Unit – IV

Standard Costing
The term ‘standard cost’ consists of two parts: ‘standard’ and ‘cost.’ Standard cost is the
predetermined cost assigned to each unit of production. It is based on expected material, labour,
and overhead expenses. It serves as a benchmark for measuring actual performance, enabling
managers to identify variances, streamline operations, and enhance cost efficiency in the
production process.
Standard costing is a cost accounting method that assigns a predetermined or “standard” cost to
each unit of production. This cost is based on anticipated materials, labour, and overhead prices.
Companies use it as a control tool to help managers understand cost variances, which are the
differences between actual and standard costs. By analyzing these variances, companies can make
informed decisions to enhance operational efficiency and profitability.
Variances in Standard Costing
Variances in standard costing refer to the differences between actual costs and the predetermined
or “standard” costs. There are two main variances in standard costing:-
1. Material cost variance: Material cost variance refers to the difference between actual and
budgeted raw material costs. If the actual cost of raw materials is higher than the budgeted cost,
this results in an unfavourable material cost variance. On the contrary, when the actual cost is
lower than the budgeted cost, this results in a favourable material cost variance.
2. Labor cost variance: The labour cost variance is the difference between the actual cost of
labour and the standard cost budgeted for a specific product. If the actual cost of labour is higher
than the budgeted cost, this results in an unfavourable labour cost variance. If the actual cost of
labour is lower than the budgeted cost, this results in a favourable labour cost variance.
Advantages of Standard Costing
1. Improved Cost Control
Standard costing is a beacon for cost control, establishing a clear, predefined benchmark for
organizational expenses. It enables a meticulous comparison between actual and standard costs,
highlighting areas where spending overshoots budgeted amounts. This insight empowers
organizations to identify and rectify excessive expenditures swiftly. It ensures financial
discipline and enhances cost efficiency.
2. Better Performance Evaluation
This system is instrumental for comprehensive performance assessment. It facilitates a detailed
analysis of cost variances, offering a granular view of production efficiency. Managers can
leverage this data to pinpoint operational bottlenecks, implement strategic improvements, and

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optimize production processes. This will streamline and make organizational operations cost-
effective.
3. Budgeting and Planning
Standard costing is a linchpin in budgeting and planning, offering reliable cost estimates for
comprehensive financial planning. It aids in the meticulous preparation of budgets, ensuring that
financial resources are allocated optimally. This proactive approach to financial planning enables
organizations to navigate fiscal challenges with agility and foresight, bolstering financial
stability.
4. Better Pricing
It plays a pivotal role in the strategic pricing of products and services. Standard costing enables
businesses to formulate pricing strategies that balance competitiveness and profitability by
providing a clear insight into the cost structure. This informed approach to pricing enhances
market position while ensuring sustained revenue generation.
5. Identifying Inefficiencies
Standard costing acts as a magnifying glass, revealing operational inefficiencies and suboptimal
resource utilization. It guides organizations in implementing targeted improvements, ensuring
that resources are leveraged to their fullest potential. This focus on operational excellence drives
enhanced productivity, cost reduction, and heightened profitability.
6. Decision Making
It is a cornerstone for informed managerial decision-making. Standard costing equips managers
with the data needed to make strategic decisions regarding production scaling, cost management,
and operational enhancements by offering a detailed breakdown of costs. This data-driven
approach fortifies the organization’s financial health and long-term sustainability.
Disadvantages of Standard Costing
1. Inflexibility: It is the assumption that the same activity and production process will repeat
every time. This approach may not be suitable for businesses that regularly adjust production
processes due to changes in demand or new product introduction.
2. Lack of relevance: The cost data used in standard costing may not reflect current costs,
leading to incorrect pricing and decision-making.
3. Lack of incentives for cost control: When actual costs are consistently higher than standard,
management may not see the need to control costs. Because they already account for these higher
costs in the budget.
4. Complexity: Standard costing can be complex to implement and maintain, especially for
businesses with multiple products and cost centers.

2|Page Mr. Gaurav Kumar Bisen, Assistant Professor, SMS Varanasi

5. Emphasis on budgeting: Standard costing strongly emphasizes budgeting. Therefore, it can
detract from other important aspects of cost accounting, such as cost analysis and cost control.
6. Resistance to change: Once a standard costing system is established, there may be resistance
to changing it. Even if it is no longer relevant or suitable for the business.
Types of Standard Costing
There are three types of standard costs:
 Ideal Standard Cost
 Basic Standard Cost
 Currently Attainable Standard Cost
Ideal Standard Costs
These show total performance with 100% efficiency. There are no losses incurred or idle time.
So there is no reason for work interruption owing to mechanical failure, unavailability of raw
material and other issues. It requires efficient and motivated employees and maximum use of
facilities to achieve the set standards. Companies usually do not use or promote ideal standard
cost, as it is demotivating for the employees. Some companies prefer to set ideal standard costs
as goals as this may improve the level of performance of the company, thus, making it more
efficient and competitive.
Basic Standard Costs
Over the years, the cost of raw materials and labor has increased, and improved production
methods have been adopted. So the basic standard cost does not represent the current costs
anymore. Also, it does not predict the future of the company’s status accurately.
Currently Attainable Standard Costs
These standard costs are challenging but attainable. An efficient and motivated team can achieve
the targets set by the organisation in currently attainable standard costs under normal working
conditions. These costs have space for both man and machine failures and allow for machine
breakdowns, wastage and loss of time. In this category, the goals are difficult but reachable.
Procedure for Establishing a Standard Costing System
1. Establishment of Cost Centers:
A cost center is a location, person or item of equipment (or a group of these) for which costs may
be ascertained and used for the purpose of cost control. The cost center may be classified into a
personal cost center, which relates to persons, or impersonal cost center, which relates to
equipment or location. Cost centers are set up for cost ascertainment and cost control. In many
cases, the department or functions will form natural cost centers, but it may happen that there are
a number of cost centers in a department. For example, if there are five machine groups in a

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production department, each group may be taken as a cost center. Cost centers are essential for
establishing standards and analyzing the variances.
2. Classification and Codification of Accounts:
The accounts are classified for the purpose of collection and analysis. Codes and symbols are
used to facilitate this purpose. For example, the codes for elements of cost may be as follows:
Codes for Elements of Cost

3. Determination of Type of Standard:

The standard is the level of attainment accepted by the management as the basis upon which
standard costs are determined. The standards are classified mainly into four types. They are as
follows:
Ideal standard:
This is one, which is set up under ideal conditions. The ideal conditions may be such as
maximum output and sales, best possible prices for materials and most satisfactory rates for
labour and overhead costs. As these conditions do not continue to remain ideal, this standard is
of little practical value. It also calls for efficiency of a high order in the task of working out the
standard.
Expected standard:
This is the level, which is actually expected. Standards are set normally on a short-term basis and
frequent revisions may be necessary. This standard is more realistic than the ideal standard.
Normal Standard:
This represents an average figure, which it is hoped will smooth out fluctuations caused by
seasonal and cyclical changes. This should be attainable and it provides a challenge to the staff.
Basic Standard:
This is the level fixed in relation to a base year. The principle used in setting the basic standard is
similar to that used in statistics, while calculating an index number. Thus, if 1990 is the base year
and the standard wage rate then is Rs. 5 per hour, and in 1995 the rate is Rs. 6 per hour, the basic
standard must be adjusted by 20%. This standard is set on a long-term basis and seldom revised.

4|Page Mr. Gaurav Kumar Bisen, Assistant Professor, SMS Varanasi

Organization for Standard Costing:
The success of the standard costing system depends upon the reliability of standards. Hence, the
responsibility for setting standards should be entrusted to a specific person or a committee.
The persons involved in the setting of standards in a large concern are as follows:
(a) Purchase Manager:
He will give details of prices of materials and the trend of market prices.
(b) Personnel Manager:
He will give details of wage rates and possible future changes in rates.
(c) Production Manager:
He will give details of production requirements in terms of materials, labour and overheads.
(d) Time and Motion Study Engineer:
He will give details of standard time for the different operations in the production process.
(e) Cost Accountant:
He will furnish all necessary cost data such as overheads absorption rates. He will also
coordinate the activities of the committee. His duty is to present standard cost statements in the
most satisfactory manner.
4. Setting of Standards:
The standards are set mainly for the elements of cost, viz., Direct Materials, Direct Labour, and
Overheads. Details of the elements of cost must be ascertained. Briefly, standard costs will be
established as shown below.
Direct Material:
a) Quantity:
Material specifications will be produced showing the standard quantity of each type of material
required. Normal loss in process must also be estimated before the standard cost can be
ascertained.
b) Price:
A standard price will be calculated for each type of material.
Direct Labour:
a) Standard Time:

5|Page Mr. Gaurav Kumar Bisen, Assistant Professor, SMS Varanasi

Standard time, based on the best way of performing the job will be computed for each grade of
labour for each operation involved.
b) Rate:
The standard rate for the job will be determined.
Variable Overhead:
This is defined by the I.C.M.A as ‘a cost, which intends to vary directly with the volume of
output.’ It is assumed that the overhead rate per unit is constant, irrespective of the quantity
produced, so it is necessary to calculate only a standard cost per unit or per hour.
Fixed Overhead:
This is defined by I.C.M.A. as ‘a cost, which intends to be unaffected by variations in volume of
output.’ The standards will be ascertained for the ‘budgeted expenditure’ for the period and also
for the ‘budgeted output’ in units or standard hours will be used to calculate the overhead
recovery rate.
The Standard Hour:
In the system of standard costing, the introduction of standard hours can be very valuable. The
I.C.M.A. defines a standard hour as “a hypothetical hour, which represents the amount ofwork
that should be performed in one hour under standard conditions.” Time and motion study
engineers can calculate what the output of each process in one hour should be. For example, if 20
units of product A should be produced in one hour, then an output of 100 units would represent
five standard hours.
Variance analysis can help companies manage projects, productions or operational expenses by
monitoring planned versus actual costs. Creating an effective analysis can help businesses
maintain and improve operations. Learning how to calculate variance analysis is useful if you
want to help a business better understand its costs and performance.
 Variance analysis compares the predicted costs or behavior of a business with its actual
numbers and outcomes.
 This comparison can help businesses analyze past data, monitor their costs and better
plan for future expenses.
 The three main types of variance analysis are material variance, labor variance and fixed
overhead variance.
Variance analysis Meaning
Variance analysis is the comparison of predicted and actual outcomes. For example, a company
may predict a set amount of sales for the next year and compare its predicted amount to the
actual amount of sales revenue it receives. Variance measurements might occur monthly,

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quarterly or yearly, depending on individual business preferences. The more frequently a
company measures these variances, the more likely it may be to discover trends in its data.
Whether a variance works can depend on the type of variance analysis you calculate and the
predicted variances a company expects.
Businesses may use this type of analysis to calculate variance in the following categories:
 Purchase variance
 Sales variance
 Overhead variance
 Material variance
 Labor variance
 Efficiency variance
Key terms for variance analysis
Overhead costs: Overhead costs can refer to a business's operating expenses, like rent for an
office space or insurance costs. Companies may audit their operating expenses to save money
and help decrease overhead costs.
Budgets: Budgets are financial plans that companies can use to allocate spending internally and
prevent overspending. Like overhead costs, businesses may revise budgets as needed to ensure
they meet set goals.
Variable price and rate variance: Variable price and rate variance refer to the changes in the
cost for a product or service. They can be unpredictable, and companies might change these cost
values to reflect current consumer demands or supply rates.
Variable quantity and efficiency variance: Variable quantity and efficiency variance refer to
fiscal differences between a company's actual input of materials and labor and the amount of
overall allowed material and labor input.
Fixed budget variance: Fixed budget variance refers to the fiscal differences between fixed
overhead costs included in company budgets and the actual amount of overhead costs for a
variance period.
Fixed volume variance: Fixed volume variance is the fiscal differences between the amounts of
fixed overhead costs a company applies during a variance period and the fixed amount of
recorded overhead costs in a company's budget.
Types of variance analysis
The type of variance analysis you perform depends on the information you're examining. Here
are three different types of variance analysis:

