Are you drowning in a

sea of information?

Managing
Informatio
n

A
Practica
l Guide

d m griffiths
www.managing-
information.org.uk
Managing Information – A Practical Guide

Contents

Welcome 1

Summary 2

Elements of information 3

Relevance 4

Timeliness 6

Accuracy 7

Practical Action 9

Conclusion 9

Example form for information requirements 10

© D M Griffiths 2001-2006 15/03/2006 02:21:00 PM

No part of this document to be reproduced in whole or part without the written permission of the author V.5.1W
Managing Information – A Practical Guide
What is a decision? 10

10

Illustrations 11

Soccer score 12

To catch a plane 13

Supertanker 14

Management accounts 15

Auditing management information 18

© D M Griffiths 2001-2006 15/03/2006 02:21:00 PM

No part of this document to be reproduced in whole or part without the written permission of the author V.5.1W
Managing Information – A Practical Guide

Welcome…
…to this brief guide. It is intended to provide a few challenging thoughts, and
practical advice, to avoid being overwhelmed by the avalanche of information hitting
your desk and screen. It is intended to help you determine the information you really
need.

We have never been subjected to so much information and yet I have not come across
any clear, concise guides as to how to handle it. Hence this guide, based on my
experience in business systems (although thanks are due to my colleagues and friends
for their comments).

The guide is intended for:

 Users of information
 Providers of information
 Designers of systems which produce information. (These are the poor people who
have to ask users, “What information do you want from this system”. The ability
to read minds is a job requirement.)

As a result of using this guide:

 You will be able to make better decisions with less information
 You will get better information, because the people who provide you with it will
be more interested in their work
 You will find communication in your organisation will improve
 You will feel ten years younger
(OK, so the last point is pushing the claims just a bit)

But this guide is not about the much loved subject of knowledge management, it is
about managing the information which provides you with knowledge.

If you don’t have much time to read this guide, a summary follows. If you have half
an hour…read on.
There is a copy of the article ‘Auditing management information’ at the end of this
guide, which was written for the Institute of Internal Auditors website
www.itaudit.org.
David M Griffiths
March 2006

© D M Griffiths 2001-2006 1
Managing Information – A Practical Guide

Summary
This guide is intended to help you determine the information, which you need, to
reach those decisions which get you to your objectives.
The questions
There are three primary elements of information which answer the questions:
 What is needed? –relevance
 When is it required? – timeliness
 How is it required? – accuracy
The three principles of managing information
 Information is only relevant, and therefore needed, if it is used to make a
decision. Since very few decisions are made as a result of receiving management
accounts, sales forecasts, etc., should they be thrown into the waste paper basket?
 Information is only required when decisions have to be made. Since directors
of a company make long term decisions, should staff have to work overtime to
produce the information required for them “yesterday”?
 Information needs only to be sufficiently accurate to make a decision. So no
more quoting of forecast sales for year 3 as “£926,369” i.e. to 0.0001%
The practice
So, fine theory (well that’s my point of view) but in practice:
 When deciding which information you need regularly:
 Determine what your objectives are
 Decide what decisions you need to make to achieve those objectives
 Decide what information is necessary to support those decisions
 Determine when the decisions have to be made
 Decide on the accuracy necessary to make the decision
 When asking for information – tell the provider what decision you wish to make
or, if it is confidential, be clear in your own mind what it is.
 When asked to provide information, ask what decision is to be made, based on it
(assuming such a question won’t result in termination of employment).
The implications
 Since decisions cannot change the past, only the future, information should
primarily be concerned with forecasting
 You need to communicate your objectives to your information providers, so that
they can help you achieve them
Can’t understand what I’m talking about, totally disagree, agree in part? Read on…

