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Management Reporting

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Management Reporting Overview: A significant output of management reporting systems, but by no means their sole output, is a recasting of the firm’s overall financial results into profit and loss statements arrayed by, for example:

  • Organization (such as division, business unit or department)
  • Geographic Region
  • Product
  • Client Segment
  • Individual Client

Financial metrics, such as revenues, expenses and profits, are hardly the sole concern of management reporting systems. They also are used to track a variety of nonfinancial variables that are of concern to management, such as:

  • Employee Headcount
  • Clients, Households and/or Accounts
  • Client Assets in Custody
  • Net New Money Deposited or Withdrawn by Clients
  • Investment Performance of Client Assets Under Management

Controllers and chief financial officers tend to dedicate a significant amount of their time to designing, implementing, maintaining and adjusting management reporting systems, as well as to monitoring and analyzing their output, and recommending courses of action to line management based on such analysis.

Information technology and management science staff members often are key partners with financial managers in the development and maintenance of management reporting systems. In many cases, however, management reporting systems are constructed and maintained strictly using desktop computing, built in Excel spreadsheets and running on personal computers, rather than programmed in mainframe environments.

In large and small companies alike, the reasons for utilizing desktop computing (often requiring ample amounts of manual data input) generally are twofold. First, the costs of development and maintenance tend to be much lower than with mainframe applications. Second, a desktop computing environment allows for much greater flexibility in changing computational algorithms and reporting formats than does a typical mainframe based application. This is a vital consideration in dynamic business environments where corporate structure, product offerings, business processes, analytical methods and/or reporting requirements are in constant flux, or where management is prone to ask frequent nonstandard or customized questions of its financial analysts.

Applications of Management Reporting: Management reporting systems frequently are critical tools for evaluating the performance of organizations and managers, and sometimes that of lower level employees as well. The results can be key determinants of compensation, such as the setting of bonus pools. For example, the head and staff of a business unit might have their bonuses driven off the profit that a management reporting system ascribes to that unit. Likewise for a product manager, if the firm has a well developed product profitability measurement system. Also for a marketing manager with responsibility for the development and profitability of a given client segment, if the performance of that segment is measured.

Obstacles to Developing Management Reporting Systems: A common problem with developing management reporting schemes is that the data necessary to complete the firm’s annual report, Form 10-K, Form 10-Q, tax returns and reports to regulatory agencies (among other outside constituencies), may not be detailed enough or in a proper format to conduct the sorts of analyses (some of them mentioned above) that management may need to evaluate the firm and its constituent lines of business, and to adjust its strategic direction. Management reporting is a blanket term for these sorts of analyses that are used internally by management, rather than reported to outside entities (such as the investing public, the tax authorities, and regulatory bodies).

Key Analytical Issues: The development of management reporting systems often faces hurdles related to key analytical issues, such as:

  • Internal transfer pricing methodologies
  • The attribution of corporate overheads to individual products or clients
  • Disaggregating changes in client assets into the separate impacts of changes in market prices (i.e., investment performance) and of net deposits and withdrawals

In most cases, these analytical challenges are amenable to multiple methods, each of which has drawbacks of its own, and is not demonstrably superior in all situations.

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