UK: Make the management accounts work for you.

UK: Make the management accounts work for you. - Give every manager a copy of the quarterly accounts and they will complain of information overload. Keep the accounts locked in the finance director's office and people will protest that they are being kep

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Last Updated: 31 Aug 2010

Give every manager a copy of the quarterly accounts and they will complain of information overload. Keep the accounts locked in the finance director's office and people will protest that they are being kept in the dark. Regular management accounts are an important mechanism for controlling an organisation but how widely should they be disseminated?

Company culture is important, argues Christopher Pearce, group financial director at Rentokil Initial and chairman of the Hundred Group of finance directors. 'Is the information circulated on a need to know basis or more widely because it is a "participative" company?' He recommends sending it to those who need it. 'Data is not helpful unless people can act on it. Information should only be produced if it is useful in helping people to improve the results of the company.'

Tim Bigden, project controller at the Chartered Institute of Management Accountants, says: 'Some have a closed approach and others an open door policy. I fall into the second category.' He sees value in producing a summary of the regular management accounts, typically each quarter, for staff throughout the organisation. 'If you use them intelligently, you get people to think beyond their own parochial unit.'

But most companies are still 'more secretive than is helpful', claims Octavius Black, a director of corporate communications consultants Smythe Dorward Lambert. 'Data is often the armoury in internal corporate debates, so those with financial information are more likely to win the battle,' he says. 'But it may well be a pyrrhic victory. Data is a useful tool, but only one of many. It is rare to find a successful leader who relies on it as a basis for decisions.' Equally, staff need to know how their organisation is performing if they are going to support necessary changes, he argues.

Management consultant Frank Pyne warns: 'If your pay structure does not properly reflect the contribution to profits revealed in the accounts, there can be a downside. And, if your company is vulnerable to a takeover, it could make it easier for a potential acquirer.'

Professor Roger Hussey of Bristol Business School believes larger companies are improving. But he perceives a problem. 'Because they have not been trained to, managers do not understand that information or how it fits in to the bigger picture'. He cites one regional manager at a construction firm who was fired because of poor results. Only at his dismissal interview did it emerge that the manager simply did not understand the monthly figures on which his performance was measured.

Brian Plowman of management consultants Develin and Partners is not a fan of accounts for everyone. 'Every month, you should put the management accounts in a big heap and burn them. They are no use to anyone.' What managers really need is not traditional accounts but an analysis of processes, products and customers, he claims, so that they are aware of their key cost drivers and the contribution to profit of each product line and customer.

Most are agreed on that hoary maxim 'what gets measured, gets done'.

Financial information, properly targeted, is essential to focus managers' attention on their key priorities and let them know whether or not they are succeeding. The question is what constitutes 'need to know'.

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