Management Information Systems
The Importance of Information
Many people would argue that your staffs are the most important asset in a business. As someone who has managed a number of businesses for himself and for others and who has been closely involved in turning round a number of loss-making businesses, I would argue that good information about your business is almost as important as good staff.
So who needs information and what are the key pieces of information required? In our experience, working closely with SMEs, the people who demand good information are owner / managers, banks and the government bodies tasked with developing businesses, such as Invest Northern Ireland or Enterprise Ireland. Dynamic owner/managers typically want operational information relating to sales, day-to-day and capital costs and stock holdings. Banks and government bodies want to see monthly financial accounts, sales and profit forecasts and cashflow forecasts.
If you do not have a good, detailed understanding of your sales and costs you cannot manage and control them. Managers should have available:
- Detailed sales analyses showing sales by product / service group and by individual product / service, with the gross profits achieved. Comparisons with budgets should also be available.
- Detailed sales by region and sales representative compared with targets and showing sales by customer.
The detailed sales analyses should be available to managers and sales staff each Monday morning and should be studied. Managers should then sit down with their sales staff to discuss the results in detail. Knowing what customers are buying is very important, but equally important is getting a report showing key products / services each customer is not buying from you.
The time interval between receiving reports on costs varies depending on the manager’s function and sector. Manufacturing managers may wish to receive information on costs daily; managers in the construction sector may be satisfied with weekly reports on job costs, while managers in the distribution sector might he happy with monthly analyses of costs.
A good manufacturing information system will collect and report on labour, material, consumables, machine, maintenance and overhead costs. It is useful to compare for a period the sums of the labour and material costs charged to individual jobs with the total costs as shown in the accounting systems. There will often be a difference, a hidden cost, due to labour and material not being charged to jobs.
Engineering, maintenance and construction companies will also want to see reports showing labour, materials, machines and overheads charged to jobs or projects, compared with budgets. More importantly managers will also want to see estimated costs to and at completion, to give them early warning of projects running over budget.
In the distribution sector comprehensive real-time information on stock-holdings and purchase orders is crucial. Sales staff need to be able to see what items are in stock when taking orders and need to see when the next product delivery is due. There is normally also a need for pricing matrices so that standard selling prices are shown, but with special price lists or discounts for specific customers or customer groups.
Management and Financial Accounts
Banks are not going to lend money and government bodies are not going to give grants to businesses that cannot produce credible Management Accounts and Financial Forecasts. Worse, the absence of up-to-date Management Information Systems in a business is a definite black mark, as it gives an impression of a management team that is not up to standard.
Both banks and government bodies will ask for Trading and Profit and Loss Accounts (P&L), Balance Sheets and Cashflow forecasts. Banks are particularly interested in Cashflow forecasts, as they wish to be reassured about the ability of a business to pay interest and repay loans.
If a Management Information System has been well designed and is kept up-to-date it is comparatively easy to produce monthly P&L and Balance Sheets. Some adjustments are required at month end for accruals, prepayments, depreciation, loan & HP interest charges etc but these adjustments tend to become routine.
Cashflow forecasts tend to be more difficult, as they require good quality forecasts for future sales and a good knowledge of the amount and timing of costs. Purchases and disposal of fixed assets have to be factored in. Complications arise in the engineering and construction sectors when there are customer deposits and part or stage payments. There can often be uncertainty about the timing of these receipts, which makes forecasts more difficult.
For help with the selection and implementation of Management Information Systems contact: