Excerpt
Table of contents
List of figures
List of abbreviations
1. Introduction
2. Research strategy
2.1 Specification of the topic
2.2 Literature Review
2.3 Limitations of this paper
3. Reporting design
3.1 Visualisation
3.2 Different forms of data presentation
3.3 Data visualisation through diagrams
3.3.1 Common diagram forms
3.3.2 Potential ways of emphasising data
3.4 Correct visualisation
3.5 Critical appraisal
4. Conclusion and outlook
Reference list
List of figures
Figure 1: Three subcategories identified for the topic.
Figure 2: Literature selection process.
Figure 3: Schematic diagram of the visualisation process (following Ware 2004: 4).
Figure 4: Studies referring to different forms of data presentation.
Figure 5: SUCCESS Steps.
Figure 6: Examples for SUCCESS step (1) SAY (A. Hichert 2013).
Figure 7: Examples for SUCCESS step (3) CONDENSE (A. Hichert 2013).
Figure 8: Examples for SUCCESS step (4) CHECK (A. Hichert 2013).
Figure 9: Examples for SUCCESS step (6) SIMPLIFY (A. Hichert 2013).
Figure 10: Example for SUCCESS step (7) STRUCTURE (A. Hichert 2013).
List of abbreviations
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1. Introduction
Decisions are made based on the information available to the decision maker. For companies the decisions of potential and existing investors matter most. Hence, businesses aim at presenting themselves to their stakeholders in the best way possible. This can be done through all channels of communication that are controlled by the company. Big entities hire specialised employees for departments such as communication or investor relations.
The attempt to attract new investors and retain current investors has become more and more important since pressure on companies has increased in the last decades. Such pressure arises through growing competitiveness that is, among others, caused by globalisation and the interconnectedness of the markets. Therefore, businesses set themselves the goal of increasing the market value of the company. For companies traded in the capital market a high market value results from high share prices. If a business has a high market value, it may incentivise investors to invest more money. Furthermore, the position on the market can be strengthened and thus lead to a potential advantage over competitors. The information that companies want to give to their stakeholders can be presented in several ways and on different media. It can be presented in written, as a table, a graphic, or as an image on mediums such as a printout, an online source, or orally within a presentation. Different people work on the process of choosing and transforming data into the desired presentation format. Therefore, effective presentation of data can prove difficult. The process requires the knowledge of management and computer programs as well as the implementation by graphic designers. Not all of the people involved in the process will be experts to the organisation itself. Hence, mistakes in the presentation of data may occur. It is also conceivable that the management manipulates data intentionally.
Therefore, this paper aims at answering the question ‘which form of data presentation is most effective for communicating information to investors?’ and ‘which aspects have to be kept in mind when visualising data?’. Hereby, different presentation formats will be compared in terms of their usefulness for decision making. Furthermore, it will be discussed how different types of data have to be visualised. In order to understand why and how data can be manipulated, principles of correct visualisation will be analysed. The research is done by reviewing topic-related literature.
This paper consists of four chapters. The introduction is followed by the second chapter, which gives an overview of the approach to the topic. Hereby, the topic is specified, the search strategy for literature is presented and limitations of this paper are given.
The third chapter forms the main part of this paper covering different aspects of reporting design. First the concept of visualisation is approached. Hereby definitions and advantages are given and the process of data visualisation is presented. Next, studies dealing with the advantages and disadvantages of using textual, tabular, or graphical presentation of information for decision making are evaluated. Most of them are based on experiments involving decision makers. The outcomes are presented and compared in order to identify the most effective form for communicating information. The following parts put emphasis on the presentation of data with diagrams. Therefore, different forms of diagrams are introduced, fields of application are proposed, and ways of highlighting important information are presented. Furthermore, the SUCCESS rules of Rolf Hichert are introduced as an example for correct visualisation. This chapter closes with a critical appraisal of the presented information and concepts.
Finally, this paper ends with a conclusion in which material statements are summarised and future trends are presented.
