

change the goals & objectives of the organization. Senior managers take decisions about

profitability of different segments of business, future market changes, capital requirements,

and fixed assets requirement. Chief executive officers and board of directors are example of

this level.
LEVELS OF MANAGEMENT AND INFORMATION
REQUIREMENTS
Strategic information has the following features:

• It deals with the whole organization.

• It is derived from both internal & external source.

• It is relevant to long term.

• It is summarized at a high level.

• It is both quantitative & qualitative.

• It is often prepared on an ‘ad hoc’ basis

• It is not completely certain because future is unpredictable.

Tactical Level: This is the middle level management. This level of management is

involved in making departmental decisions including decision making, planning and

control about resources. Departmental managers are best example of this level of
management. They have to decide how much resources should be required and how
efficiently they are being employed. Decisions like productivity measures, Efficient &
Effective use of organization’s resources, variance report, department’s profit, raw
material purchase, labour scheduling.
Features:
• It deals with a function or department.
• It is mostly derived primarily from internal sources.
• It is prepared regularly and routinely.
• It is relevant to short and medium term.
• It is summarized at a lower level as compare to strategic information.
• It is based on quantitative measures.
Operational Level: They are the front line managers such as foreman or head clerks. They

ensure that specific tasks are carried out effectively & efficiently as planned. Operational

management is involved in day to day decision making, planning and control for example

can be supervisor’s decision etc. Direct labor is usually the operational level management.

Features:

• It is task specific.

• It is derived almost entirely from internal sources.

• It relates to the immediate terms (current).

• It is highly detailed about operations.

• It is prepared very frequently like weekly or daily.

• It is largely quantitative.
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

Benefits of information

• Helps in decision making

• Values arising from good decision

• Reduces unnecessary cost

• Adoption of better marketing strategies

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).

• 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

Types Of Source Of Information
Journal: Journal articles are primary information resources. Journals are published on a

regular basis. Each journal title focuses on a specific area or discipline. They describe

research - the generation of new knowledge - and focus on very specific topics.

Newspapers: Newspapers are primary sources of information. They are an excellent source

when looking for current and up-to-date information.

Websites: Websites are useful sources of current information and for an overview on a topic.

Check our evaluating websites page to ensure the information you find is reliable.
Types Of Source Of Information
Statistics: Statistics are primary information. They can be very useful for looking at patterns

and trends.

Trade association: A trade association, also known as an industry trade group, business

association or sector association, is an organization founded and funded by businesses that

operate in a specific industry. An industry trade association participates in public relations

activities such as advertising, education, political donations, lobbying and publishing, but its

main focus is collaboration between companies, or standardization.

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 • Internal user
• Prepare after a defined period mostly • It can be prepare daily, weekly,
yearly monthly or periodically

• Companies have legal requirement to • No legal requirement to prepare it

prepare it

• Have a pre-determined formats. • No specific format. Format is decided

Format is defined by IAS, IFTS, and Law by management

• 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 planning of

business 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.

• 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.
Limitations of Management Accounting Information

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

that price changes are taken into consideration.

• 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.
Sampling: To gain as much information as possible about the population by observing only a

small proportion of the population such as observing a sample.

Population: The term population is used to mean all the items under consideration in a particular

enquiry.

Sample: Groups of items are drawn from the population.

Census: In situation where whole population is examined is called census. This situation is rare.
Advantages of sample

• Time saving

• More questions can be asked to a sample.

Disadvantages of sample

• More cost than benefits.

• Out of date when observation complete.

• May be population destroyed in the process like in testing (in order to check the lifetime of

an electric light bulb it is necessary to leave bulb burning until it breaks).

Sample Frame:
A sampling frame is a numbered list of all items in a population. Once a list of population is

prepared, it is easier to choose a sample from it. Sometimes it is not possible to draw a

sampling frame because population size is very large like a list of all persons in a country.
Characteristics of Sample Frame:
Complete: All the members of a population should be included in it.

Accuracy: Information about population should be correct.

Adequacy: It should cover entire population.

Up to date: It should always be up-to-dated

Convenience: It is easily available for use.

No duplication: Each item in population should include once.

Choice of sample: One of the most important requirements of sample data is that they

should be complete and represent all the population in other words covers all the

information.
Types of Sampling:
There are two methods of sampling

a. Probability sampling

b. Non- probability sampling

a). Probability Sampling: Probability sampling is a method in which there is a known chance of

each member of the population appearing in the sample. It includes:

1. Random sampling

2. Systematic sampling

3. Stratified random sampling

4. Cluster sampling

5. Multistage sampling
1. Random Sampling: Random sampling is a sample selected in such a way

that every item in the population has an equal chance of being included in a sample.
Randomly choose sample. If random sampling is used, a sampling frame has to be
constructed.