7|Page Mr. Gaurav Kumar Bisen, Assistant Professor, SMS Varanasi

1. Material variance
The material variance helps companies identify where they may be using more materials than
they actually need. For example, if a company reorders materials because of quality concerns,
the additional costs may show variance in the analysis. The company might use this information
to determine whether to continue using the same material supplier or search for a new one. This
analytical process can require the use of the following material formulas to find individual and
overall variances:
Quantity variance = (Actual quantity x Standard price) − (Standard quantity x
Standard price)
Price variance = (Actual quantity x Standard price) − (Actual quantity x Actual price)
Overall variance = Quantity variance + Price variance
Material variance example
Raymond’s India, a clothing company, is interested in calculating its overall material variance. It
has an actual quantity of 30,000 pieces of fabric at a standard price of ₹0.65 per fabric and a
standard quantity of 25,000 pieces of fabric at an actual price of₹0.50 per fabric.
This information allows the company to first calculate its quantity variance:
Quantity variance = (30,000 x₹0.65) − (25,000 x₹0.65) =₹19,500 −₹16,250 =₹3,250
Next, the company uses those numbers to calculate the price variance:
Price variance = (30,000 x₹0.65) − (30,000 x₹0.50) =₹19,500 −₹15,000 =₹4,500
Finally, adding the quantity variance of₹3,250 and the price variance of₹4,500 provides
Feminine Fashionista with the overall variance:
Overall variance =₹3,250 +₹4,500 =₹7,750
This means the company has an overall material variance of₹7,750.
2. Labor variance
The labor variance helps businesses identify how efficiently they use labor and the effectiveness
of their pricing. For example, if a company calculates variance and finds inefficiencies or higher
labor pricing, it might consider making changes for the upcoming fiscal year.
This information may help the company further streamline its operations and save money. Here
are the formulas involved in finding individual and overall variances for labor variance:
Rate variance = (Actual hours x Actual rate) − (Actual hours x Standard rate)

8|Page Mr. Gaurav Kumar Bisen, Assistant Professor, SMS Varanasi

Efficiency variance = (Actual hours x Standard rate) − (Standard hours x Standard
rate)
Overall variance = Rate variance + Efficiency variance
Labor variance example
Rudra Builders, a construction company, wants to calculate its overall labor variance. The
company's actual hours are 5,000 at an actual rate of₹15 per hour, and its standard hours are
4,800 at a standard rate of₹12 per hour. Using these numbers, Bluelow Builders calculates the
rate variance:
Rate variance = (5,000 x₹15) − (5,000 x₹12) =₹75,000 −₹60,000 =₹15,000
Next, the company calculates the efficiency variance:
Efficiency variance = (5,000 x₹12) − (4,800 x₹12) =₹60,000 −₹57,600 =₹2,400
Finally, adding the rate variance of₹15,000 and the efficiency variance of₹2,400 provides
Rudra Builders with its overall variance:
Overall variance =₹15,000 +₹2,400 =₹17,400
The labor variance outcome of₹17,400 may be unfavorable if the company didn't expect to
spend that additional money on labor costs. Rudra Builders may choose to review its labor
costs and plans to ensure it doesn't overspend in the upcoming fiscal year.
3. Fixed overhead variance
The fixed overhead variance helps a company identify differences between its budgeted
overhead costs, which it may determine based on production volumes, and the number of used
overhead costs.
For example, if a company wants to revisit its budget plans, it might use fixed overhead variance
to determine whether it can reduce its current allotted budget. This information may help the
company save or allocate money to other areas of the business. Here are the formulas involved in
calculating fixed overhead variance:
Budgeted fixed overhead cost = Denominator level of activity x Standard rate
Budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost
Fixed overhead cost applied to inventory = Standard hours x Standard rate
Volume variance = Budgeted fixed overhead cost − Fixed overhead cost applied to
inventory

