Managers are a part of every organization, no matter how large or small. Managers are responsible for formulating strategy, directing and controlling operations, and organizing resources to accomplish the firm’s short and long-term goals. The primary task of management is to achieve goals and objectives in an efficient and effective manner. Efficiency means that they achieve maximum output for the level of input of each resource utilized. Effectiveness refers to how well the goal is accomplished.
Managerial Accounting: Purpose
The goal of a management accountant is to use their knowledge and skills to influence decisions that create value for organizational stakeholders while maintaining an unwavering commitment to ethical values. Management accountants must assess risk and implement strategy through planning, budgeting, and forecasting. Toward this end, they must understand the financial and operational sides of the business. They must report on financial and nonfinancial measures of performance.
Managerial accounting analysis has become so critical in managing a business enterprise that managerial accountants are considered integral members of the management team. They do far more than provide information and often take an active role in the day-to-day and strategic decisions that face an organization. Although much of the information provided by managerial accountants is financial, there has been more emphasis in recent years on providing nonfinancial performance measures. Managerial accountants are looked upon as strategic business partners in managing the firm’s activities. There has become a focus on all levels of the organization in helping the firm to achieve its goals in an increasingly competitive environment.
Managerial Accountant: Roles
The three major activities that help managers attain efficiency and effectiveness are planning, directing and motivating, and controlling. Planning establishes a basic strategy for achieving the firm’s goals. Directing and motivating facilitate the tasks to carry out the goals. Controlling ensures the plan is carried out and changes are made as needed.
Planning involves determining what needs to get done, how it will get done, and who will do it. Planning should be undertaken before management makes decisions or attempts to execute their functions. Through proper planning, the entire organization should be focused on the same goals and objectives no matter their level in the organization.
Long-range planning, called strategic planning, is carried out over a 1–10 year time period. While the strategic direction of the firm is established by senior management, they rely on management accountants to provide data to facilitate the process. Strategic planning is a big picture view of the company and requires higher level information than short-term budgets. Possible inputs to long-term planning are production and facility needs, capital funding, and forecasts of employee needs.
In carrying out the long-range plan, management must assess the strengths and weaknesses of the organization and the risks associated with each course of action. Risks could include environment risks, technological obsolescence, and competition. Strategic plans should be translated into measurable courses of action so that progress can be assessed. For example, an organizational goal may be to grow the company’s sales by 10% per year for the next 10 years. Management accountants can then provide cash flow forecasts showing capital funding needs tied to this objective.
Intermediate plans are developed by the middle management of the organization and are typically for a 6-month to 2-year time-frame and should be tied closely to long-range plans.
Directing and Motivating
Managers must simultaneously plan for the future and manage daily operations. Managers assign tasks, direct people in how to complete tasks, motivate and oversee tasks until completed, and answer any questions employees have about how to accomplish the tasks. They must set deadlines and hold their employees accountable for completing the tasks, while also making the employees feel valued by rewarding good performance.
For managerial accountants, procedures should include specific lists of tasks that must be completed using computerized accounting systems. Some examples include how to post journal entries, run trial balances, print financial reports from the company’s accounting system, and complete the month-end accounting process to facilitate a timely closing of the accounting records and reduce the possibilities of errors.
Controlling ensures that plans are being followed. Managers often use daily accounting data including performance reports, time sheets and operational statistics to determine how their departments are performing. Accounting controls include performance reports showing the monthly budget alongside the actual monthly spending for each department. Control procedures may specify that variances in excess of 5% of the budget require further investigation and explanation. Managers must also recognize when modifications to the plan must be made to achieve the desired end result.
Evolution in Managerial Accounting
There are many things influencing change within the role of management accountants, including the emergence of e-Business—the electronic transformation of the business environment. Managerial accountants must quantify the impact of e-business opportunities and identify ways to streamline the business processes. Global competition presents new challenges for managerial accountants in that trade agreements may affect businesses that operate abroad. In addition, because monetary systems differ among countries, managerial accountants in multinational firms must continually monitor the fluctuating values of foreign currencies.
Recent managerial trends include a cross-functional team approach, requiring that managerial accountants be familiar with various aspects of the business outside of the realm of accounting. “To be competitive, manufacturers must keep up with the rapidly changing marketplace. Managers must have timely information about production costs and other product characteristics in order to respond quickly and effectively to the competition.” (Gillet, n.d.) Managerial accountants are contributing to the continuous improvement programs of many organizations through the development of cost management systems (Hilton, 2008, p.18).
Always be evolving,
Hilton, R. (2008). Managerial accounting (7th ed.). New York: McGraw-Hill/Irwin.
Gillet, P. W., Jr. (n.d.). Accounting 202: Managerial accounting fundamentals: Chapter 1 outline: San Diego State University, School of Accountancy. Retrieved March 4, 2009 from Tripod Web site: http://members.tripod.com/Acct202/Chapter%201%20Outline.htm