© D M Griffiths 2001-2006 2
Managing Information – A Practical Guide

Elements of information
What is information anyway? Well I suppose it is any stimulus reaching the brain.
Sound’s a bit deep doesn’t it but information need not be only what we can see – what
about sound (the fire alarm is ringing) or touch (the floor’s getting hot) or smell
(what’s that burning smell?).
Whatever the information, it has certain requirements. It should be:
 Relevant – you are not too bothered about hearing a fire alarm down the street
 Accurate – standing outside a hotel at 2:00 on a cold morning is not pleasant at
any time, especially if it was caused by a false alarm
 Timely – the fire alarm should sound before flames are licking round your feet
 Complete – if the bell is missing you are not going to hear it
 Simple – an alarm is preferable to an announcement through loudspeakers
Any other requirements? Well information should be used. If the fire alarm is
ringing, the floor is getting hot and there’s a burning smell, it is probably not a good
idea to hang around.
I am going to concentrate on what I consider to be the primary requirements of
information – relevance, accuracy and timeliness, and their relevance to its use.
Completeness and simplicity are important but we can draw conclusions about these
requirements when relevance has been considered.
So let’s consider these three requirements of information…

© D M Griffiths 2001-2006 3
Relevance
The theory
How do you decide if the information which you are receiving is relevant Just as
important, how do you decide which information you aren’t receiving is relevant?
Well, why are you are you in a position to receive information? Presumably it’s
because you have certain responsibilities, in other words - objectives. These may be
easily measurable, e.g. increase the number of examination passes by 10%, or less
objective, e.g. introduce induction training for new staff into your organisation.
So how do you achieve these objectives – by making decisions. (If you can achieve
them without making any decisions, you should be relaxing on the beach.)
In order to make good decisions, you need good information. In other words, all the
information that is relevant but none which is not relevant. If you need only relevant
information to make decisions we can deduce the first “Principle of Information
Management” (PIM).

Information is only relevant, and

therefore needed, if it is used to make
a decision

The implications
If this principle is correct, what are the implications?
 If you receive information and do not make a decision based on it, you do not
need that information.
 But.. we need to add two notes to our principle:
 A request for more information is not a decision – it just shows you didn’t get
the right information in the first place.
 A decision to do nothing is a decision. For example, if you have taken a
patient’s temperature and it is normal, you will take no action.
 Decisions cannot change the past, only the future. Thus information used to assist
in decision making should look to the future. The past is only useful to predict the
future.
 Merely because information is relevant does not imply it is complete or in the
most effective format (i.e. simple). These elements of information must be
considered alongside relevance.
 You need to communicate your objectives and the related decisions to your
information providers.
 Information providers should then tailor the information they provide to the
recipients requirements.
The application
How can we apply this principle in practice?
 When asking for information:
 make sure that the information to be provided will be sufficient to make the
decision – no more, no less.
 tell the provider what decision you wish to make or, if it’s confidential, be
clear in your own mind what it is.
 When asked to provide information:
 ask what decision is to be made, based on it (assuming such a question won’t
result in termination of employment).
 confirm that the information you will provide is exactly what is required.
 When deciding which information you need regularly:

Determine what your

objectives are

Decide what decisions

you need to make to
achieve those
objectives

Decide what information

is necessary to support
those decisions

Determine when the

decisions have to be
made

Decide on the
accuracy necessary to
make the decision

A form is attached which could help in this process (page 10).

Timeliness
The theory
Have you noticed that information must always be produced as soon as possible? The
speed that information is required seems to depend on the seniority of the person
requesting it. Is there a contradiction here? Yet, the more senior a person is, the more
they should be looking into the future and making strategic decisions. Since strategic
decisions are often arrived at over a period of several months, during which
information is gathered to support the decision, that information is not required
urgently.
Surely decisions are always required urgently? Not necessarily ― other required
information may not yet be available, (i.e. it isn’t complete); the decision may not take
effect for many months; or more urgent decisions must be made. There is also the
possibility (probability?) that the information will lie on the user’s desk for some time
before they look at it.
Thus we can deduce the second “Principle of Information Management” (PIM).

