Role of Management Accounting PDF

Role of Management Accounting The Management Accountant's Role In Implementing Strategy: Sdvsdvvfs Managers implement strategy by translating it into actions through planning, control, and decision making. Management accountants provide information that...

Role of Management Accounting The Management Accountant's Role In Implementing Strategy: Sdvsdvvfs Managers implement strategy by translating it into actions through planning, control, and decision making. Management accountants provide information that help managers through problem wefrweg solving, score keeping, and attention directing. Role of managers: 1] Planning: setting plans through budgets by applying the following steps: 1) Selecting organization goals. 2) Generating alternatives to achieve goals. 3) Predicting results of alternative ways of achieving those goals. 4) Deciding how to achieve the goals. 5) Communicate the goals and how to achieve them to the entire organization. Budgets: They are quantitative expression of a proposed plan. They aid in the coordination between business functions & implementation of the plan. The information used to prepare budgets is financial and non–financial information recorded in the accounting records. Note: the plan must be flexible to help managers catch (seize) sudden opportunities that was unexpected when preparing the plan. 2] Control: it is monitoring the implementation of the plan and taking corrective actions as needed. Page 1 Dr. Reda Elazab It includes: 1) Taking actions to implement the plan. 2) Evaluating performance and providing feedback to help in future decision making. And linking rewards to performance. Theses rewards may be: Intrinsic: self-satisfaction for a job well done. Extrinsic: salary, bonus, and promotions. Feedback: (‫ )التغذيةةالالسيةةة ا‬this involves managers examining past performance (control) & exploring alternative ways to make better informed decisions and plans in the future. Feedback can lead to: 1) Change in goals. 2) Change in ways of generating alternatives. 3) Change in information collected when planning. Plan has no value if it isn't controlled. I.e. planning & control must be combined together to create value. This is done through performance evaluation & feedback. Budget is both planning tool (because it is used in planning) & control tool (because we compare actual performance with it as a benchmark). 3] Decision making: the process of selecting among alternatives. Page 2 Dr. Reda Elazab  Role Of Management Accountant: Management accountants help managers by providing relevant and timely information to be used in decision making through Problem Solving Record Keeping Attention Directing Problem solving: comparative analysis of several alternatives for selecting the best alternative. Score keeping: accumulating data & reporting results to all levels of management to describe how the organization is doing. Attention directing: helping managers to focus on opportunities (to add value or reduce cost) and problems according to priorities. The New Challenges In Management Accounting In current days, focus on cost management. Managing cost needs development in management accounting systems to help management to understand their cost base and determine the sources of profitability for their products, customers, and markets. Key success factors Benchmarking ‫ل‬ Customer ‫ل‬ satisfaction The top priority ‫ل‬ Value chain & Continues Supply chain improvement ‫ل‬ Page 3 Dr. Reda Elazab 1) Customer satisfaction Customer is the source of revenues so organizations must focus on achieving customer satisfaction because revenues enable the company to 1) pay expenses. 2) can pay dividends. 3) Retain the remaining earnings that can be invested in other projects. The challenge facing managers is to continue investing sufficient (but not excessive) resources in customer satisfaction to attract & retain profitable customers. 2) Supply chain & Value chain analysis 1st: Value chain: the sequence of business functions in which usefulness is added to products or services of an organization. It includes the following 6 business functions: Research & development. Design. Production. Marketing. Distribution. Customer service. The term "value" is used because as the product (service) goes from one business function to another, the usefulness of the product increases which increase the value to the customer. Management accountants provide information to managers in order to make decisions in each of the 6 functions. a) Research & development: Generating & experimenting ideas related to new products, services or processes. b) Design (of products, services or processes): ❖ It turns ideas found in research & development into reality. ❖ It is the detailed planning & engineering of products, services and processes. Page 4 Dr. Reda Elazab c) Production: It is the acquiring, coordination & assembly of resources to produce a product or deliver a service. Before production Production After production Quality design Quality Quality inspection Cost management Cost Cost control d) Marketing: Promoting & selling products or services to current or prospective customers (‫)المحتمل ن‬. e) Distribution: It is the delivery of products or services to the customers. f) Customer service: providing after sale support to customers. 2nd: Supply chain: it describes the flow ( ‫ )تةفق‬of goods, services & information from first supplier to last customer. When suppliers and customers are added to the value chain, it is called supply chain. Supply chain & Value chain has 2 related aspects as follows: 1) Cost management integrates & coordinates activities across all companies in the supply chain (between different organizations). 2) Cost management integrates & coordinates activities across each business function in the value chain (inside the same organization). Page 5 Dr. Reda Elazab 3) Key success factors: To achieve customer satisfaction, companies must focus on 4 key success factors which are (a) cost,(b) quality, (c) time, and (d) innovation. Management accountants provide information to managers about performance in each key success factor. a) Cost: continuous pressure to reduce costs of their products & services to achieve the target cost. Target cost: the cost the organization will try to achieve to gain the markets by reducing cost of different activities across the value chain. b) Quality: Companies apply total quality management (TQM) to improve activities across the value chain in order to exceed customer expectations. Management accountants evaluate cost and revenues of each TQM initiative. c) Time: organizations are under pressure to complete activities faster such as: development time: time of introducing a new product to the market. Time to respond to customer request. Time to deliver the goods sold. The increasing technological innovation reduced the life cycle of the products which make the companies need to introduce new products to the market more rapidly. d) Innovation: a constant flow of innovative products or services is the basis to the ongoing (continuous) company success. Management accountants help managers in evaluating different investment and R & D decisions. 4) Continuous improvement: Any company must make continuous improvement to survive. Page 6 Dr. Reda Elazab Continuous improvement by competitors creates a never–ending search for higher levels of performance within many organizations. Continues improvement is the constant effort to eliminate waste, reduce response time, simplify the design of products and processes, improve product quality and customer service. This could be done through employee empowerment. Employee empowerment: encouraging workers to take their own initiatives to improve operations, reduce costs, improve product quality and customer service. 5) Benchmarking: is the process of investigating how competitors do something better. Benchmarking is a method for Continuous improvement. It means comparing performance of the company in any key success factor with the best levels of performance of its competitors in terms of products, processes, or services to identify our strengths and weaknesses. This comparison will help the company to improve its performance in any key success factor. Benchmarking can be a psychological tool to overcome resistance to change by showing employees how others have already met the target. Six steps of benchmarking: 1) Decide what to benchmark. 2) Plan the benchmark project. 3) Understand your own performance. 4) Study others. 5) Learn from the data. 6) Take actions. Page 7 Dr. Reda Elazab  Current trends in management accounting More competitive environment requires: (a) Higher quality products, (b) Lower costs and lower prices Meeting and (c) anticipating customer needs. These factors are causing changes in management accounting today. New tools for managers are needed, for example: Activity based costing [ABC] Lean system. Target costing. Balanced scorecard [BSC]. Total quality management. Enterprise resource planning [ERP] Theory of constraints [TOC] Open book accounting. Just in time [JIT]. Process reengineering. Page 8 Dr. Reda Elazab