Advantages

• It is free from bias (equal choice of being selected)

Disadvantages

• Might be expensive

• An adequate sampling frame might not exist.

• Can produce an unrepresentative sample

• It might be difficult to obtain the data if the selected item covers a wide area

• It might be costly to obtain the data if the selected item covers a wide area
2. Systematic Sampling:
Systematic sampling is a sampling method, which works by selecting every nth item after

random start like 23rd, 26th. It is also called “Quasi Random” because it is not truly random.

Advantages

• It is cheap and easy to use

Disadvantages

• It is possible that a biased sample might be chose if there is a regular pattern to the

population which coincides with the sampling method.

• It is not completely random since some samples have a zero chance of being selected
3. Stratified Random Sampling:
Stratified random sampling is a method of sampling which involves dividing the population

into groups (strata) like males and females. Random sampling is then taken from each group.

Advantages

• Representative sample selected (every important category will have an elements in the

final sample)

• The structure of the sample will reflect that of the population

• Influence can be made about each group

Disadvantages

• Requires prior knowledge of each item in the population.

4. Cluster Sampling:
It is a non-random sampling method that involves selecting one definable subsection of the

population as the representative sample.

Advantages

• It is good alternative to multistage sampling if a satisfactory sampling frame does not

exist.

• It is inexpensive to operate

Disadvantages: The potential for considerable bias

5. Multistage Sampling:
Multistage sampling is a probability sampling method, which involves dividing the population

into a number of sub-populations and then selecting a small sample of this sub-population at

random. Each sub-population is then divided further, and then a small sample is again

selected at random. This process is repeated as many times as it is necessary.

Advantages

• Fewer investigators are needed

• It is not costly to obtain a sample

• Does not require a sample frame of the entire population

5. Multistage Sampling:
Disadvantages

• There is possibility of bias if only small number of region selected

• The methods not currently random once the final sampling areas have been selected

the rest of the population cannot be in the sample.

• If the population is heterogeneous, the area chosen should reflect the full range of the

diversity
b. Non-probability Sampling:
is a method in which the chance of each member of the population appearing in the

sample is not known. There is only one method of such type of sampling.

Quota sampling: is commonly used by market researchers and involves stratifying the

population and restricting the sample to a fixed number in each stratum

b. Non-probability Sampling:
Advantages

• It is cheap and administratively easy.

• A much larger sample can be studied.

• No sampling frame is necessary.

• Only possible approach in certain situation such as television audience research.

• Quota sampling yields enough accurate information for many forms of commercial

market research.

Disadvantages

• The method can result certain biases.

Presentation of Information in Report Writing:
• The most formal way of communication.

• A formal report needed where a comprehensive/detailed investigation has taken place.

• Many organizations have standard set of regular reports in prescribed formats which

make it easier for employees to read and locate information.

• Use charts, tables and good report layouts to increase understanding.

Four stages approach to report writing

• Prepare
• Plan
• Write
• Review
Presentation of Information in Report Writing:
Prepare: Identify whether it is a detailed usual report, Ad Hoc report (unusual), short memo,

discussion notes. Identify the language. Brief explanations and main relevant key terms

should be given.

Plan: Plan the structure of the report how to present the answer.

Write: The language used in a report should be clear and spelling should be correct. Use

clear wordings and language.

Review: Read again to ensure report is clear and complete.

Structure of Report
The elements of a formal report are as follows:

• Title (subject of the report)

• Terms of reference ( clarify what has been requested)

• Introduction (who the report is from and to how the information was obtained)

• Main body (details about the issue discussed)

• Conclusions (summaries or findings)

• Recommendations (writer’s suggestions)

• Signature (of writer)

• Executive summary (summary of a detailed report to save manager’s time, it is not more than

1-page)
Presentation of information in Tables
Tabulation is a process of presenting numerical data or information in the form of

table. Tables consist of Rows and Columns. Table is capable of showing only two

variables, one shown in the columns and one in the rows. Each column should have

proper headings. It is two-dimensional

Table requirements: The following points should be considered while presenting information

in tables.
• Tables have proper title.
• All columns have clearly labeled.
• Make clear sub-totals.
• Information presented can easy to read.
Presentation of information in Bar Charts
A bar chart is a method of presenting information in which quantities are shown in

the form of bars on the chart, length of the bars being proportional to the quantities. It is

a most commonly used method of presenting information in a visual form. There are

three main types of bar charts.