9|Page Mr. Gaurav Kumar Bisen, Assistant Professor, SMS Varanasi

Overall variance = Budget variance + Volume variance
Digital Agency is a marketing and public relations agency that wants to find its overall fixed
overhead variance. The organization's level of activity is 8,000 hours at a standard rate of₹10 per
hour and 6,300 standard hours at an actual fixed overhead cost of₹82,200.
Multiplying the denominator level of activity of 8,000 hours by the standard rate of₹10 per
hour provides Wheeler PR with the budgeted fixed overhead cost:
Budgeted fixed overhead cost = 8,000 x₹10 =₹80,000
The company then calculates its budget variance:
Budget variance =₹82,200 −₹80,000 =₹2,200
Next, Digital Agency finds the fixed overhead cost applied to inventory:
Fixed overhead cost applied to inventory = 6,300 x₹10 =₹63,000
After this, the company calculates the volume variance:
Volume variance =₹80,000 −₹63,000 =₹17,000
Finally, adding the budget variance of₹2,200 and the volume variance of₹17,000 provides
Digital Agency with the overall variance:
Overall variance =₹2,200 +₹17,000 =₹19,200

Management Reporting
Management reporting is a type of business intelligence presented to management-level staff
within your organisation. The process of creating a management report often involves employees
consolidating and analyzing data from different sources and using it to make a detailed, clear
overview of business performance, which, once complete, they then submit to their managers.
Management reporting is an integral component of business operations because it helps
businesses measure their performance guided by specific key performance indicators (KPIs) and
compare their performance against their nearest competition. All aspects of a management
report can be decided upon internally, such as deadlines and timeframes, content inclusions and
report length, and the format in which they're delivered. As management reports contain
financial and proprietary information, they are confidential documents for use internally only.
Presenting management reports to your business leaders can showcase areas within your business
that need to be improved upon and highlight patterns and trends so sound conclusions can be
made quickly. From here, leaders have a clear picture of the business's health, and critical

10 | P a g e Mr. Gaurav Kumar Bisen, Assistant Professor, SMS Varanasi

operational and strategic business decisions can be made based on the performance insights
contained within the report.
Types of Reports:
1. External Reports:
These reports are meant for external parties such as government, sharehold-ers, bankers,
financial institutions, etc., for example, published financial statements of companies.
Copies of such reports are also to be filed with the Registrar of Joint Stock companies
and with the stock exchange. In the interest of general understanding, these reports are
expected to conform to certain minimum standards of disclosure and disclose certain
basic details under the Companies Act, 1956.
2. Internal Reports:
These reports are meant for internal uses of different levels of management such as top
level, middle level, and junior level of managements. Hence, the approach to the
report-ing problem would vary according to the reporting level. These reports do not have
to conform to any statutory standards. While the reports meant for top management have
to be comprehensive and concise, the reports to operating supervisors should be specific
and detailed.
3. Routine Reports:
These reports cover routine matters and are submitted at periodical intervals on regular
basis. Example, variance analysis, financial statements, budgetary control statements are
routine reports. They are submitted to different levels of management as per a fixed time
schedule. Routine reports are usually printed or cyclostyled forms with blank spaces to be
filled in. most of the internal reports are of the nature of the routine reports.
4. Special Reports:
Reports, which are submitted on particular occasions on specific requests or instructions,
are special reports. When problems arise in a business, they are to be investigative. The
results of investigations and the recommendations are submitted by way of special
reports. The form and contents of special reports will vary according to the nature of
problem investigated. Usually a special report contains the terms of reference i.e., the
problem to be studied, investigations made, findings and observations and finally
conclusions and recommendations.
5. Examples of some of the special reports are:
 Reports of information about competitive products,
 Reports by the Cost Accountants on the implication of price changes on the cost
of products,
 Reports regarding choice of products or selection of a production method, etc.

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 6. Operating Reports:
These reports may be classified into Control report and Information Re-port.
a) Control Report:
It is an important ingredient of control process and helps in controlling differ-ent
activities of an enterprise. It provides information properly collected and analyzed
to different levels of management. The framework of this report is determined by
the needs of the undertaking. It is based on the company’s developed budgets and
standards. It is related to responsibility centers and it observes decision needs.
This report may be prepared on weekly, fortnightly, monthly, or yearly basis
depending upon the urgency of the matter reported. Most of the internal reports
are examples of control reports. They are also sort of routine reports.
b) Information Report:
These reports provide information, which are very much useful for future
planning and policy formulation. They may take the form of trend reports or
analytical reports. Trend reports provide information in a comparative form over a
period of time. On the other hand, analytical reports provide information n a
classified manner. Sometimes these reports provide infor-mation in a summarized
form the results of operation of a specific venture or of the organization as a
whole for a specific period. In such cases they may be called as venture
measurement reports.
7. Financial Reports:
These reports contain information about the financial position of the busi-ness. They may
be classified into Static Reports and Dynamic Reports. Static report reveals the financial
position on a particular date e.g., balance sheet of a company. On the other hand, the
dynamic report reveals the movement of funds during a specified period, e.g., funds flow
statement, cash flow statement.

