Category Archives: Interviews

Effective Management Reports? Interview with Rolf Hichert

Professor Rolf Hichert is the foremost specialist for information design for financial professionals in the German speaking world. His seminars have been attended by thousands of CFO’s, financial controllers in Germany, Austria, Switzerland and the UK. Recently my friend Martin from INTALIGN had the pleasure to interview Professor Dr. Rolf Hichert about his view on what makes an effective management report:

Professor Hichert, your extensive research claims management reports are often ineffective and largely misunderstood, mainly because they are simply never read. Yet we all continue to create these complex documents. Why is that?

Hichert: Reading management reports is enormously time-consuming, in a time when our corporate culture is particularly time-poor. Concise messages are buried, or missing altogether, phraseologies can be confusing, and notation is often not uniform. Frequently, those who do understand the reports have had prior knowledge of its contents, so they are simply reinforcing what they already know. Financial controllers in particular are frequently frustrated by what they perceive to be a lack of understanding, and interest in their reports, despite the tremendous amount of work they may have put into creating a very comprehensive document. I liken the experience to a newspaper editor, who writes a long, in-depth story and then complains about lack of interest by his readers.

What is the main objective of a management report?

Hichert: Reports need to convey a comprehensive message, otherwise they function merely as a statistic or a reference book, comparable to a telephone directory. “To report” means that the creator of the report has taken a certain position and has something of value or novel to say. This may be in the form of statements, explanations, conclusions or recommendations. So, according to this definition, many management reports are not actually reports at all, but merely an exercise in pontification.

Who should be recipients of reports?

Hichert: Structured reports are usually directed to the executive level, the managing directors, and board members. We’re all contributing to information overload however, and there is a considerable increase in the tendency to now supply these reports to middle management, and even trickle them down to all the company’s employees. Other business partners such as banks and investors also have access or are supplied with reports on a regular basis.

We hear a lot of managers complain about the volume of management reports – is that a common problem?

Hichert: Criticism about the extent and thickness of management reports probably dates back to the first ever management report itself. I come across many companies in which senior management are buried under monthly reports containing over 100 pages, an unsurmountable monthly feat to read. And then there are organizations where reports contain only 10 pages or less. The reasons for the extent of management reports are varied; if a report is targeted at a large diverse group for example, it inevitably becomes more extensive as it has to cover a wide variety of needs. In addition, volume may vary depending upon the objective of the report – wether it is to provide an overview, or to give full and complete details. I believe that the question of validity centres less around the extent of a report, and more around the structure itself – is it easy to read and does it follow clear, consistent structures?

Do you then recommend using more charts in a management report?

Hichert: We live in a visual world, where a picture is worth 1,000 words. Pictures are much quicker and clearer to describe complex facts, which might otherwise require substantial wording. It is important to note though, that we can over-use charts as well. Many management reports use charts to visualize numbers that could easily be described in two brief sentences or less. If I want to refer to an export portion of 50% for example, I can easily do this in one sentence, I really don’t need to waste space on a pie chart that depicts only two halves. Such ‘business charts’ serve primarily for ‘optical loosening up’ reports that otherwise might only contain tables and texts. Financial analysts typically complain to me that “my boss is a numbers man, he doesn’t like charts, he prefers tables.” If you look at the quality of charts produced, you can understand this notion. Typically these charts have very low ‘information density’ and are weak illustrations, with no clear message, ‘cut off’ axes, and lack a consistent concept of notation and design structures.

How important is the inclusion of strategic aspects into management reports?

Hichert: Naturally, the structure and contents of management reports should be as aligned as possible to the company’s overall targets. The now popular introduction of a Balanced Scorecard into an organization, with the objective of aligning operations with corporate strategies, offers the ideal opportunity to rethink and improve corporate reporting systems.

What are your thoughts on packaging reports  ‘decoratively’?

Hichert: We now have easy access to creative programs which render all of us amateur graphic designers. Too often, though the necessary knowledge about basic information design principles is missing. CD (Corporate Design) guidelines, that are in principle important to unify content typically  don’t address those either. From our research, we know that the simpler the structure, the easier the report is to understand. Our work shows that such graphic elements as colored backgrounds, decorative pictures, pseudo-3-D-display, shades, frames or other design facets which may be inserted without meaning, should be considered as noise. Rather than add to a report, these features ultimately reduce the quality and the message of a report. Decorations that are unnecessary additions can dilute and crowd out the message. The over-use of color is the most common source of error. Color should only be used if it has an assigned meaning. One shouldn’t for example, expect that the reader will understand the use of red and green as traffic light colors, indicating stop and go on projects, if these colors are also used in other areas of the report for purely decorative purposes.

What is your recommendation in regards to how to deal with the display of variances between actuals and targets or plans?

Hichert: Typically, the major portion of a management report should demonstrate substantial deviations between targets and current actual values. This includes different forms of deviations, such as, for example, between previous years or even more importantly, corporate numbers versus industry benchmarks. If deviations are important, then they should also be concisely represented and emphasized through colors, arrows or frames. The more important the deviation, the more the emphasis must be marked. Professional report guidelines should ensure that equally relevant deviations are equally marked and represented. And it should apply not only to charts, but to tables and texts as well. This principle should always be applied to any reports in an organization, in a consistent and uniform manner.

So, the format of reports should be standardized?

Hichert: We strongly recommend employing a consistent uniform design concept which can be easily understood and interpreted without confusion. The key sign of a quality report is its ability to convey a message and explain facts in a clear and simple manner. Its objective is not to be an object of beauty. Today, we rarely see organizations that have mapped out clear guidelines and rules for scaling, usage of color, when to use what chart types, tables or texts. But consider the road map which universally utilizes a single color scheme; a river is always blue, the scale is always on each side, and north is always at the top. Whether in Australia, or Africa, the rules of the map remain the same. With management reports, it‘s usually left to the creator whether turnover figures are shown in blue columns or green lines – rendering it difficult guesswork for the executive who is forced to interpret and understand it. To be fair, cartographers needed many hundred years to develop visualization of roads, cities and to unite standards – so the financial controllers still have some time…