Information is only required at the time

decisions have to be made

The implications
The relationship between the position of the information user in the organisational
hierarchy, and the speed at which they are provided with information, often results in
information being made available in totally the wrong places at the wrong time.
For example: who needs to know when the next delivery of toys is due? The shop
assistant, faced with a customer who has just travelled miles only to find they are out
of stock, or the merchandise director? The shop assistant probably has to phone
“Head Office” and even then will be lucky to get an answer, the Merchandise
Director probably has the information at her fingertips but doesn’t need it to make an
immediate decision (or any decision).

The application
Provide, or request, information with an urgency related to the urgency of the
decision, allowing for the need to understand the information before making the
decision. This will almost certainly result in providing information for people at the
“sharp” end of the organisation (i.e. the people dealing with customers or clients)
before providing it for the strategists.
Accuracy
The theory
Accuracy is often considered to be an indication of “rightness” or “wrongness”. But
in practice, when measuring, for example, a distance (kilometres), profits (dollars), or
time (hours), there can only be degrees of “rightness”. The accuracy with which we
can measure something not only depends on our measuring apparatus (kitchen scales
or scientific balance) but on what we are measuring.
For example, how far is it from the centre of London to the centre of Nottingham?
About 120 miles, using an atlas. We might get a more accurate answer from a car
using the odometer but our answer would depend on the route taken. Using a global
positioning device would probably give the most accurate answer but even then the
accuracy depends on the definition of the position of the centre of each city. Thus
there is an inherent inaccuracy in any answer which limits us to an accuracy of about
½ mile. (The map maker can be more accurate than this but isn’t bothered about a
definition of the centre of each city)
So accuracy cannot be absolute and we need therefore to consider why we need the
information, i.e. what decisions are to be taken, before defining the accuracy
necessary. If we are wanting to calculate whether the car’s petrol tank will need
filling, 120 miles is perfectly accurate, given the other uncertainties in the calculation
such as fuel consumption.
Thus we can deduce the third “Principle of Information Management” (PIM).

Information needs only to be sufficiently

accurate to make a decision

The implications
The major implication is that we should actually take accuracy into account when
providing information. Ask a scientist to measure the width of A4 paper with a ruler
and he/she should give the answer 210 ± 1 mm. This indicates that the width lies
between 209 and 211 mm. Ask a businessman to quote a profit and you will get an
answer like £124,675. Yet for various reasons, such as difficulty in valuing stock, the
realistic answer is more likely to be £125,000 ± 3,000 i.e. between £122,000 and
£128,000.
Why is providing information to an unrealistic accuracy harmful? Because it implies
that it can be determined that accurately and thus implies it must be correct. Which of
the profit figures quoted above would you trust? The first one probably, because it
gives an impression of accuracy, while the second one gives the impression of
uncertainty, since anyone quoting profit in a £6000 range isn’t confident. However,
the reverse is true, the second figure is the more trustworthy, since it gives an accurate
impression of the uncertainty of the number.
The application
Don’t expect any information provided to you, or by you, to be greater than you can
reasonably measure or estimate. Thus, if asked for a forecast of sales in three years’
time, the answer should be in the form £100 ± 30m. The degree of accuracy you will
be able to provide will depend on the past data you have and your confidence in the
assumptions you have to make.
Some decisions may involve information of varying accuracies. Supposing you want
to set up a restaurant and you need to work out whether, in ten years, you will have
any cash in the bank. The conventional way is to try and estimate the sales, subtract
the costs and see if there is any left over. The problem with this method is that the
range of possible sales figures is very wide, after subtracting the costs you may be left
with a range of answers from being bankrupt to rolling in money.
However, start from the figures you know most accurately – the cost of renting and
fitting out the premises. You can reasonably estimate the profit you would make
from the average meal and can then work out how many diners are required to cover
your labour and premises costs. If the answer exceeds the capacity of the restaurant,
or requires you to open 20 hours a day, you know you need to rethink.
By using this method, you have to make fewer guesses and those you do have to make
are based on reasonable assumptions.
Practical action
The action you will be able to take in ensuring you only receive the information you
really need, depends on your circumstances. In general, the following is a guide:

