Management accounting and decision making Essay
If an example of Information Technology is to be awaken then It Is realized that once they were left to do IT related Jobs or make computers work however, in today’s world IT professionals are now moving into higher level management positions which require them to perform many other tasks which may not be directly related to the their profession. Therefore, a stereotypical role of an accountant was once considered a “number person” but today’s era demands accounting professional to own and use Interactive and communication skills to help with the decision making process across all areas of a business.
In a managerial accounting world all professionals must communicate their ideas to other impasses using ways which are tactful and effective. Siegel (2000) states that “Management accountants should be great communicators. ” Durra C (1992) believes that management accounting is “concerned with providing information to managers – that is people inside an organization who direct and control the operations. ” In the 19th Century financial accounting was considered to be the need of a society which later evolved to Management accounting.
Management accounting became a prerequisite for more detailed information for stock control, product costing and decisions affecting the future. Accounting is
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To follow any business or an organization alma managers engage In satellites which involve an effective cost model as it can be a great asset to an organization. A business or projects to be a success or failure three things need to be considered, for example, cost, schedule and performance. A project should be continued within the means provided otherwise stakeholders struggle to finance the project and Its abandoned. A success of a manager Is when appropriate tools are employed and sound safe decisions are made and follow on with applying substantial level of expertise to have effective cost management.
The world today is surrounded by Increasingly advanced technology such as computer assisted manufacturing and flexible manufacturing systems. According to Coking and Hicks organizations to value chain from product design and purchase of material therefore internal cost is very important as mentioned in Coking and Hicks article because it becomes critical for competitive action and increasing shareholders wealth in the current globally competitive economy. Management accounting systems are the benefactors of the precarious internal cost information.
There has been few criticisms leading to the literature of Management accounting system and it has been labeled outdated and there has been criticisms linked to its consistency as it has been thought that it does to provide consistent information with the current strategic management paradigm. Coking and Hicks believe that systems designs elements should capture the fundamental technology, promote a business based on effective cost model, quality and lead time.
Precise and appropriate cost information is critical to management’s decision making procedures (Coking and Hicks) and the literature being studied reveals Management accounting system reflects the organizational complications of the current world however traditional Management accounting systems do not replicate current organizational era as all costing procedures were designed around ate nineteenth century.
In traditional era product line diversity was not very common and cost of materials and direct labor were the main components of production cost but the environment today is surrounded around advanced technology and automation and that has led the prime cost to be the overhead component. The overhead costs are altering product cost because of the old management accounting system techniques. Management accounting needs a unique set of skills and behavior. According to Coking and Hicks Accounting Management framework gives business a planned approach to address all factors that will manage accounts interface and today’s reality.
Cooper and Kaplan believe there are six critical factors which play a crucial role in Accounting Management framework which also backs Coking and Hicks Journal being studied for this assignment. The first one is organizational structure. It includes factors such as whom and how you manage accounts, why and how you organize around them. The second account management success factor is people as they need the appropriate skills, knowledge and skills to experience and perform the role. The third factor is tools and technology as it must purport the account management processes and must balance “help” as “control. The fourth one is compensations structures as they can inhibit change or accelerate adoption. The fifth account management success factors are processes and methodologies as they should align with the customer, drive growth and opportunity plan and the last factor channels and alliances must be managed effectively through the account manager interface. It is up to an organization to structure their useful employees around their key customers and that can create a deep impact on their performance. First few deliberate decisions need to be taken in terms of placement of accounts management resources such as market and territory.
Coking and Hicks believe management team need to plan using methodology a number of factors to create a ranking based on the business goal for the affiliation and ability to deliver. Once these methodologies are selected they can play a vital role in team structure and it will help to deal with issues such as ownership or shareholders Coking and Hicks discuss the difference between cost accounting and managerial accounting and cost accounting is used within a business to manage that particular business.
Accounting standards of a country provide guidelines to an accountant so they can be used while reporting economic transactions of a business. United Kingdom accounting has improved a lot as mentioned in the Journal being studied for this particular assignment. Managers have immense pressure to improve financial management practices to improve service to the community and it is not only done on national level. Managerial accountants have to keep accountant standards fair globally and that is mainly done through Accounting Standards Committee. What gets measured gets managed, What needs managed gets measured” (Peter Trucker) ammos quotes has cause many criticisms but if the practices and development mentioned in Coking and Hicks Journal are to be analyzed, one can conclude this quote has some truth. Managers of a business often use this quote indicates that active management of businesses should be given importance instead of accountability to gain desired goals. It will lead to survive in today’s world of information age competition therefore businesses should ensure they are using management systems resulting from their strengths.
Any business main task is to develop an active measurement system as it is main part of the management process. Good management practices lead to using certain measures to plan, implement and improve certain aspects of an organization. According to Kaplan, (1994) measurement is a difficult task because it is not related to science so there are no facts and does not have rules between variables. Furthermore, systems which are used by management accountants will make sure that actions are taken according to the strategies and objectives developed.
There has been an immense amount of research on management accountants and the research evidence has proved that businesses which are using a developed measurement system are developing and aiming profits therefore, Gates (1991) states “an organizations objectives and severity of measures, varies, depending on people, culture and past experiences of the organization. ” The management accountant was developed after sass and it was seen a golden era in management accounting research as it saw new techniques and practices beneficial to the management accounting.
One of the techniques developed in ass was strategic management accounting and some of the processes which fall under the category of strategic management accounting are activity based costing and balance scorecard. The balance scorecard emerged after it was realized that there is a need of an integrated system which can be used to measure both financial and non-financial performances. It helps companies to view their performances on a regular basis and it gave a clear view of what should be measured in order to balance a particular business financial perspectives.
The balance score card consists of four functions known as learning and growth perspective. It means how to achieve a certain organizations goals and how will a business will sustain its ability to change and improve. The second perspective is financial and its aim is to succeed financially ND is mainly concerned with making a good impression to shareholders. Another perspective is based on customers as they can determine sales and to achieve business goals a good impression is to be made upon customers. The last perspective is known as internal business processes.
It mainly deals with how to business excel as. (Kaplan and Norton:1996) Balance scorecard is one of the necessities for any organization and it is used by the management to accomplish vision and strategies of an organization and it has few other benefits too such as, making sure managers are managing every single variable within an organization ND are not working upon favoritism. If more developments are to be discussed and strength of Coking and Hicks Journal than one must not forget one of the major development in an accounting field known as Activity-based costing.
Kaplan and Cooper gave this idea a new beginning as it was not very well known in previous years. According to Kaplan (1996) manufacturing costs are determined by amount of “activities” and the key to effective cost control is maintaining the effectiveness of the activities BBC recognizes better cost pools for indirect costs and then implies cost rivers to relate the expenses in the cost pools to activities of an organization. BBC has become more popular in recent years but faces a lot of criticisms too due to the fact that sometimes businesses face difficulties in implementing this technique.
BBC is enhanced further by Activity-based management as they believe in planning and measurement and class them as key factors in a competitive business environment. To conclude, If an organization has accounts managers or not a success can only be achieved if a successful profile is valued. It can be done through an industry as it will alp determine to what extent an account manager is an industry expert and the second is through customers as it is vital for an accountant to understand the businesses being worked upon.
The profession Accountancy has seen many developments and criticisms however, since sass there has been many changes in management accountancy. The new changes are focusing on measurement tools within a business to manage its aims and objectives. Management techniques are discussed briefly in this essay and they emphasize on Coking and Hicks Journal that management decisions can be made better by using effective management agreement tools and it leads to improving the management of an organization.