Performance reports for management p5

Assumed knowledge


This   builds on your knowledge of performance reports from PM.


2      Introduction


In the previous   we discussed the managers’ requirement to access good information in order to be able to effectively plan, direct and control the activities that they are responsible for.


An important component of this good information will be the performance reports (output reports) produced for management. The output reports produced from a management information system might include overall performance reports for managers (e.g. a monthly management account report) or they may be more specific and tailored to the manager in question, e.g. an inventory report may be produced for the production manager. Importantly, the performance reports need to be tailored to suit the needs of the users of those reports. The qualities of a good performance report are discussed in the first part of this  .


The second part of the   looks at the common mistakes and misconceptions that people make when using numerical data for performance measurement.


Finally, the   discusses qualitative information. Qualitative information is highly subjective and hard to pin down and is therefore often ignored to the detriment of the quality of the performance report. However, although it is difficult to record and process data of a qualitative nature these factors still need to be considered when making a decision.


3         Reports for performance management


3.1 Introduction


The design of performance reports (output reports) is regularly examined in APM.


Before discussing what makes a good performance report, it is worth noting that performance means different things to different organisations and therefore there is no single correct way of measuring or presenting performance. For example, a profit-seeking organisation may be interested in sales growth or gross margins where as a charity may be interested in the efficient and effective use of its funds. In addition, within a single organisation different aspects of performance will be examined at different times.


3.2 Designing a good performance report


When designing a good performance report there are four key considerations:


  • What is the purpose of the report?


  • Who is the audience for which the report is being produced?


  • What information is needed (as a result of points 1 and 2 above)?


  • What layout is suitable?


Each of these will be examined in turn.


3.3 Purpose


A common mistake in performance reports is that the focus is primarily on profit. However, successful performance depends on the achievement of the organisation’s mission and objectives. The performance report should therefore reflect the mission and objectives.


3.4 Audience


The audience of the report may range from skilled and experienced managers (who will be sophisticated enough to understand the information without much detailed explanation) to, say, the local community who may have fewer skills and require further explanation. It is important to consider the scenario given in the exam to determine whether the right amount and type of information has been given.


Care must be taken to ensure that the performance report is relevant to the needs of the user, is easy to use, is understandable and is adaptable to their needs.


3.5 Information


The information provided must match the purpose of the performance report.

A range of information should be included:

A common theme in exam questions is that the organisation’s performance report focuses solely on financial performance. Although important in the short-term, the sole focus on financial performance may be detrimental to the achievement of the organisation’s mission and objectives in the long term. Non-financial factors focusing on areas such as customer satisfaction, product innovation and employee productivity will be equally as important.


Some of this non-financial information may be quantitative (i.e. can be expressed in numerical terms) but much of this information will be qualitative (non-numerical). This qualitative information is highly subjective and hard to pin down and is therefore often ignored to the detriment of the quality of the performance report.


(Qualitative information is explored in more detail in the next section).


3.6 Layout


Information overload is a common theme in exam questions. The layout of the report needs to help the user to quickly understand the organisation’s results, the key trends and the reasons for these.


Rather than solely including a large volume of figures the layout could be complemented through the inclusion of:


  • graphs, charts or other visual displays making the performance report easily understandable and easy to use.


  • narrative explanation drawing attention to important matters and causes.



Qualities of performance reports




The output reports from an information system should allow the organisation to run the business effectively both today and in the future. Output reports should have the following characteristics:


Characteristic Explanation
Accurate For example, figures should add up and there should
be no typos.
Complete The reports should include all the information that is
needed by the readers of the report and should be
aligned to the overall objectives of the report or of the
Cost < benefit The benefit of having the information must be greater
than the cost of providing it.
Understandable The readers of the report must be able to understand
the contents and use the contents to fulfil their needs.
Presentation should be clear and in line with best
Relevant Information that is not needed by the reader(s) of the
report should be omitted. Information overload can be
a huge problem and can detract from the usefulness
of the report. The problem of information overload
may be overcome using, for example, drill-down
reports (provide users with the capability to look at
increasingly detailed information about a particular
item) and exception reports (which are only triggered
when a situation is unusual or requires management
Adaptable The output reports should have the capability of being
adapted to meet the needs of the user or the
Timely The information should be provided when needed and
should not be provided too frequently (this can result
in information overload and the cost of providing the
information exceeding the benefit).
Easy to use Information should be presented in a form
recommended by the industry or organisation’s best
practice. It should not be too long (to prevent
information overload) and it should be sent using the
most appropriate communication channel to ensure
user needs are met.



Test your understanding 1






Discuss the weaknesses in an information system that could result in poor output reports.


