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Management accounting is concerned with providing information to managers. Managers

carry out 4 main major activities planning, managing and directing, controlling and
decision making. (Seal, Management Accounting, 2015, pg3)

Decision making by managers tend to prioritise over three questions- What should we
sell, who to sell to and how to execute. (Seal, Management Accounting, 2015, pg3) Under
the question how to execute lies the choice for managers to decide how the firms
products are produced - whether to outsource or not. Due to a number of factors markets
have become increasingly globalised. This has increased competition resulting in western
firms increasingly having to lower cost in order to compete. Additionally outsourcing by
companies has increased as factors such as decreasing communication cost, decrease in
trade cost and barriers, lower relative transport cost and improvements in I.T. have made
outsourcing more cost efficient.

How Management accounting can be used to help managers approach this part of
decision making is explored in a paper by Nielson and co.

Currently costing analysis is most used to determine outsourcing decisions. (Gove, 2009)
The effectiveness is limited to an extent due to information inaccuracy, lack of qualitative
measurements and limits to the extent strategic aims are taken into account. (Nielsen,
2015) The case study studied has to an extent improved upon costing analysis by taking
into account a greater number of important factors. An alternative methodological
approach to decision making is looked at in the paper the actor based approach.
(Nielsen, 2014) The approach differs on three factors to current mainstream theories.

1. How information uncertainty is taken into account. (Nielsen, 2015)

2. How relations between decision makers is formulated. (Nielsen, 2015)

3. The use of management accounting. (Nielsen, 2015)

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Frameworks are produced inductively from empirical evidence. Outsourcing decisions are
embedded within a strategic plan which looks to improve its innovative capabilities.
(Nielsen, 2015) The process emphasises group work between decision makers to involve
all managers in the company and for managers to verify the reliability of the information
used in the outsourcing decisions. (Nielsen, 2015)

Accounting information estimates include revenues, costs, profits, cash flows and, where
appropriate, rates of return and net present values. (Nielsen, 2015) This is used to
assess the likely success of product innovation plans as well as help decide outsourcing
decisions. (Nielsen, 2015) As more information is gathered the reliability of accounting
information improves to where it can be trusted and there is less uncertainty. (Nielsen,
2015) Accounting information is improved as the managers analyse and compare the
results through team interaction. (Nielsen, 2015) The project financial estimates are
compared to a set of benchmarks set out as target costs, predefined profit margins and
rates of return. (Nielsen, 2015) These comparisons will help to make the information
within the project more reliable. (Nielsen, 2015) The new financial data which is collected
as the reject advances directly effects outsourcing decisions. (Nielsen, 2015) The
accounting information within DEN can be further used as a way to direct and motivate
employees by using it as they basis whereby team who achieve there financial
projections are awarded through the bonus system. (Nielsen, 2015) This would help to
achieve one of the activities managers carry out and help to further improve morale and
work ethic within the organisation. (Nielsen, 2015) There are limitations as the long term
view of the process makes short term decisions based on the project relatively unreliable
due to the extensive use of estimations.

A strategic concern for managers has increasingly become environmental sustainability

due to factors such as regulation, efficiency savings and customer/stakeholder concerns.
(Seal, 2015) Management accountants play an important role in helping firms improve
their environmental sustainability by providing them information on the environmental

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impact they have. (Thomson, 2007) The environmental informations is grouped around
physical information on the use flows and destinies of energy, water and materials and
monetary informations on environmental related cost, earning and savings. (Seal, 2015)
The extent to which the information is useful is debated as there are issues with the way
in which information is collected which decrease the accuracy of the information such as
sunk cost not being counted. (Seal, 2015) As it is the case with environmental and social
informations it is often non-monetary so cost such as health risk are not taken not
account accurately or not at all. SEAR practices can be used to implement organisational
changes in firms in order to improve their responses to environmental changes. (R.
Laughlin, 1991)

Planning involves setting objectives, and outlining how to achieve these objectives. (Seal,
Management Accounting, 2015, pg3) The application of management accounting in the
context of planning determining the future profits and using budgeting to allocate
resources in order to achieve those objectives. (Seal, 2015) The budget can have
performance measurement indicators related to environmental factors which is needed in
todays business environment. Environmental indicators can be projected and compared
at the end of the financial year to determine the success the firm had at improving
sustainable development. An issue with this could be the emphasis management
accountants put on saving rather than improvement in environmental factors, so there is
an emphasis on profit driven environmental sustainability. (Larrinaga, 2001) this can be
seen when he attempts to translate environmental initiatives into the top managers
traditional business language (i.e. savings and image). He repeatedly underlines that
only those initiatives (e.g., energy savings, water savings, and waste reduction) that yield
a financial return would be accepted by management (Larrinaga, 2001) This is why
planning and controls will need to be in kept in order to persuade managers to make
greater efforts to achieve environmental targets which do not have positive economic
consequences. A corporate social policy chapter was started as a result and an

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improvement was seen in the long term. Measuring different environmental factors would
cost a relatively high and would therefore not be open to the vast majority of businesses.

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Book reference

http://www.bath.ac.uk/management/research/pdf/2009-06.pdf
http://www.sciencedirect.com/science/article/pii/S0155998214000453
Nielsen, Mitchell, Norrekilt (2015) Management accounting and decision
making: Two casestudies of outsourcing Accounting Forum March (39) Pages
6482 Available at:
http://www.sciencedirect.com/science/article/pii/S0155998214000453

Will, S. (2015) Management Accounting, 5th ed. Maidenhead, McGraw Hill

Education.

Thomson, 2007J. Unerman, J. Bebbington, B. ODwyer (Eds.), Sustainability

Accounting and Accountability, Routledge (2007)
R. Laughlin Environmental disturbances and organizational transitions and
transformations: some alternative models Org. Stud., 12 (2) (1991), pp. 209232

Gonzalez, Fenech, Gonzalez, Ruiz (2001). The role of environmental accounting in

organizational change: an exploration of spanish companies Accounting,
Auditing, Accountability Journal 14(2), 213-239: