Managing information - a practical guide

Are you drowning in a sea of information? Managing Information A Practical Guide www.managing-information.org.uk d m griffiths Managing Information – A Practical Guide Contents Welcome Summary Elements of information Relevance Timeliness Accuracy 1 2 3 4 6 7 9 9 Practical Action Conclusion Example form for information requirements 10 What is a decision? 10 Illustrations Soccer score To catch a plane Supertanker Management accounts 11 12 13 14 15 18 Auditing management information © D M Griffiths 2001-2006 15/03/2006 19:22 V.5.1W No part of this document to be reproduced in whole or part without the written permission of the author 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 Managing Information – A Practical Guide 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. © D M Griffiths 2001-2006 4 Managing Information – A Practical Guide 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). © D M Griffiths 2001-2006 5 Managing Information – A Practical Guide 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. © D M Griffiths 2001-2006 6 Managing Information – A Practical Guide 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. © D M Griffiths 2001-2006 7 Managing Information – A Practical Guide 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. © D M Griffiths 2001-2006 8 Managing Information – A Practical Guide 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. © D M Griffiths 2001-2006 9 Managing Information – A Practical Guide Example form for information requirements: OBJECTIVES Increase sales of ice creams by 6% DECISIONS REQUIRED TO MEET OBJECTIVES Advertise – when and how? INFORMATION REQUIRED TO MAKE DECISIONS Forecast sales figures Previous and planned advertising campaigns Competitors’ advertising campaigns Advertising rates Sales figures during advertising campaigns Launch new products? Market research Market share by product – competitors and ours Planned new products in development And so on… 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. © D M Griffiths 2001-2006 10 Managing Information – A Practical Guide 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… © D M Griffiths 2001-2006 11 Managing Information – A Practical Guide 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 Football Association (F.A.) TV, radio, newspapers Team managers Players Gamblers Police on duty at the ground Armchair supporter Go to the next game? League table changes necessary What score to publish Whether to resign? Look for a transfer? Claim for winnings Which supporters might give trouble ? 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. © D M Griffiths 2001-2006 12 Managing Information – A Practical Guide 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. © D M Griffiths 2001-2006 13 Managing Information – A Practical Guide 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. © D M Griffiths 2001-2006 14 Managing Information – A Practical Guide 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 date £ Chocolate bars Toffees Ice creams TOTAL 156,125 45,237 259,431 460,793 Last year comparison £ 154,326 43,289 260,581 458,196 Increase (%) 1.2 4.5 -0.4 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. © D M Griffiths 2001-2006 15 Managing Information – A Practical Guide 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 SALES PROFIT 2000 500,000 20,000 2001 545,000 21,800 2002 594,050 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 out the best and worst cases for Advertising campaigns sales and profit increases for 10 advertising at different costs. Draw a graph, which shows 5 that you get the greatest benefit 0 10 20 30 40 50 60 70 (i.e. profit increase as a result -5 of the campaign, less costs) for -10 a campaign costing £40,000. -15 At best you will get an £8000 -20 benefit, at worst £2000 Cost of campaign (£000) Profit increase less cost (£000) © D M Griffiths 2001-2006 16 Managing Information – A Practical Guide 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. © D M Griffiths 2001-2006 17 Managing Information – A Practical Guide 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 © D M Griffiths 2001-2006 18 Managing Information – A Practical Guide 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 decisionmaking 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 © D M Griffiths 2001-2006 19 Managing Information – A Practical Guide The audit programme Having defined best practice, let’s put together an audit programme. Deciding on the information that should be available Objectives/targets Decisions Information required Relevance Are there clearly defined SMART targets? Hopefully, information users will have these instantly available. Working with the information users, maybe in a workshop, agree on the decisions necessary to achieve these targets. Agree with the users what information would enable them to optimise their decision making 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 Simplicity Is all the information required, available? 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 Medium Information providers Is the information used to make decisions within 24 hours of receipt, a week of receipt, ever? Is the information available on the right medium – paper, screen? Do the providers of the information know what decisions are being made on the basis of the information which they provide? Do they believe the information they provide could be improved? © D M Griffiths 2001-2006 Auditing the information actually produced: 20 Managing Information – A Practical Guide 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? © D M Griffiths 2001-2006 21