Question practice


The question below is an extract from a past exam question. Take the time to complete and review this question. It will help to give you a broader understanding of some of the areas covered above.



Test your understanding 2




Metis is a restaurant business in the city of Urbanton. Metis was started three years ago by three friends who met at university while doing courses in business and catering management. Initially, their aim was simply to ‘make money’ although they had talked about building a chain of restaurants if the first site was successful.


The three friends pooled their own capital and took out a loan from the Grand Bank in order to fit out a rented site in the city. They designed the restaurant to be light and open with a menu that reflected the most popular dishes in Urbanton regardless of any particular culinary style. The dishes were designed to be priced in the middle of the range that was common for restaurants in the city. The choice of food and drinks to offer to customers is still a group decision amongst the owners.


Other elements of the business were allocated according to each owner’s qualifications and preferences. Bert Fish takes charge of all aspects of the kitchen operations while another, Sheila Plate, manages the activities in the public area such as taking reservations, serving tables and maintaining the appearance of the restaurant. The third founder, John Sum, deals with the overall business issues such as procurement, accounting and legal matters.


Competition in the restaurant business is fierce as it is easy to open a restaurant in Urbanton and there are many competitors in the city both small, single-site operations and large national chains. The current national economic environment is one of steady but unspectacular growth.


The restaurant has been running for three years and the founders have reached the point where the business seems to be profitable and self-sustaining. The restaurant is now in need of refurbishment in order to maintain its atmosphere and this has prompted the founders to consider the future of their business. John Sum has come to you as their accountant looking for advice on aspects of performance management in the business. He has supplied you with figures outlining the recent performance of the business and the forecasts for the next year (see the performance report below). This table represents the quantitative data that is available to the founders when they meet each quarter to plan any short-term projects or initiatives and also, to consider the longer-term future. Bert and Sheila have often indicated to John that they find the information daunting and difficult to understand fully.


Metis Performance Report



Actual Actual Actual Forecast 20X0 ($) 20X1 ($) 20X2 ($) 20X3 ($)



Latest Previous quarter to quarter 31 March (Q3 20X2)


20X2 (Q4        ($)

20X2) ($)



Food 617,198 878,220 974,610 1,062,18 185,176 321,621
Wine 127,358 181,220 201,110 219,180 38,211 66,366
Spirits 83,273 118,490 131,495 143,310 24,984 43,394
Beer 117,562 167,280 185,640 202,320 35,272 61,261
Other beverages 24,292 34,850 38,675 42,150 7,348 12,763
Outside catering 9,797 13,940 15,470 16,860 2,939 5,105
Total 979,680 1,394,000 1,547,000 1,686,000 293,930 510,510
Cost of sales
Food 200,589 284,422 316,748 345,209 60,182 104,527
Wine 58,585 83,361 92,511 100,821 17,577 30,528
Spirits 21,651 30,807 34,189 37,261 6,496 11,283
Beer 44,673 63,566 70,543 76,882 13,403 23,279
Other beverages 3,674 5,228 5,801 6,323 1,102 1,914
Outside catering 3,135 4,461 4,950 5,395 941 1,634
Total 332,307 472,845 524,742 571,891 99,701 173,165
Gross profit 647,373 921,155 1,022,258 1,114,109 194,229 337,345
Staff costs 220,428 313,650 348,075 379,350 66,134 114,865



Other operating costs
Marketing 25,000 10,000 12,000 20,000 3,000 3,000
Rent/ mortgage 150,800 175,800 175,800 193,400 43,950 43,950
Local property tax 37,500 37,500 37,500 37,500 9,375 9,375
Insurance 5,345 5,585 5,837 6,100 1,459 1,459
Utilities 12,600 12,978 13,043 13,173 3,261 3,261
Waste removal 6,000 6,180 6,365 6,556 1,591 1,591
Equipment repairs 3,500 3,658 3,822 3,994 956 956
Depreciation 120,000 120,000 120,000 120,000 30,000 30,000
Building upgrades 150,000
Total 360,745 371,701 374,367 550,723 93,592 93,592
Manager salary 35,000 36,225 37,494 38,806 9,373 9,373
Net profit/ loss 31,200 199,579 262,322 145,230 25,130 119,515
before interest and
corporate taxes
Net margin 3.2% 14.3% 17.0% 8.6% 8.5% 23.4%


Critically assess the existing performance report and suggest improvements to its content and presentation.


(12 marks)


Student accountant article: visit the ACCA website,, to review the article on ‘reports for performance management’.