Informational Needs of Different Levels of Management:

Generally, the reporting levels in the internal management fall into three broad categories. They
are top level, middle level, and junior level managements. They need different kinds of reports
depending upon the nature of functions they do.
Top Management Level:
The top management is primarily concerned with the policy formula-tion, planning and
organizing. Hence, their function is to evolve proper plans, to carry out proper delegation of
authority to subordinates with a view to obtain an effective and efficient utilization of resources
and to promote appropriate development schemes.

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For the purpose they should rather be supplied with information in summary form covering all
aspects of operating performance together with a comparison of actual with budgeted
performance. Generally, the top management should receive the following reports at different
intervals:
I. Board of Directors:
Quarterly statements on production costs, machine and labour utiliza-tion, quarterly cash
flow statements, and quarterly income statement and balance sheet
II. Finance Director:
Monthly abstract of receipts and payments and monthly cash flow state-ments.
III. Production Director:
Production cost statement, department-wise machine and labour utiliza-tion statements,
and material scrap statements, overhead cost and production statements. All these
statements are to be presented to him on a monthly basis.
IV. Sales Director:
He is to receive the following reports on monthly basis: Reports on orders received,
orders executed, and orders kept pending – division-wise; Reports on selling and
distribution cost – division-wise; Reports on credit collections, balances, and bad debts –
division wise.”
Middle Management Level:
The departmental managers such as production, sales etc., are concerned with the execution of
plans formulated by top management. They act mainly as coordi-nating executives to administer
policies, direct operating supervisors, and evaluate their perfor-mance. Hence the reports
submitted to them should enable to exercise these functions more effectively. They may require
reports at shorter intervals, say weekly, fortnightly basis. For example, the works manager
requires weekly reports on idle time, idle capacity, scrap production costs, quantity produced,
etc. The sales manager needs fortnightly reports on budgeted and actual sales, credit collection,
orders booked, executed and pending, and stock position-product-wise and area-wise.
Junior Management:
Foremen, Supervisors, etc., constitute this level of management. They are interested in reports,
which will apprise them of progress of jobs under their control. Some of these reports are almost
in the form of scrap of paper having no proper format. They may need reports on daily or weekly
basis.
For Example: The shop foreman requires daily report of idle time and machine utilization, daily
scrap reports and daily report of production – actual and budgeted. Sales area supervisor needs
weekly reports on sales – salesman-wise, orders booked, executed and outstanding, credit
collections and outstanding, etc.

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Why are management reports important: -
The importance of management reporting must be considered, as it is critical to understanding
the factors that may be impacting how your business functions. Management reporting can help
business leaders to have a better understanding of KPIs and be able to set goals around
performance. Management reports are vital to decision-makers within your business as they'll be
able to draw conclusions based on sound, accurate data insights quickly, and this will help them
to make smarter decisions about the business. Driving necessary changes within your business,
management reporting can influence the formulation of strategies that aim to improve your
performance, efficiency, profitability and growth.
What are the benefits of frequent management reporting?
 A management report is an analytical tool to assist managers and business leaders in
assessing the performance of many aspects of the business.
 Management reporting contains many benefits for business advisors, management-level
staff and CFOs, including:
 Providing business leaders with the data and insights they need to make strategic and
operational decisions.
 Leaders can use the reports to understand the overall health of their business, which can
help them to prevent unnecessary losses or expenses.
 Supporting leaders in your business to understand top KPIs and use these to set
performance goals.
 Serving as a means of communication within your business, enabling divisions and teams
to come together in the collective sharing of information and working towards common
business performance goals.
 Improving collaboration between business divisions, with everyone working together
with a common objective.
 Encouraging continual business growth and ensuring a prosperous long-term future.
What makes an effective management report:-
Effective reporting can be a powerful tool in driving improvement within your business. For
effective reports that give business leaders everything they need to see, it should include the
following:
1. Your objectives: Communicate the goal of management reporting within your
organisation and how the report contributes to it.
2. Your measurements: Utilizing KPIs as a metric for success so far and explaining the
goals the business is striving for.
3. Be clear with your narrative: Ask yourself, what do my managers need to do with this
information? Developing your management report with this question will help you get to
the point quicker and keep the information tight.

