8 Best Practices For Management Reporting In A Project-Based Business
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What Is Management Reporting?
Management reporting is the end-of-month collection and analysis of data by senior management, relevant to different segments of a company. The systematic, high quality reporting provides real-time insight into the state of projects, departments, staffing and resourcing and the health of the company as a whole, enabling executives to make data-driven decisions.
Management reporting differs from financial reporting (which is mandatory for all companies) because it is not universally required. In fact, many firms fail to take advantage of its benefits, despite the significant role it plays in strategic decision making in the boardroom and on a day-to-day basis.
Our global study ‘Insight to Action: The future of the professional services industry’, highlights some of the biggest challenges facing professional services firms. We found that – in many firms – current reporting practices don’t meet the needs of senior decision makers, as reports look into the past and fail to provide sufficient forecasting ability.
Additionally, the survey found, reporting takes “hundreds of hours” to complete, and while it is undertaken with the intention of improving business performance, reports are often delivered too late to enhance strategic decision making.
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Financial Reporting vs Management Reporting - Do We Need Both?
Financial reporting is something all management level professionals are familiar with; it’s a mandatory element of compliance for all businesses, and reports are used for internal purposes and distributed to external stakeholders, such as investors, banks and regulatory bodies.
Financial reports compile data across weekly, monthly and annual time frames, and typically contain:
- Profit and Loss Statements
- Balance Sheets
- Accounts Payable
- Accounts Receivable
- Statements of Cash Flow
Financial reports follow strict and clear guidelines called Generally Accepted Accounting Principles (GAAP) and present an overview of the company’s finances and profitability at a specific point in time, to ensure proper management of working capital and improve cash flow. These reports undoubtedly play a significant role in decision-making, but they are subject to substantial knowledge gaps that the management reporting structure can fill.
Being designed purely for internal purposes, management reporting provides real-time detailed insights into all business areas, thereby enabling CEOs and senior management to:
- clearly identify areas that need improving to maximise return on investment (ROI);
- flag any anomalies,
- make accurate forecasting predictions; and
- make well-informed decisions founded upon accurate and up-to-date data.
Since management reporting details the internal operations of a company, the contents are likely to vary slightly across firms. Within a professional services context, there are some key elements though, including a clear strategy, profit and loss statements by division and a breakdown of KPIs. This information is best presented on an easily digestible and customisable dashboard so that all team members can benefit from the insights contained therein.
At this point, you might be asking: ‘is it really necessary to do both?’
The short answer is, yes: management and financial reporting should both form part of your month-end process to provide a holistic view of your business and make informed decisions.
"Management and financial reporting should both form part of your month-end process to provide a holistic view of your business and make informed decisions"
What Are The Benefits Of Management Reporting In A Project-Based Business?
Project-based businesses are unique in that they receive cash flow triggered by the completion of project stages or milestones. Projects undertaken by professional services businesses are becoming increasingly complicated with many moving parts, meaning that high quality project monitoring is required to ensure accurate and effective project management.
While there is no single management reporting structure that companies must follow, there are some key questions that management reporting should address:
How much WIP has accrued?
Since professional services firms are project-based, they accumulate WIP outgoings as the work is performed, in the form of salaries, consultant fees, materials and other expenses. As WIP costs are not yet to be invoiced, it’s important for managers to monitor them to ensure a project is delivered in full, on time and within budget.
Are we working within the scope of work?
Avoiding “scope creep”, or the change of a projects’ scope after commencement, is not as straightforward as many people believe. Scope creep can result from poorly defined scoping documentation, particularly with complex large-scale projects. Management reporting is a valuable tool to avoid this costly but common problem. By breaking a project down into clearly defined milestones and merging management reporting best practice into existing reporting procedure, managers can identify and assess potential disruptions and adjustments required to remain within the agreed scope of work.
Are the various project and/or departments meeting their budgetary requirements?
Delays to client billing can affect project cash flow, and potentially impact the firm’s capacity to complete a project within its agreed budget. Management reporting tracks a project’s overall progress, to help identify any potential overspending.
Will the current workforce capacity meet our future needs?
Deltek’s research found that 53% of CEOs weren’t sure whether they should increase or decrease personnel over the next quarter, so it’s reasonable to conclude that existing human resources and project pipeline data isn’t meeting the needs of senior management teams. In this case, consistent, high quality management reporting provides valuable insights into future workforce requirements, enabling senior managers to take the required action.
What Common Problems Does Management Reporting Help To Address?
You may have identified shortcomings in your existing reporting that indicate there is room for improvement in your systems. These red flags might include:
• Unreliable data. If you’re noticing inaccuracies in your current reporting, these are likely caused by errors in data entry. Separate systems for time entry, accounting and project management could be to blame, as well as entering the same data across multiple programs and documents, or using spreadsheets to perform manual calculations. Manual entering typically leads to a greater chance of human error.
• The data you need is not available. Obviously, you can only make data-driven strategic decisions if you have data at your fingertips in the first place. Without a detailed picture of the state of your business, it’s almost impossible to make well informed decisions about future directions and objectives.
• Duplicate data. Multiple data silos and poorly merged data will inevitably lead to inaccurate reporting. The best practice ideal is to operate one centralised system to replace a wide range of spreadsheets and programs across the company and its various departments.
• Reports take too many people-hours. The ‘Insight to Action’ report found that current reporting methods consume hundreds of hours, yet don’t meet the needs of management, according to 58% of participating firms. That’s a clear-cut case of management reporting not being able to plug the gaps.
