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Safety Tips and Best Practices in Managerial

Reporting

Professor Robert BloomfieldJohnson Graduate School of

Management

Cornell University

Best Practices and Safety Tips

Reporting Systems are powerful tools

Here’s how to use them effectively…and safely!

Match Your System to Your Needs

An Organization’s Managerial Reporting System Should Be Matched to the

Challenges it Faces

No System is Perfect

When you represent 3D info with 2D reports, you must make compromises

Two Conflicting Goals of Costing Systems

Reporting Margins for individual products and services

Reporting Efficiencies for individual processes

A Process Shop

A Job Shop

Process Shops Emphasize Efficiency

Job Shops Emphasize Margins

Costing System Reference Guide

The Most Important Safety Tip Of The Day

What Counts

& What Gets Counted

Be Sure to Distinguish Between….

Plato’s Allegory of the Cave

Reality is Composed of “Forms”…

…But We See Only Their Shadows

As Socrates puts it in Plato’s Republic:

Performance Measures are Not Performance

Forms (Constructs) and Shadows (Proxies)

Safety Tip: Watch for Measure Management

• "The more any quantitative social indicator (or even some qualitative indicator) is used for social decision-making, the more subject it will be to corruption pressures and the more apt it will be to distort and corrupt the social processes it is intended to monitor."

Campbell’s Law

• Improving the measure, rather than the performance the measure is intended to capture

Measure Management

• Distorting operations• Distorting reporting

Two common methods

Don’t forget the role of luck!

• I returned, and saw under the sun, that the race is not [always] to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favour to men of skill; but time and chance happeneth to them all.• Ecclesiastes 9:11

Choose Your Poison

• If you go light on incentives, will people work hard enough?

Low Motivation

• If you go heavy on incentives, you impose risk on your workers

Extra compensation

• You can tie incentives to better measures, but it isn’t free!

More detailed reporting

Choose Carefully Whether to Pay for Outputs or Outcomes

• The product or service provided

Output

• The intended result of the product or service

Outcome

Why Governments Care

“Bragging about how many new schools you’ve built counts for little until children start graduating with economically useful skill sets.

(Link)

FOCUS ON RESPONSIBILITY, NOT CREDIT AND BLAME

Authority, Responsibility, Accountability and Causal Attribution are all different

Authority is the right to make decisions

•Whose actions caused an outcome?•Hard even for solo actors—what about omitted variables and measurement error?

Credit/Blame is a causal attribution

•You are held accountable for performance if it determines your evaluation/pay

Accountability is a reward or penalty

Responsibility is a set of duties

• Knowing what is happening

• Explaining why it is happening

• Proposing responses

Some Final Tips

Decentralize authority to those with specific knowledge

The Hayekian Organization

If we…agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place….decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them. We cannot expect that this problem will be solved by first communicating all this knowledge to a central board which, after integrating all knowledge, issues its orders. We must solve it by some form of decentralization (Hayek 1945, p. 524).”

Chesterton’s Fence

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Safety Tips and Best Practices in Managerial Reporting

Professor Robert BloomfieldJohnson Graduate School of

Management

Cornell University