Simple Bar Charts:
Simple bar charts: A simple bar chart is a chart consisting of one or more bars, in which the

length of each bar indicates the magnitude of the corresponding information.

Component or Percentage Component Bar Charts:
A component bar chart is a bar chart that gives a breakdown of each total into its

component.

Component bar chart: Percentage component bar chart:

Multiple Bar Chart: A multiple bar chart is a bar chart in which two or more separate
bars are used to present sub-divisions of information.

Line Graphs:
• Used to display a wide variety of information
• Used in commercial context
• Used for demonstrating trends
• Trends are the progress of events or fluctuations over time of variables such as profit,
prices, sales, customer complaints
• May also be used to compare the performance of various products, which are competing
with each other
• May also be used for changes in share prices over time
Pie Charts:
A pie chart is a circular chart in which the

circle is divided into sectors. Each sector

visually represents an item in a data set

to match the amount of the item as a

percentage or fraction of the total data

set. They are useful to compare different

parts of a whole amount. They are often

used to present financial information.

Responsibility Accounting:
An accounting system under which responsibilities; like revenue and cost, are

assigned to managers (responsible persons);

RESPONSIBILITY CENTRE

A function or department of an organization that is headed by a manager and the

manager has direct responsibility for its performance is known as a responsibility centre.

Responsibility centres are usually divided into different categories. Here describes cost

centre, revenue centre, profit centre and investment centre.

Responsibility Accounting:
1. Cost Centre: A cost centre is a production or service location, function, activity or item of

equipment for which costs are accumulated or a unit of an organization to which costs can

be separately attributed.

If a manager is responsible for costs attributable to his area of business, it means that

the manager is responsible for a cost centre. But manager is not responsible for shared or

apportioned costs, as these are not controllable for him.

Each cost centre will have a cost code and so all items of expenditure will be

recorded according to the correct cost code.

Responsibility Accounting:
2. Revenue Centre: A centre, which raises revenue and has no responsibility for costs.

Manager of revenue centre is accountable only for revenues. For example department

which obtains grants and donations for a charity, sales department

3. Profit Centre: A profit centre is a part of a business accountable for both cost and

revenue. Manager (likely to be a senior person) is responsible for costs as well as income

attributable to his area of business, it means that the manager is responsible for a profit

centre. It covers large area of operations. It might be an entire division within the

organization or there may be a separate profit centre for each product, brand, service etc.

There are likely to be several cost centres within a profit centre.

Responsibility Accounting:
4. Investment Centre: It refers to a profit centre with an additional responsibility for capital

investment. Manager of investment centre has the responsibility for profit in relation to capital

invested in his area.

Mostly used in public sector organizations where the organization is required to make

a particular level of profit in relation to their fixed assets (return on capital employed).
Cost Codes:
After classifying cost, a coding system can be applied to make it easier to manage the cost

data. It can be manual or computerized. Each cost is identified through its unique code.

Features of good coding system

An effective and efficient coding system should include the following features:

• Code must be easy to use and well communicated.

• Unique code

• Coding system must allow for expansion

• Codes should be flexible

Cost Codes:
• It should be comprehensive system ( suitable code )

• Codes should be time-saving

• Codes should be error free

• Regularly updated codes

• Code numbers should be issued from a single central point ( standardisation)

• Dots, dashes. Colon etc should be avoided in codes

• They should be uniform ( length or structure)

• Not confusing.
Types of Codes
a. Composite codes: In costing, the first three digits in the composite code 211392 might

indicate the nature of the expenditure ( subjective classification ) and the last three might

indicate the cost centre of cost unit to be charged ( objective classification).

b. Sequence (or progressive) codes: Numbers are given to items in ordinary numerical

sequence, so that there is no obvious connection between an item and its code.

c. Group classification codes: These are an improvement on simple sequence codes, in that

a digit (often the first one) indicates the classification of an item.

Types of Codes
d. Faceted Codes: These are refinement of group classification codes, in that each digit of

the code gives information about an item. For example:

e. Significant digit codes: These incorporate some digit(s) which is (are) part of the

description of the item being coded.

f. Hierarchical codes: This is a type of faceted code where each digit represents a

classification, and each digit further to the right represents a smaller subset than those to the

left.
Types of Codes
 A coding system does not have to be structured entirely on any one of the above systems.

It can mix the various features according to the items which need to be coded.

Advantages of coding system

• A code is usually briefer than a description, thereby saving clerical time in a manual

system and storage in a computerised system.

• A code is more precise than a description and therefore reduces a ambiguity.

• Coding facilitates data processing.