14 | P a g e Mr. Gaurav Kumar Bisen, Assistant Professor, SMS Varanasi

 4. Visualizing your data: Using visualization techniques in your management reports to
tell an engaging story. These techniques may include charts and graphs that communicate
results quickly to business leaders.
5. Include recommendations: Include an action plan or recommendations within your
management report based on the insights you've included. Your business management
can use these pointers to determine what steps they'll need to take next.
6. Integrate the report with technology: Leverage management reporting software to
streamline the process of creating your report, removing the need for repetitive manual
intervention and assuring the accuracy of your data.

How to create a management report:-

Although there isn't a one-size-fits-all management reporting process, there is a series of steps
you should follow in gathering, analyzing and presenting your business data in the form of a
management report. The management report you produce after following these steps will help
leaders make some forward-thinking calls about what trajectory your business will be taking.
1. Identifying your reporting objectives
Start with setting the specific strategic goals you're trying to achieve through your
management reporting, and understanding what results you will be looking for. You'll
also need to set measurable KPIs to benchmark your business success in alignment with
overall company goals.
2. Collecting your data
The next step is collecting the necessary information to track your success and progress
towards achieving those goals. Focus on picking the sources of data you need to tell the
big picture. Management reporting systems are a valuable tool in this instance, as they'll
allow you to automatically connect all your data sources with the click of a button. More
on this later!
3. Determining how your report will be presented
There are a few points to this. You'll need to think critically about your management
report's overall structure and content. What does your business leadership need to know?
What do they need to do with the information contained within your report?
Here are some essential elements that should be contained within your report:
 Start with your reporting objectives.
 Document trends in KPI performance.
 Add a section on current KPI performance metrics.
 Create an at-a-glance analysis of the business performance based on the data obtained
from your accounting software
 Include a consolidated financial report

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  Make recommendations on action items for your business leaders to consider, including a
cash flow forecast to help with business planning (learn more about what is cash flow
forecasting)
Now you've built up some hard data, you'll need to tell the story so its intended audience can
easily understand it. Contextualizing this data with a narrative backed by a comprehensive
dashboard will be the best way to convey your insights.

Distributing or presenting your report to managers

Once your management report has been distributed or presented to business leaders, they can
digest the results, go away and outline their next steps and create action items to move the needle
forward. It is always important to encourage a culture where data is at the heart of your business,
and a management report can help empower leaders within your business to embrace the power
of business data, and this will highlight the value of your efforts. The management reporting
process should always be dynamic and iterative, with the information and insights gathered by
the report feeding into your ongoing planning and decision-making.
Best practices for management reporting
Management reporting best practices can help you to enhance the quality of your reports. A well-
crafted report that maximizes its impact can make all the difference to how your managers
respond and, subsequently, how informed and strategic their recommendations will be.
Following these management reporting best practices can include: -
 Understanding your management reporting goals,
 Use data to tell the story to your business leaders,
 Ensuring that you have relevant KPIs to track your business goals,
 Using management reporting software to simplify and automate your tasks,
 Making reports visually engaging so it is easy for managers to interpret.
Management reporting software
Management reporting software (a management reporting system) can cut out the time spent
assembling management reports manually. A management reporting system connects directly
with your business data sources, unlocking the power of automation so you can focus on data
analysis and provide valuable insights to your business leaders. Having a management reporting
solution can take away the effort of repetitive, manual tasks at risk of human errors, so you can
share business results in a clear, compelling way using accurate real-time data.

16 | P a g e Mr. Gaurav Kumar Bisen, Assistant Professor, SMS Varanasi