 Look at the goals you are trying to achieve

 Decide how you can achieve these goals – what decisions do you have to make?
 Decide on the information required to make these decisions:
 What is the minimum needed? – keep it simple but sufficient to enable the
decision to be made, without asking for more!
 When is it needed?
 What is the accuracy necessary, or possible?
 Consider what proportion of the information you receive refers to the past. Since
decisions can only affect the future, if it’s more than 20% it’s probably too much.
 Compare what you get, with what you need, and stop the unnecessary information
getting to you.
 When working with information of varying accuracy, start with the most accurate
first
 If you receive information and are expected to query unusual figures, set limits
and ask the provider to give only information outside those limits – and an
explanation of action being taken by them, or expected of you.
 If you provide information, try and get the recipient to read this guide, or at least
complete the form on page 10.
 If you design systems, use the form on page 10 to find out what your users really
need by concentrating on their objectives and related decisions. If you are lucky
they will know them.
The illustrations on pages 11-16 give some practical examples

Conclusion
This guide is simplistic – and it’s meant to be. It ignores the wider reasons for
reading information and concentrates only on the decision-making aspect. However,
since this is one of the most important uses of information, by applying this guide you
will have identified the information most relevant to achieving your objectives.
So concentrate on what your aims are. If you don’t know them, all the information in
the world won’t help you.
Example form for information
requirements:

OBJECTIVES DECISIONS REQUIRED INFORMATION REQUIRED

TO MEET OBJECTIVES
Increase sales of Advertise – when and how?
ice creams by 6%
Launch new products?
And so on…
TO MAKE DECISIONS
Forecast sales figures
Previous and planned
advertising campaigns
Competitors’ advertising
campaigns
Advertising rates
Sales figures during advertising
campaigns
Market research
Market share by product –
competitors and ours
Planned new products in
development
And so on…

What is a decision?
A decision is like a physical force. A force changes the speed and/or direction of an
object, such as a block of wood sliding on a table. A decision changes the speed
and/or direction of the events to which it is applied. Unless it is a decision to do
nothing.
Thus a decision must contain an action. It may be in the form of a question – “Should
I travel by bus today?” – but should contain a “doing” word. “What are my profits?”
does not lead to action directly and is not therefore a decision, even though it leads to
the production of information. “What must I do to increase my profits”, leads to
much more focused information being requested.
Practical Illustrations
I’ve written the following illustrations to provide examples of how the principles
might work in practice. I have not assigned each part of the illustration to a principle,
you can do that without my help.
Please read them and see how your information needs might be changed.
The illustrations are:

Soccer score
A simple piece of information. Who uses it? Why?

To catch a plane
The importance of ensuring that you know how the information which you provide is
to be used.

Supertanker
A lumbering beast which takes a long time to respond to the helm. Know any
organisations like this?

Management Accounts
You don’t need to be an accountant to understand this illustration. However, it will
help you understand why the number of personal computers and the number of
accountants on this earth bear a close relationship…
Soccer score
When I first started to consider the problem of what information people need, I
decided to try and find a simple piece of information and look at who used it and why.
I chose a soccer score:

NOTTINGHAM FOREST 2 SWINDON TOWN 3

Who might be interested in it and why?

Football supporters Go to the next game?

Football Association (F.A.) League table changes necessary
TV, radio, newspapers What score to publish
Team managers Whether to resign?
Players Look for a transfer?
Gamblers Claim for winnings
Police on duty at the ground Which supporters might give trouble
Armchair supporter ?