2. Research strategy
2.1 Specification of the topic
The term data presentation can be interpreted in several ways. In this paper financial and non-financial information of a company is considered as data. However, information can be given via different mediums. On one site it can be given orally, for example in presentations, conferences, or calls, on the other side it can be given in a written or graphical format. Nonetheless, websites, booklets, newspapers, annual reports, and many other mediums contain data in written, graphical, and tabular form. In the following a company’s annual report is referred to as the medium for data presentation. Such a report contains financial and non-financial information of the company’s prior year’s operations and about future prospects. The addressees of the data presented in the annual report are usually stockholders, (potential) investors, analysts, interested members of the public, and others. In this paper specific attention is paid on addressees that have to make a decision based on the data presented in the annual report. In particular, this applies to investors who plan to buy, keep, or sell shares of the company. Such investors can either be very skilled professionals, who examine all available information about the company before they make their decision, or naïve investors, who can easily be influenced by the overall appearance of the report (Penrose 2008).
The investment decision is made in a process that has the intention to improve the future situation of the investor or his company. Furthermore, the decision making process is defined as a process “that culminates in an irrevocable allocation of resources to affect some change or the continuance of the status quo” (Buede 2001: 199). Hereby, money is the resource that is allocated most often. However, other scarce resources such as goods or time of educated individuals can be allocated similarly. The process itself contains several phases: intelligence or problem definition, the design or analysis, the choice of the option, and the implementation (Buede 2001: 199). Moreover, a more specific process for financial decision making has been proposed by Savikhin (2013: 100). Her decision making process is defined by “(1) retrieving and processing information; (2) developing subjective assumptions for the different probable outcomes of each decision; and (3) making a decision, taking preferences, costs, and benefits into account” (Savikhin 2013: 100).
Even though, the definition of a decision making process implies that the decision maker has time to evaluate the information, to develop a decision, and to implement it, many investors are under time pressure during their decision making. In particular, David (2001, cited in Penrose 2008) revealed, that investors only spend as little as 15 minutes on an annual report before making a decision. Considering the size of annual reports, investors can only reference to limited information. Hence, important information has to leap to the eye in order to give investors enough time for evaluating the data.
For this reason, this paper focuses on the most effective form of data presentation. Data presented in the financial statements and the management report is reviewed by an auditor. Hence, some forms of data presentation, such as presenting the balance sheet, the comprehensive income or the cash-flow statement in a table, are prevalent. This paper does not aim to challenge essential parts of the data presented in annual reports, but rather gives a cause of thought about the most effective forms of data presentation in all parts of an annual report.
2.2 Literature Review
This paper mainly covers the topics business reporting, decision making, and design format. In order to find relevant literature relating to the researched area, the following keywords have been selected: decision making, judgment, visuali*ation, data presentation, investment decision, accounting, annual report, information design, and reporting design.
The keywords were entered into search engines of databases alone and in combinations in order to identify literature that covers the topic. The primary database selected is EBSCO.
Figure 1: Three subcategories identified for the topic.
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In order to access relevant literature EBSCOhost was selected as the primary search engine. Furthermore, the OPAC of HWR Berlin was used to search for hardcopy books and eBooks. Once a first collection of literature was sourced, the references were reviewed going backwards in time. This way all other literature was found. Next, the literature was sourced according to topic and abstract. Lastly, a detailed analysis of the remaining literature was conducted. This process resulted in 8 books, 23 articles and 7 other publications that are used for this paper (figure 2). Articles relating to the main topic of presentation format in annual reports or for decision making are summarised in figure 4 (p. 8).
Figure 2: Literature selection process.
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The biggest issue encountered was the pure amount of literature available in this context. Appropriate mediums for this topic are business and communication oriented literature as well as accounting, information systems, social science, psychology, and design related publications. This wealth of information and resources prolonged the research phase for this paper.
2.3 Limitations of this paper
Some interesting areas that reference to the topic and have not been expelled so far had to be left out due to the limited scale of this paper. This relates to the psychological concept and view of decision making and judgement. As this paper mainly focuses on the form of presentation, the human perception and psychological process is not covered. Moreover, the actual technical process of designing visualisations such as diagrams or tables is not enclosed. The algorithms that transform information from databases into graphs or diagrams are not subject of this research. Another investigation that has not been carried out is the construction and design of texts in annual reports. Previous studies have revealed that the tone of a text influences the readers and their decisions (Hales, Kuang, and Venkataraman 2011). However, this fact has been left aside even though it definitely has potential for more future research work in this area.
3. Reporting design
3.1 Visualisation
Due to the fact that “we acquire more information through vision than through all of the other senses combined” (Ware 2004: 2) it is important to understand the term and the process of visualisation. Hutchins (1995 cited in Ware 2004: 2) noted that thinking does not solely takes place in one’s head and that only very little intellectual thinking can be done when closing eyes and ears. Hence, cognition can be seen as an interaction between different cognitive tools such as paper, pencil, or computer based information support systems (Hutchins 1995 cited in Ware 2004: 2).
An outdated definition of the term visualisation implies visualisation as the construction of visual images in the mind. Nowadays, it is seen as a graphical depiction of data or concepts and has evolved as a supporting tool for decision making (Ware 2004: 2). In particular, visualisation is connected to an interaction between humans and computers. Toward the end of the 1980s scientific visualisation arose through the application of computer-based techniques in the area of science. In the beginning of the 1990s the trend became feasible for areas outside of science and the term information visualisation emerged (Reiterer et al. 2000).
Usually visualisation assists in presenting complex, typically abstract information that can be of quantitative or qualitative nature and plays an important role for decision making (Reiterer et al. 2000). Furthermore, visualisation aims at enhancing the quality of decisions and subordinately aims at increasing the noticed, accepted, and handled data. It tries to outline the relationship between information by combining and emphasising data and supports the accuracy and efficiency of decisions (Meyer 1999: 79ff.).
Moreover, visualisation has several advantages when looking at data. It allows the reader to understand large amounts of data while important information can be recognised immediately. Furthermore, it helps to understand large-scale and small-scale features of data and enhances understanding for patterns or trends. In addition, visualisation plays an important role in identifying problems with data collection because errors become apparent almost immediately when looking at visualised data (Ware 2004: 3).
Figure 3: Schematic diagram of the visualisation process (following Ware 2004: 4).
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Looking at the process of visualisation, at the beginning stands the data (figure 3). Data has to be collected and stored before it can be processed and transformed in order to make it understandable. The graphics engine can be a computer or a specific program that transforms raw data into a visualisation. At the end of the process stands a human that acts as the perceiver by using the cognitive system. Nonetheless, many loops also go backwards. The longest loop is the feedback loop that originates from the human perceiver and goes back to the data collection. This is because an analyst might want to view more data, which then has to be inserted into the visualisation, before a final decision is made. This loop passes through the physical and social environment. While the physical environment can be seen as a source of data, the social environment influences the collection and its interpretation (Ware 2004: 5). It is also important to note that visualisations are prone to manipulation. Hence, special care has to be taken in the process of visualising data.
3.2 Different forms of data presentation
Information, especially data, can be presented in several ways. In annual reports data is generally given as text, table, diagram, or picture. In the following a closer look is taken at existing literature with regard to presenting data as text, table, or diagram and the impact that format has on decision making. Figure 4 gives an overview of the literature referred to.
Figure 4: Studies referring to different forms of data presentation.
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An analysis of Austrian companies listed in the ATX Prime Market revealed that an average of 34.9 % of the annual reports consist of tables, diagrams, and other visual elements (Eisl et al. 2013). Even though Austria is not considered a pioneer in reporting design, this number can be seen as a rough estimate for international reports. Still, most information is given in textual format. It is out of question that text is necessary and predominately used in annual reports. However, visualisations can add great value to publications (Platts and Tan 2004). As findings show, humans can process tables as well as graphs more effectively than plain text (Kelly 1993). Hence, these forms of visualisations can affect the comprehension of readers in a positive manner (Peterson 1983).
Much research has been carried out in comparing graphs to tables. Overall, most experimental investigations conclude that graphic presentation is superior to the presentation of numerical data in a table (Benbasat and Schroeder 1977; DeSanctis and Jarvenpaa 1989; Lucas Jr 1981). Moriarity (1979) and Stock and Watson (1984) precisely note that a graphical presentation of financial information is beneficial. Other special task studies came to the same result: visualisations ease the search for the lowest cost in an economic-order quantity decision task (Harper and Hartmann 1981), correlations in analytical judgement tasks are better detected with graphical support (Anderson and Reckers 1992), and graphics increase accuracy in complex tasks (Blocher, Moffie, and Zmud 1986).
Nonetheless, it is also conceivable to use a combination of graphs and tables. Nibbelin, Bailey, and Zmud (1992) could not find a benefit for tabular or graphical presentation in a bond-rating change decision task, which implies that both forms can be suitable. Overall, a combination of different presentation formats is mostly used in annual reports and may indeed be the most favourable option for providing users with information in the best possible way (Frownfelter-Lohrke 1998).
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