4      Problems dealing with quantitative data


There are a number of common mistakes and misconceptions that people make when using numerical data for performance measurement. These include the following:


Collection of data


An organisation often uses sampling to collect data and establish statistics. However, it is difficult to collect a random sample and a sample that is big enough to be representative of the whole population.


Failing to look for underlying causes


For example, an internet retailer may report that the number of hits to their website has increased by 50% over the last two weeks. This does not seem as impressive if it turns out that the manager has advertised some heavily discounted products.


Looking at figures in isolation


Continuing the previous example, a better approach to assess internet sales might be to consider number of hits, what % of customers then bought something and the average purchase value.


Data processing


Care should be taken when processing data. For example, when choosing an average to report, the mean can be skewed by extreme values (however, the mode and median also have limitations).


Presentation of data


The choice of, say, graph or chart may be inappropriate. For example, a graph may indicate dramatic changes but only because of the scale chosen.


Failing to evaluate figures using a suitable comparator or benchmark


A manager may report an increase in sales of 20% on the last year but this may indicate poor performance if the market grew by 30% over the same period.


Failing to understand underlying samples


A divisional manager may claim 90% customer satisfaction, but this is misleading if, say, only ten out of five thousand customers were consulted.


Similarly any samples that are self-selecting are notoriously unreliable. For example, the scores on websites where customers can post feedback and rate products may be distorted by false positives paid for by sellers or false negatives paid for by rivals.


Failing to understand percentages


Suppose quality control reject rates increase from 5% to 6% of total items made. This should be reported as a 20% increase but some managers may state that rejects have only increased by 1%.


It may also be misleading to quote a percentage figure, rather than an absolute figure. For example, a business may boast that eating one of its yogurts every day results in a 50% reduction in a certain disease. However, looking at the absolute figures this decrease is only from a two in a million chance of catching the disease to a one in a million chance.


Selective use of figures


Detailed performance measurement often reveals a mixed picture but, unless KPIs are set in advance, some managers may select only the positive indicators when reporting performance. For example, a manager may boast about revenue growth but fail to report a reduction in profit.


Confusing correlation and causality


Suppose a new manager has invested heavily in their division and, at the same time, revenues have increased. It is very easy to assume that the increase in revenue was caused by the investment, whereas it may be due to a different cause altogether, such as an up run in the economy.


Student accountant article: visit the ACCA website,, to review the article on ‘common mistakes and misconceptions in the use of numerical data used for performance measurement’.


5      Problems dealing with qualitative data


Qualitative information is information that cannot normally be expressed in numerical terms (whereas quantitative information can).


Qualitative information is often in the form of opinions, for example:


  • employees – who will be affected by certain decisions which may threaten their continued employment, or cause them to need re-training


  • customers – who will be interested to know about new products, but will want to be assured that service arrangements, etc. will continue for existing products


  • suppliers – who will want to be aware of the entity’s plans, e.g. a move to a just-in-time (JIT) environment.


The fact that qualitative information is often in the form of opinions presents a problem since the information is subjective in nature. For example, in assessing quality of service, customers have different expectations and priorities and so are unlikely to be consistent in their judgements. One way to reduce the effect of subjectivity is to look at trends in performance since the biases will be present in each individual time period but the trend will show relative changes in quality.


It is difficult to record and process data of a qualitative nature but qualitative factors still need to be considered when making a decision. These include:


  • The effects on the environment: certain decisions may affect emissions and pollution of the environment. The green issue and the entity’s responsibility towards the environment may seriously affect its public image.


  • Legal effects: there may be legal implications of a course of action, or a change in law may have been the cause of the decision requirement.


  • Political effects: government policies, in both taxation and other matters, may impinge on the decision.


  • Timing of decision: the timing of a new product launch may be crucial to its success.


These factors must be considered before making a final decision. Each of these factors is likely to be measured by opinion. Such opinions must be collected and coordinated into meaningful information. Qualitative data will often be transformed into quantitative information (for example, by applying a 1 to 5 scale when assessing customer satisfaction). However, it will never escape from the problem of being judgemental and subjective.




Illustration 1 – Dealing with qualitative data




Here are some examples of qualitative effects.


  • The impact of a decreased output requirement on staff morale is something that may be critical but it is not something that an information system would automatically report.


  • The impact of a reduction in product range may have a subtle impact on the image that a business enjoys in the market – again something that an information system may not report.



Test your understanding 3


Information and Investment


Moffat commenced trading on 01/12/X2, it supplies and fits tyres and exhaust pipes and services motor vehicles at thirty locations. The directors and middle management are based at the Head Office of Moffat.