All of the people interested in the information, except the last person who never goes
to a match, make decisions based on it. Hence I deduced the first principle. The
armchair supporter might look at the TV to find out the result but never uses it to
make a decision. How many people who demand information are armchair
supporters?
However, note that some of the people interested in the score would also require other
information, such as previous scores, before coming to a decision. Thus, for them, the
information above is incomplete.
What about the accuracy that the users require? The Football Association and media
need the exact score but the police only need to know who lost.
When do the users require the score? The media and police require it immediately the
game has finished, but theoretically the F.A. don’t need it until the end of the season,
when they decide who is to be promoted or relegated to other divisions.
What about the armchair supporter? Well if he lives near the Nottingham Forest
ground and doesn’t want to get stuck in traffic on the way to the shops, he needs to
know the score before the match starts. But the accuracy needed is only to know if
Nottingham Forest’s name comes first on the score line, since this denotes the “home”
team. An interesting example of how gains in getting information quickly have to be
balanced with a loss of accuracy.
To catch a plane
I have a friend who is an American, visiting the U.K. for the first time. He has been
staying with me in Nottingham for 10 days, travelling around using a hire car, or
trains. His flight leaves from Birmingham tomorrow, Monday, and he will drive the
hire car to the airport and leave it there. He asks me,
“How far is it to Birmingham airport?”.
Now the straightforward answer is “About 50 miles”. But, bearing in mind the first
principal of information, in order to ensure this information is relevant, I need to
know the decision which my friend wishes to make. I add “Why do you want to
know?”.
He answers, “My plane takes off at 11:00 a.m., which means I have to be at the
airport at 9:00 a.m. I need to decide when to leave. I reckon, since the roads are dual
carriageway or motorway, the journey should only take me an hour and I can leave at
8:00.”
I reply, “How lovely it must be to leave in a part of the U.S. with no traffic jams.
Unfortunately, the roads between here and Birmingham consist of several long traffic
jams at that time on a Monday morning and you need to leave at least two hours in
advance, especially as you have to park the hire car and leave the keys. So I would
leave at 7:00”.
This example illustrates the importance of understanding the link between information
and decisions. My friend failed to tell me the decision he had to make, when to leave,
and the facts surrounding the decision, he had to be at Birmingham Airport at 9:00 on
a Monday morning. If I had only answered, “About 50 miles”, he could have missed
his plane, or at least have had a worrying journey.
So I answered “…at least two hours” because that was as accurate as I could be.
There would have been no point in answering one hour, fifty-five minutes and twenty
seconds because I couldn’t predict the journey time that accurately and it would give a
false impression of how certain I was of the timing.
When did my friend want the information? Well, he had to know when to leave, so
he would know when to get out of bed – so there would be no point in telling him the
following morning. However, there would be time tonight to check on the road news
to see if there were any road works which would make the journey even longer! For
this reason there would also have been no point in him asking the question two weeks
before he arrived in the UK.
What we didn’t do was spend a long time discussing whether it would take 1¾ or 2
hours to reach the airport. We started at the information known accurately, the time
the plane was to leave and worked back. The best solution? Leave at around 6:30 to
beat the traffic and have a leisurely breakfast at the airport.
Supertanker
If you are the captain of a supertanker sailing down the English Channel, any decision
you take now about changing the direction of the ship will not happen for about 15
minutes, because it is so heavy. Thus the information relevant to you is that required
for forecasting and where you have been, and where you are now, are only important
in knowing where you will be.
In practice, since the ship is so heavy it is not easily manoeuvrable and the decision
on the course will be have to be made many hours in advance and the necessary
information is required then. You will agree this with the Navigating Officer and
he/she can give the helmsman the necessary commands. Since the decision on the
course is made well before a change in direction, there is no need to haul the
Navigating Officer out of bed to make it. A few hours will make no difference –
assuming you have recognised the need to plan!
Contrast this with the situation that a ship has altered course and could collide with
you in 10 minutes. You would wish to know of the danger immediately in order to
take appropriate action, such as telling the other ship to change course.
In both the above situations it is the helmsman who needs the information promptly!
However, you don’t wish to know the position of all ships in the area, that job is
delegated to the Navigating Officer. The information relevant to you is about those
ships which could be a danger and where you have to make a decision.
If the Navigating Officer told you not to worry, as the ship on a collision course
would miss your ship by 38.236m, you might be a bit suspicious. How could he
possibly calculate the figure that accurately, given the uncertainties in the speed and
direction of the other ship? You would be right in suspecting that he really didn’t
understand the figure he was providing and the uncertainties inherent in the
calculation.
However, you do want to know about the danger of collision. What’s the most
accurate information? Your own course and speed. Knowing this, and the position of
the other ship, which can be determined with reasonable accuracy from radar, you can
determine the range of speeds and directions for which the ships could collide. If the
course and speed of the other ship lies in that range, you had better give the captain of
that ship a call.
Management accounts
Let’s assume you have a target to increase sales of ice creams by 10% over last year’s
sales, by value. Each month you receive a report which shows the latest sales:

Sales for the last six months

Category Current year to Last year comparison
date
£ £ Increase (%)
Chocolate bars 156,125 154,326 1.2
Toffees 45,237 43,289 4.5
Ice creams 259,431 260,581 -0.4
TOTAL 460,793 458,196

This is accompanied by a longer report which splits each of the categories into
individual products such as King Cones, etc.
What does this report show? Well you’re in trouble – half way through the year and
sales of ice creams have actually decreased. Can you base any decisions on this
report, and the more detailed report which accompanies it?. No, not without asking
for more information.
Let’s add two notes to our principle:
 A request for more information is not a decision – it just shows you didn’t get the
right information in the first place.
 A decision to do nothing is a decision. For example, if the target for increased
toffee sales was 4.0% the sales manager for these can probably relax.
Why, in our example, do you require more information? Because you don’t know
why sales are low, what decisions have already been taken and what decisions are
expected from you.
So what information should you have been given? Well, for a start, you don’t need to
know sales of chocolate bars and toffees because you are not responsible for them.
You need more details, so you go to the longer report. This shows the sales of 300
products and, by closely reading it you notice all have sales increases of 5% except
the three best sellers which show sales decreases of 20%. But you still can’t make a
decision because you don’t know why sales have decreased. You ask your staff, who
tell you that production problems resulted in no deliveries to shops in the last month
and your decision is required whether to demand compensation from your supplier.
However, the report gives none of this information.
What’s the alternative? You only need to know the sales of products where they fall
outside the targets you set (e.g. if sales increase by less than 5%). Where they do, you
want an explanation from your staff, details of decisions they have taken and,
possibly, what decisions they want from you.
Wait a minute, won’t that result in longer reports? Well you’ve removed all the
information not requiring a decision and you could receive a verbal, not written,
report.
This approach means that your staff, who probably prepare the report on a
spreadsheet, also take more interest in its production, since they have to explain
differences. It also gives them the opportunity to ask for a decision, which staff are
sometimes reluctant to do.
Your staff probably work overtime to produce this report by very tight deadlines.
You probably look at it when it arrives, and maybe ask questions to find out reasons
for the poor sales, but it is very unlikely that any decision is taken as a result of the
information for many days. If the decision is to demand compensation, it hardly
requires staff to work overtime in order to give you the report a day early.
Let’s suppose you now have to provide forecast sales and profits, after all expenses,
for the next three years. Well, you assume sales will be £500,000 this year, profits
will be £20,000 with a year on year increase of 9%. Put the figures into a spreadsheet
and you can go home happy:
YEAR 2000 2001 2002

SALES 500,000 545,000 594,050

PROFIT 20,000 21,800 23,762

Except that, while the figures for year 2000 have a realistic accuracy, the figures for
2001 and 2002 are quoted to an accuracy far greater than possible. However, because
they look accurate they give a false sense of security, whereas more realistic figures
would give the impression of guesses. Which is, of course, precisely what they are.
Your boss asks you if it’s worth carrying out an advertising campaign, which means
that the profit increase has to cover the cost of the campaign. You could start trying
to estimate what the sales increases from various types of campaign (TV, radio,
newspapers) would be and calculate profit from these to give an idea how much you
can spend.
Try working the other way round. You can’t determine sales but you can set the cost
of the advertising campaign. Thus you know this figure accurately. So using data
from previous campaigns work
Advertising cam paigns out the best and worst cases for
sales and profit increases for
10 advertising at different costs.
5 Draw a graph, which shows
Profit increase less

that you get the greatest benefit

cost (£000)

0
-5 10 20 30 40 50 60 70 (i.e. profit increase as a result
-10 of the campaign, less costs) for
-15 a campaign costing £40,000.
-20 At best you will get an £8000
Cost of cam paign (£000) benefit, at worst £2000
This article was written for the Institute of Internal Auditors’ IT
website at www.itaudit.org.

Auditing management information

Information – the biggest risk?
Look around most cities of the world and you will see thousands of people producing
and using information. The change from farmer and factory worker to office worker
has taken only a century, but have we auditors caught up with that change? We have
certainly embraced computers but have we fully addressed the risks coming from their
only product – information?
Correct information is vital for correct decision-making and correct decision-making
is vital for survival. Failure to use it properly must therefore be one of the biggest
risks facing an organisation.
Auditing the biggest risk
Auditors should be interested in big risks, and therefore ensure that information is
being used to its maximum effectiveness in their organisation.
Such information necessary for managing the organisation includes the following:
 That produced for an on-going business, or part of a business
 That proposed for a system under development
 That used to monitor the progress of a system under development
 That produced to justify an investment decision
Since the “correctness” of this information represents one of the biggest risks to the
organisation, how does it control that risk?
The best place to start is by defining “correctness”
“Correctness”
There are probably five elements which define whether information is correct:
 relevance
 completeness
 simplicity
 accuracy
 timeliness
We can examine each of these in turn to decide what we would expect to find as “best
practice”, which will then enable us to devise an audit programme to see if it exists.
Relevance
Deciding whether information is relevant is probably the most difficult of all. How do
you objectively judge relevance? It is a question familiar to any systems analyst who
has to find out what information the user actually needs. The user is often not much
help, often resorting to looking at what is wrong with the information currently
received.
So, why is information necessary? To make decisions. Why are decisions necessary?
To achieve the organisation’s objectives – so start with them. Thus, if we are auditing
the investment proposal for a new product, let’s start with the objectives that the
product is expected to achieve. This step itself can be quite an eye-opener. Has
anyone clearly defined the objectives and, if so, are they in line with the company’s
objectives?
Having clarified the objectives, specify the decisions required to achieve them –what
products to sell, at what price and how much to spend on advertising. Note that
decisions result in an action. “What are my profits?” does not necessarily lead to a
decision; “How do I increase my profits?” should.
Knowing the decisions we have to make, define the information required to support
them – what are our competitors selling, what is market research telling us, how
effective was our last advertising campaign?
Having defined the information required, compare it with the information received,
and stop producing any which is not required for decision making.
There are several implications to the linking of information with decision making:
 Information is only relevant, and therefore needed, if it is used to make a decision.
Try applying that to your groaning in-tray (paper and electronic).
 A decision to ask for more information is not a decision – it just shows you didn’t
ask for the correct information in the first place.
 A decision to do nothing is a decision. If it works, don’t fix it! (I don’t entirely
agree with that statement, except when applied to computers)
 Since decisions affect the future, information should include forecasts.
Information about the past is only relevant to predict the future.
 When information is requested, make sure it is accompanied by the decision that
is to be made. This helps the person providing the information to produce it in the
most effective way, and gives them an interest in it.
Completeness
Having defined the relevant information required, this element should be easy to
check – is all this information available?
Simplicity
More difficult this element, since presentation is involved and this is often a matter of
opinion. The over-riding principle must be: if the message the information is trying to
make, fails to get through to the reader, it’s useless. Better to be simple and
understood than complex and ignored.
If you want some basic principles on presentation try, “The non-designer’s design
book” by Robin Williams (Peachpit Press, inc).
Accuracy
As auditors, we are generally happy with concept of checking accuracy – is the
information calculated correctly, is it based on verifiable facts? Once we start