• Inconsistent metrics captured. Unfortunately, if you have data spread throughout your firm, which is gathered, stored and managed in inconsistent ways, the task of holistically analysing it is likely to be a time consuming and labour-intensive job. A single location will streamline your access to data, analysis, and insights.
"Without a detailed picture of the state of your business, it’s almost impossible to make well informed decisions about future directions and objectives."
What Is Management Reporting Best Practice?
There are 8 key steps to best practice managing reporting, as outlined below:
1. Establish your key objectives: Like any useful report, you need to establish clear objectives at the outset. Who will benefit from the finished dataset? What information should it contain? How will that information be used to inform future decision-making?
2. Determine the ideal KPIs to include: Being able to monitor and communicate a standardised set of KPIs is an important part of the benchmarking process, and these KPIs will help to track the status of any project and department:
- Revenue growth is rated as the number one concern for professional service firms; it’s a clear indicator of business performance.
- Project Schedule Variance shows how closely projected deliverables match the actual deliverable. Start with the earned value (EV), subtract the projected value (PV) and you arrive at the schedule variance (SV).
- Days Sales Outstanding (DSO) measures the time taken between invoicing and payment; this information needs to be communicated clearly to project estimators for maximum value. (Finance teams can analyse these three KPIS to determine whether revenues are increasing steadily, or whether current positive results are an aberration.)
- The WIP value is billable time for completed work and accumulated expenses that hasn’t yet been invoiced to the client. Keeping tabs on this figure will enable senior managers to flag any potential project and/or finance issues, and avoid cash flow problems.
- Backlog is how much billable work remains incomplete, and should be readily available to Project Managers via project milestones and schedules. However, to properly assess the impact on the overall business, it’s important to also calculate a backlog KPI for all current projects.
- Customer lifetime value (CLV) measures the profitability of your clients by assessing: - The cumulative profit earned from all of their projects; Less the cost of acquiring the client; Less the ongoing costs of managing the customer relationship; Less any other costs associated with each customer.
- Deal close ratio is a comparative figure that shows the number of deals quoted for against the number of deals actually won. Investigating a high volume of unsuccessful bids or quotes could help you uncover a problem with sales or pricing processes.
- Realisation is the gap between the number of projected billable hours and the amount that were actually paid for, once the invoice was processed by your client. The higher the realisation value, the more accurate your quotation process and the more profitable the project.
- Proposals submitted is a measure of the number of proposals or quotes sent out over the course of a defined period.
- Customer retention measures customer loyalty and turnover. Because it costs more to attract new customers than to work with repeat clients, monitoring this KPI allows firms to assign resources to manage customer accounts more closely if needed.
- Market share is how much of the available market your company currently occupies, and indicates how well your business is performing against your competition. This KPI is normally calculated on a quarterly or annual basis.
3. Go digital and centralise your data: Gone are the days of relying on expansive spreadsheets to track your work in progress. The introduction of Enterprise Resource Planning (ERP) software for the professional services sector enables companies to consolidate data into one central platform, to minimise the risk of human error, manual report generation and unnecessary data entry. ERPs offer a wide range of tools and customisable features, including automated invoicing, quick real-time reporting, easy-to-read dashboards, and WIP and other KPI tracking abilities for company wise transparency and maximum efficiency.
4. Educate your team: To get the most out of management reporting, the whole team needs to be on-board and involved with the process of collecting and utilising the data. If there’s a disconnect between the C-suite, department heads and project managers, and employees about how the data is collected, how to use the program, the everyday benefits of the system, and the impact of not following company-wide procedures, that disconnect will undermine the usefulness of any new implementation. Education is key when rolling out new technology, but it doesn’t have to be a strenuous activity.
5. Balance the past, present and future: Financial reporting produces informative datasets of historical data, while management reporting is designed to enrich that information with a focus on the present. It’s important therefore to maintain a good balance between looking at past trends and surveying the current situation, in order to make accurate and informed forecasts for the future.
6. Make it visually pleasing: This step may seen as superfluous but it shouldn’t be overlooked: make sure your data is streamlined and easily digestible for everyone to take in, and customisable so that managers and employees can obtain relevant insights to act upon. It’s amazing how much people like an aesthetically pleasing dashboard. You could even install a large screen in a multipurpose area with a real-time overview of company performance, to promote transparency and make it easy to see when targets are met (or not), which encourages personal accountability within the team.
7. Benchmark your management reporting statistics: Utilise the information that’s available to you and compare your firm against industry standards. Free industry reports such as the SPI Benchmark Reports (Consulting report / A&E report) are a useful tool for professional services companies to evaluate their progress against the industry and gain historical market data and trends analysis.
8. Continually review your management reporting systems and processes: Business needs are constantly evolving and so is technology, so it’s useful to continually review your reporting process and make adjustments as necessary.
What’s The Bottom Line?
Unlike financial reporting, management reporting isn’t mandatory, but it should be taken just as seriously, because it offers wide-ranging benefits for the entire business, from helping to steer day-to-day workflows and priorities, to overall strategic planning and future directions. If you want to position your business to make informed and evidence-based strategic decisions, and to increase the profitability of your projects, it pays to combine the historical insights of traditional financial reporting with the current and forward-focused detail and insights of management reporting. Doing so will arm you with the most up-to-date and relevant information to set your business on a profitable course for the future.
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