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Quality, not quantity

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Some managers are tempted to increase the amount of information they provide to the board for fear of omitting something relevant. But boards should not be burdened with an excessive amount of operational detail. Micro-management won’t ultimately lead to improved business performance. If anything, it will weaken the organisation’s strategic focus. Something is wrong in a company where directors spend much of their time sifting through huge management reports. The question to ask is how much knowledge has been lost in the information?

The information provided should always be tailored to the board’s needs and relevant to the current strategy and business model. It’s up to the management to distil this day-to-day information and focus the directors’ minds on potential problems and discrepancies. Of course, there needs to be a great deal of trust between the board and the management so that the directors aren’t in doubt that they’re being told what they need to be told.

Finance professionals need to do more than simply put the right numbers on the boardroom table. If they are to add value, they must also act as strategic advisers, explaining what’s behind the information and pointing out possible solutions to any problems. In order to do this, accountants in business need to have a real understanding of the business model and the value-adding processes that underpin it.

In some companies, internal reporting can be completely divorced from the decisions that need to be taken and the strategy it’s meant to be supporting. It has simply evolved over time and contains worthless information. Not only can this result in information overload; it also may mean that directors are not making decisions based on facts. Reliance on intuition and gut feeling has always been a crucial element of decision-making, but it’s best to have all the facts available and an agreement about the key performance drivers.

How the information is summarised and salient points extracted depends on the skills of the management and the ability of the board to define what it needs. Responsibility for good-quality and timely reporting is therefore a joint one. Directors must play a part in determining the right measures of performance and ensuring that they are effectively monitored. They can also add value by being proactive – for example, by asking for clarification, additional information and so on.

At the heart of the whole process is a culture of trust and openness. Directors – especially non-executive directors who will lack the detailed knowledge of the business – must be able to trust that executive directors and managers will tell them all they need to know. If this is not the case, the system is built on shaky foundations and only good fortune will prevent it from failing.

Source: http://www.cimaglobal.com/Documents/ImportedDocuments/perf_reporting.pdf

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