checking forecasts however, we are in trouble. We can check the calculations but are
forced to assess the “reasonableness” of the assumptions. This becomes more difficult
the greater the degree of accuracy quoted – it is easier to form an opinion whether
projected sales lie in the range £5-10m, than sales in year three will be £7.521m
Yet, how many times have we seen figures in forecasts, investment proposals and
strategy papers quoting, for a future period, sales figures such as £82.218m – an
accuracy of 1 in 10,000. Most companies can’t quote this month’s sales to that
accuracy! This is the result of spreadsheets used to take an estimate and add 5% a
year, without rounding the result to a sensible figure.
Why should we be bothered about such spurious accuracy? Because such figures give
a false sense of certainty to a decision about to be made. What project would you
rather approve – one with a projected cash flow of £100m to £150m or one with a
cash flow of £124.482m? The latter seems so certain that it can’t fail. If we are to
audit such information, we need to understand uncertainty and how to calculate it.
How accurate does information have to be? As accurate as needed to make the
necessary decisions – and no more!.
Timeliness
The more senior a manager is, the sooner they want information. Isn’t this a
contradiction? The more senior a manager is, the more longer term decisions they
should be making. Long term decisions should not be made in haste and are often
based on trends in data, so why the need for speed?
This rush for information presents risks. It may be inaccurate and incomplete. It’s
often expensive to produce because more staff have to be employed, or work paid
overtime. It may delay the production of information which is needed to make urgent
decisions.
The use of the internet (or intranet) also highlights another risk; out-of-date
information. While it is easy to throw an old paper report in the bin, or leave it
festering in the bottom of your in-tray, information stays on the internet, available for
all to see, until it is updated. Unless it is clearly dated, out of date information may be
used for decision making.
Best practice
So what is “best practice” as applied to management information?
 Relevance – only information required to make decisions should be produced
 Completeness – all the information required to make a decision should be
produced
 Simplicity – information should be presented in such a way as to make decision-
making as effective and efficient as possible
 Accuracy – information should only be as accurate as required to make the
decision, and should never be greater than is possible to predict
 Timeliness – information should be available at the time the decision is required
The audit programme
Having defined best practice, let’s put together an audit programme.
Deciding on the information that should be available
Objectives/targets Are there clearly defined SMART targets? Hopefully,
information users will have these instantly available.
Decisions Working with the information users, maybe in a workshop,
agree on the decisions necessary to achieve these targets.
Information Agree with the users what information would enable them to
required optimise their decision making
Auditing the information actually produced:
Relevance Is the information required the information actually produced,
and no more?
Is it primarily concerned with the future and doesn’t dwell on
the past?
Does the receipt of the information trigger requests for more
information? If so, why?
Completeness Is all the information required, available?
Simplicity Is the information presented in a readable way?
Does the important information stand out?
Is on-screen “drill-down” used to simplify presentation?
Accuracy Is numerical information quoted to an accuracy no greater than
it is possible to measure?
Is some idea given as to the uncertainty of figures (for example,
a range of values quoted instead of a single figure)?
For information used for investment decisions, have modelling
tools (e.g. “@risk”) been used to identify those assumptions
carrying the greatest risk?
Timeliness Are decisions made on receipt of the information?
Is excessive effort (overtime etc.) necessary to produce the
information?
Is there a defined procedure for removing, or updating, outdated
information?
Use Is the information used to make decisions within 24 hours of
receipt, a week of receipt, ever?
Medium Is the information available on the right medium – paper,
screen?
Information Do the providers of the information know what decisions are
providers being made on the basis of the information which they provide?
Do they believe the information they provide could be
improved?
Conclusion
Are internal auditors fully addressing the risks arising from management information?
A search within internal audit web sites, using the key words of relevance, accuracy
and timeliness, revealed few topics directly related to management information. So
should it feature in your next audit plan?