Each location has a manager who is responsible for day-to-day operations and is supported by an administrative assistant. All other staff at each location are involved in the fitting and servicing operations.


The directors of Moffat are currently preparing a financial evaluation of an investment of $2 million in a new IT system for submission to its bank. They are concerned that sub-optimal decisions are being made because the current system does not provide appropriate information throughout the organisation. They are also aware that not all of the benefits from the proposed investment will be quantitative in nature.




  • Explain the characteristics of three types of information required to assist in decision-making at different levels of management and on differing timescales within Moffat, providing two examples of information that would be appropriate to each level.


  • Identify and explain three approaches that the directors of Moffat might apply in assessing the qualitative benefits of the proposed investment in a new IT system.


  • Identify two qualitative benefits that might arise as a consequence of the investment in a new IT system and explain how you would attempt to assess them.


6 Exam focus
Exam sitting Area examined Question Number
number of marks
Sept/ Dec 2017 Evaluation of performance report 1(i) 15
Mar/June 2017   Evaluation of performance report 1(iii) 8
Mar/June 2016 Evaluation of performance report 1(i) 14
December 2014 Qualitative factors 2(c) 7
June 2014 Evaluation of performance report 1(i) 15
December 2013 Wrong signals and dysfunctional 2(b) 10
June 2013 Evaluation of strategic 1(ii) 8
performance report
June 2012 Assessment of performance report 1(i) 12
December 2011 Suitability of branch information 4(a) 8

Test your understanding 1


  • Unreliable information: Information must be sufficiently reliable (e.g. accurate and complete) so that managers trust it to make judgements and decisions.


  • Presentation: The information system may not be capable of presenting the information in a user-friendly format.


  • Appropriate information: The information produced by the system should assist in meeting the organisation’s objectives and should meet the needs of the users.


  • Timeliness: Information must be available in time for managers to use it to make decisions.


  • Responsibility and controllability: Information systems might fail to identify controllable costs, or indicate management responsibility properly. Information should be directed to the person who has the authority and the ability to act on it.


  • Information overload: In some cases, managers might be provided with too much information, and the key information might be lost in the middle of large amounts of relatively unimportant figures.


  • Cost and value: The cost of providing the information should not exceed the benefits obtained.



Test your understanding 2

Current performance report


The existing performance report has some good elements and many weaknesses. The current report shows clearly the calculation of profit and the profit margin from the business and shows how this has changed over the past three years along with a forecast of the next year. There is also a breakdown of the performance in the last two quarters which gives a snapshot of more immediate performance. The report breaks revenue and costs into product categories and so might allow a review of selling and procurement activities.


However, there are a number of weaknesses with the existing report. Firstly, the report only clearly answers the question ‘what was the profit?’ The owners have indicated that their aim is to ‘make money’ and it is possible that making money and profit may not be entirely compatible in the short term. For example, there are no cash measures of performance on the report. These are likely to assume greater importance given the planned improvements and any long-term expansion of the business. The owners might wish to consider refining their long-term goal in order to make it a more precise statement.


The current report does not present its information clearly. There is too much unnecessary information (e.g. the detail on operating costs). The style of presentation could easily be confusing to a non-accountant as it shows a large table of numbers with few clear highlights. The use of more percentage figures rather than absolute numbers may help (e.g. gross margins, change on comparative period percentages). Also, the numbers are given to the last $ where it would probably be sufficient to work in thousands of dollars.


The current report does not break down conveniently according to the functional areas over which each owner-manager has control. It summarises the overall build-up of profit but, for example, it cannot be easily used to identify performance of the service staff except indirectly through growth in total revenue. In order to improve this aspect of the report, the critical success factors associated with each functional area will need to be identified and then suitable performance measures chosen. For example, Sheila’s area is customer-facing and so a measure of customer satisfaction based on number of complaints received or changes over time in average scores in customer surveys would be helpful. Bert’s area is kitchen management and so staff efficiency (measured by number of meals produced per staff hour) and wastage control (measured by gross margin) may be critical factors. In your own financial and legal areas, costs are mostly fixed and so absolute measures such as the cost of capital may be helpful. In the area of procurement, purchasing the appropriate quality of food and drink for the lowest price is critical and so a gross margin for each product category would aid management.


The timescales reported in the current format are possibly not helpful for quarterly meetings. The existing report shows evidence of seasonality in the large change between Q3 and Q4 performance (42% fall in revenue). The figures for two years ago may not be particularly relevant to current market conditions and will not reflect recent management initiatives. It may be useful to consider reporting the last quarter’s monthly performance giving comparative figures from the previous year and drop the use of the detailed 20X0 and 20X1 figures in favour of just supplying net profit figures for those years in order to give an overview of long-term performance.


The current report does not give much benchmark data to allow comparisons in order to better understand the results. It would be helpful to have budget figures for internal comparison and competitor figures for an external comparison of performance. Such external data is often difficult to obtain although membership of the local trade association may give access to a suitably anonymised database provided Metis is willing to share its data on the same basis.


Finally, the current document only reports financial performance. I have already indicated that this may not be sufficient to capture the critical factors that drive the business. A restaurant will be judged on the service and quality of its products as well as its pricing. It would be an improvement to include this style of reporting although gathering reliable data on these non-financial areas is more demanding.




Test your understanding 3


Information and Investment – Moffat


  • The management of an organisation need to exercise control at different levels within an organisation. These levels are often categorised as being strategic, tactical and operational. The information required by management at these levels varies in nature and content.


Strategic information


Strategic information is required by the management of an organisation in order to enable management to take a longer term view of the business and assess how the business may perform during the period. The length of this long term view will vary from one organisation to another, being very much dependent upon the nature of the business and the ability of those responsible for strategic decisions to be able to scan the planning horizon.


Strategic information tends to be holistic and summary in nature and would be used by management, when for example, undertaking SWOT analysis.


In Moffat strategic information might relate to the development of new services such as the provision of a home-based vehicle recovery service or the provision of 24hr servicing. Other examples would relate to the threats posed by Moffat’s competitors or assessing the potential acquisition of a tyre manufacturer in order to enhance customer value via improved efficiency and lower costs.


Tactical information


Tactical Information is required in order to facilitate management planning and control for shorter time periods than strategic information. Such information relates to the tactics that management adopt in order to achieve a specific course of action. In Moffat this might involve the consideration of whether to open an additional outlet in another part of the country or whether to employ additional supervisors at each outlet in order to improve the quality of service provision to its customers.


In Moffat the manager at each location within Moffat would require information relating to the level of customer sales, the number of vehicles serviced and the number of complaints received during a week. Operational information might be used within Moffat in order to determine whether staff are required to work overtime due to an unanticipated increase in demand, or whether operatives require further training due to excessive time being spent on servicing certain types of vehicle.


Operational information


Operational information relates to a very short time scale and is often used to determine immediate actions by those responsible for day-to-day management.


Perhaps the preferred approach is to acknowledge the existence of qualitative benefits and attempt to assess them in a reasonable manner acceptable to all parties including the company’s bank . The financial evaluation would then not only incorporate ‘hard’ facts relating to costs and benefits that are qualitative in nature, but also would include details of qualitative benefits which management consider exist but have not attempted to assess in financial terms. Such benefits might include, for example, the average time saved by location managers in analysing information during each operating period.


  • One approach that the directors of Moffat could adopt would be to ignore the qualitative benefits that may arise on the basis that there is too much subjectivity involved in their assessment.


The problem that this causes is that the investment will probably look unattractive since all the costs will be included in the valuation where as significant benefits and savings will have been ignored. This approach lacks substance and would not be recommended.


An alternative approach would involve attempting to attribute values to each of the identified benefits that are qualitative in nature. Such an approach will necessitate the use of management estimates in order to derive the cash flows to be incorporated in a cost benefit analysis. The problems inherent in this approach include gaining consensus amongst interested parties regarding the footing of the assumptions from which estimated cash flows have been derived. Furthermore, if the proposed investment does take place then it may well prove impossible to prove that the claimed benefits of the new system have actually been realised.


Alternatively, the management of Moffat could attempt to express qualitative benefits in specific terms linked to a hierarchy of organisational requirements.


For example, qualitative benefits could be categorised as being:


  • Essential to the business.


  • Very useful attributes.


  • Desirable, but not essential.


  • Possible, if funding is available.


  • Doubtful and difficult to justify.


  • One of the main qualitative benefits that may arise from an investment in a new IT system by Moffat is the improved level of service to its customers in the form of reduced waiting times which may arise as a consequence of better scheduling of appointments and inventory management. This could be assessed via the introduction of a questionnaire requiring customers to rate the service that they have received from their recent visit to a location within Moffat according to specific criteria such as adherence to appointed times, time taken to service a vehicle, cleanliness of the vehicle and attitude of staff.


Alternatively a follow-up telephone call from a centralised customer services department may be made by Moffat personnel in order to gather such information.


Another qualitative benefit may arise in the form of competitive advantage. Improvement in customer specific information and service levels may give Moffat a competitive advantage. Likewise improved inventory management may enable costs to be reduced thereby enabling a ‘win-win’ relationship to be enjoyed with customers.



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