ACCA PM Syllabus A. Management Information Systems and Data Analytics - Types of Information Systems - Notes ^{5 / 7}

Performance management information systems are an integral part in producing the information required by management accountants to enable performance measurement.

First, let’s have a look at the difference between data and information.

Data consits of the raw facts and figures, e.g. numbers, letters and transactions, that have not yet been processed into a form suitable to make decisions.

Information is summarised data, or otherewise manipulated data, that is useful for decision-making. The data has been processed and it can be used to improve the quality of decisions taken. Hence, information is “meaningful data”.

A data processing system records the day-to-day transactions taking place within an organisation. It records, analyses, sorts, summarises, calculates and stores data.

An information system uses this data and turns it into useful information required to run the organisation.

Managers need information to formulate plans and take decisions.  If actual results diverge from plans, control action is required.

There are three levels of planning and control within an organisation: strategic, tactical and operational levels.

Management Accounting Information

1. Strategic Planning, Control and Decision-Making

   For strategic planning, management accounting systems require information from both internal and external sources. They require information from many areas of the business and help to ensure goal congruence.

   Due to the long-term nature of such planning and the element of uncertainty in the long term, management accounting information should include risk and uncertainty analysis.  Discounted cash flow techniques are expected to be used in project evaluation.

   Strategic Management Accounting

   Strategic Management Accounting has been defined as "a form of management accounting in which emphasis is placed on information which relates to factors external to the firm, as well as non-financial information and internally generated information." 

   Whereas traditional management accounting fails to assess competition(inward-looking) and ignores the impact of other activities, strategic management accounting is the merging of strategic business objectives with management accounting information to provide a forward looking model that assists management in making business decisions.

   Unlike traditional management accounting -- which has an internal focus – strategic management accounting evaluates external information regarding trends in costs, prices, market share and cash flow, and their impacts on resources, to determine the appropriate tactical response. 

   The strategic element of management accounting requires enhanced information about competitors, suppliers and technologies.

   Illustration of Strategic Management Accounting

   According to research from McGraw-Hill, Tesco determined that the company's primary fixed asset base was its stores. Based on this factor management created strategic partnerships with construction companies to lower costs and maintain quality. 

   In addition, Tesco monitored competitor product pricing to reduce customer prices and gain market share. Tesco also enhanced its technology by offering store cards that track customer purchase patterns.

2. Management Control

   Whereas strategic planning involves setting objectives and targets, management control is concerned with implementing decisions of strategic managers and ensuring that the organisation’s objectives are achieved by using resources efficiently and effectively.

   Tactical level managers require information in much more summarised form. Much of this information will be given to the tactical manager by the operational managers in the form of reports, hence they are primarily generated internally e.g. productivity measurements, manning levels. 

   This information is usually prepared on a regular basis such as on a weekly or monthly basis.  Tactical information is very often quantitative and expressed in monetary terms, e.g. variance analysis reports, cash flow forecasts, profit results for a particular department.

   Tactical planning and management control decisions or strategic planning?

   • Launch a new product – strategic plan

   • Preparing the functional budgets for next year – management control planning

   • Reducing employee turnover and operational costs in the next 12 months – management control decision

   • The board of directors take a decision to increase market share by 10% for, at least, 5 years is a strategic plan. How to achieve that increase falls under management control decisions (tactical planning) – e.g. the senior sales manager is planning advertising and marketing campaigns to increase the market share by 10% next year. 

     Management control is usually carried out regularly by comparing the planning activities with the outcomes, e.g. budget targets are compared with actual and action taken to remove any resulting variances. If circumstances have changed, the budget will be altered to obtain a better picture of the company.

3. Operational Control

   The operational level of management is primarily concerned with making sure that the day-to-day tasks are carried out efficiently and effectively. E.g. the sales manager of the Buskett branch has set weekly sales targets for each of his sales representatives.  This is an example of an operational control decision.

   Most of the information required in operational control decisions is obtained from internal sources and this must be detailed and precise. E.g. information required to determine how many operative staff will be required to complete a task. 

   In fact, operational information is expected to be more detailed than tactical information, which in turn, is expected to be more detailed than strategic information. Unlike tactical information, operational information is often expressed in units, hours, kgs, etc.

   The following figure shows the information characteristics at the different management levels for planning, control and decision making.