Forecasting, monitoring and reporting financial performance

Here, we look at some of the different types of financial information typically produced and circulated in organisations and consider what it's used for.

As a senior executive in your organisation, you'll receive regular (and often be expected to also produce) management information (MI) showing the performance of the organisation against certain Key Performance Indicators (KPIs) or metrics.

This will include indicators of financial performance relating to both the organisation as a whole and to your business unit or division. You'll need to be able to read and comment on this and also make other peoples' and your own team's metrics work to meet your needs.

Understanding financial information 

Strategy and business planning drive the annual business cycle. At the heart of these processes is the organisation’s financial information. Without it, budgeting, forecasting and reporting – internally and externally - wouldn’t be possible. 

Here then, is our brief guide to financial reports and to the key documents and reports that could be landing on your desk throughout the year. 

Financial reports 

Generally, organisations prepare and circulate two types of financial reports.

1. Statutory statements

By law, all companies in the UK must report on their performance and activities in every financial year, even if they’re not actually trading. They must also keep accounting records showing all monies spent and received and a record of their assets and liabilities. At companies that deal in goods, these records must state the value of stock held, stock takings, goods sold and bought other than by ordinary retail trade and a list of the goods, buyers and sellers. 

In principle this helps investors to understand what they are investing in and for people who are thinking about working with the company to have a view on the strength of the company that they are proposing to trade with .It also helps them understand the level of assets accessible if something goes wrong as the title "limited" means that the liability of the shareholders to others for the mis-performance of the company is "limited" to the value of the money that they have invested, through share acquisition, in the company and that there is no wider recourse of those others against any other assets that the shareholder may own in the event that something goes wrong with the company.

Generally, accounts must include: 

  • Profit and loss statements, or income and expenditure if the organisation is not-for-profit; 
  • A balance sheet signed on behalf of the board; 
  • Notes to the accounts; and 
  • Group accounts, where appropriate.

In most cases, accounts are accompanied by a directors' report and an auditor's report. 

All private and public limited companies must file their accounts annually at Companies House and possibly with other regulatory bodies, depending on their legal status. For example, charitable companies must also file their accounts with the Charity Commission. 

2. Internal accounts 

For the benefit of their senior managers, organisations produce internal accounts setting out their financial position. Sometimes known as management accounts, these reports may well be included in the management information (MI) you receive. 

The idea behind these reports is to track the organisation’s performance against financial and business targets. For example, they may show accounting ratios relating to return on investment, liquidity, profit, sales and staff costs. 

Though you may get this information on a spreadsheet, most finance departments now use "dashboards" (easy to assimilate summary documents which use % or red, amber, green "traffic light" scores, diagrams or other methods to provide "as a glance snapshots" of key performance measures), either in addition or instead. These will highlight variances from previous reports as well as progress against budget and previous reporting periods, such as for the same quarter in the previous year. They enable you to see, at a glance, how the organisation is doing on an ongoing basis rather than just against the position at the start of the financial year. 

Many MI reports also include a rating system to indicate where performance sits in relation to targets and benchmarks. Using the traffic light example, green would indicate that the organisation is hitting targets, while red would signify a shortfall or not hitting a target. Red is not necessarily bad, though, as it can highlight areas where there are underlying problems and not simply under-performance.

As well as measuring performance against budget and targets, MI may be used to monitor the performance of the business plan, forecast future performance and determine funding needs. It also helps senior management assess the financial impact of potential business opportunities and of business change. 

Business and financial planning

Business strategy and plans are often agreed for longer periods than a single year, whereas financial budgets and reports are produced annually.

Without alignment, business strategy and financial planning may lack cohesion and cause confusion and promote self-interest among managers. This can result in silo-management. Furthermore, while strategy and business planning are handled by senior management, budgets, reporting and forecasting are often the responsibility of the finance department. 

Recognising this, many organisations have brought financial planning squarely into the business planning process to account for the longer term view set out in their strategy. So, in addition to the plans and targets for a single year, these organisations will also have a three year (or longer) rolling plan where having up-to-date financial information is critical. This requires executives and managers, in the planning process, to think clearly about the financial implications of their objectives and what’s being measured and reported. 

Budgets and forecasting

Because budgeting can be time consuming, the process in most organisations begins well before the end of the current financial year. It’s important here to factor in likely and potential changes in both local and general business environments, so as to avoid having to hastily rework budgets during the year.

Budgets are often also used as a performance benchmark by measuring variance against budgets set in the past. This may explain why some organisations have moved away from a traditional planning and budgeting process to set a medium term plan to define direction, goals and targets and use regular forecasting to underpin decision-making during the business period. This way, they avoid a regular ‘rebudgeting’ process. It’s said they also enjoy greater flexibility as they can make decisions in real time and take account of changes in the business environment rather than being driven by conditions that prevailed at fixed point in the past. 

Deloitte, in its 2014 report on Integrated Performance Management, said forecasting should be fast and provide a flexible approach to decision-making and resource allocation on a rolling basis. 

Of course, organisations differ. Those in volatile markets and with longer supply or investment cycles will always need a different financial model to those in more predictable environments. 

There are a number of forecasting tools, such as IBM Cognos, offering tech solutions to compiling financial data and reports. Inevitably perhaps, these solutions should allow managers to be more proactive in assessing business and team performance. 

Monitoring and reporting performance 

MI is typically circulated monthly and supplemented by a more detailed quarterly review. This review will set out the organisation's performance against key goals, usually expressed as KPIs. Inevitably, many of these will be financial, showing the current health of the organisation and how it’s performing against its financial goals.

According to a Chartered Institute of Management Accountants (CIMA) report, directors look to their MI for: 

  • Monthly consolidated profit and loss accounts, balance sheets and cash flow against budget; 
  • A breakdown of results by material business units; 
  • A quarterly update of forecast results for the financial year; 
  • Papers on specific projects about certain criteria; 
  • Updates on major expenditure; and 
  • A six-monthly review of progress on the strategic plan.

Of course, MI reports vary between organisations and even in organisations as they may be tailored for particular audiences. However their purpose is always to link business activity with financial performance, show variances against targets and highlight trends and forecasts - all in a clear and user-friendly manner. Good financial reports help stakeholders and management understand the organisation’s financial position at a given point in time and enable them to deal with, and plan for, changes, developments and new opportunities in their business environment. 


Managers need to understand their organisation’s financial position at any given point. Gone are the days when an in-house lawyer could seriously suggest they don’t understand the financials. Make it your job to grasp them and to make a positive contribution and to make sure that you use them to build the case for your making your own resources adequate to meet the business' legal needs - you are part of the business' delivery and therefore its costs. So you should both use these tools to help you; and ensure that your own costs and needs should be accurately reflected in them. Without this understanding, you'll struggle to be taken seriously as a business partner by your colleagues. And, if you lead a team or department, you’ll need this knowledge to participate in business planning and budget setting, where the right allocation of resources will be critical to your success.