Management Accounting: Information For Managing Resources and Creating Value

Chapter 1
Management accounting:
information for managing
resources and creating value
Copyright 2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith
Australian organisations in the 21st century

Increasing global competition in the 1990s Reduction/elimination of input tariffs, quotas and bounties Deregulation of telecommunications industries Corporatisation and privatisation of public sector
continued
Australian organisations in the 21st century

Shift from primary production, to resources to service-based economy Increasing customer demands Rise of the internet and e-commerce New organisational structures, strategies and management philosophies
What is management accounting?

the processes and techniques that focus on the effective use of organisational resources, to support manager in their tasks of enhancing both customer value and shareholder value
What is management accounting?

Customer value
The value that a customer places on particular features of a product or service
Shareholder value
The value that shareholders or owners place on a business
Resources
Financial and non-financial, including information, work processes, employees, committed customers and suppliers
Management accounting systems

An information system that produces the information required by managers to manage resources and create value Includes regular estimates of the cost of goods and services, information for planning and controlling operations, and information for measuring performance Ad-hoc information to satisfy managers short-term and long-term decision-making needs
Management accounting information

Focus is on the needs of managers within the organisation Great flexibility in the nature of information supplied Influenced by
Production and service technologies, organisational structure, organisational size, level of sophistication of computer systems
Relevant to senior managers through to operational managers

Management accounting vs. financial accounting

Financial accounting
The practice of preparing and reporting accounting information for parties outside the organisation
Costing systems are common to both financial and management accounting

A system that estimates the cost of goods and services as well as the cost of organisational units, such as departments
Management accounting vs. financial accounting
Management accounting within organisations

Most large organisations have a finance function at the corporate level Senior accountants
Financial controllers, chief accountants, finance managers, GM of accounting, group accountant
Accounting staff may be found in each operating division Management accounting increasingly involves managers in other areas of the business
10
Processes and techniques of management accounting

Systems that support the organisations formulation and implementation of strategy Information to help managers manage their resources, through systems of planning and control
11
Processes and techniques of management accounting

Estimates of the costs of an organisation's outputs, to support the strategic and operational decision making needs of managers Contributes to activities that seek to improve the organisations competitive advantage
12
Management accounting and strategy

Management accounting can support the organisation's formulation and implementation of strategy Mission statement
Defines the purpose and boundaries of the organisation
Vision
The desired future state or aspiration of an organisation Use by senior managers to focus the attention and energies of staff
13

Objectives
Specific statement of what the organisation aims to achieve, often quantified and relating to a specific period of time
Strategies
The direction that the organisation intends to take over the long term, to meet its mission and achieve its objectives Ways to manage the organisation's resources to create value for customers and shareholders
14

Major decisions
What business will we operate in? How should we compete in that business? What systems and structures should we have in place to support our strategies?
Corporate strategy
Decisions about the types of businesses to operate in, which businesses to acquire and divest, and how best to structure and finance the organisation
15

Business (or competitive) strategy
The way a business competes within its chosen market
Strategy implementation
Putting plans into place to implement and support business strategies
16

Competitive advantage
Cost leadership Product differentiation
Management accounting systems should provide information to support the formulation and implementation of an organisation's strategies
17
Planning
A broad concept that is concerned with formulating the direction for future operations Allows an organisation to consider and specify all resources needed in the future Occurs at all levels of the organisation A budget is an example of a short-term plan
18
Controlling
Involves putting mechanisms in place to ensure that operations proceed according to plan, and objectives are achieved Management accounting information provides information for control by comparing actual performance against plans, targets or budgets Control systems are the systems and procedures that provide regular information to assist in control
19
Planning and control
20
Costing goods and services

Estimates of the cost of producing goods and services are needed to support a range of operational and strategic decisions Routine costing systems form part of the financial accounting system Product costs are produced outside of the financial accounting systems, to better meet managers decision making needs
21
Contributing to competitive advantage

Management accounting may contribute to activities that seek to improve the organisation's performance in terms of quality, delivery, time flexibility, innovation and cost
Through modern process improvement and cost management techniques Performance measures that focus on specific business strategies
22
Important considerations
Behavioural issues
An awareness of the expected and unexpected outcomes of management accounting systems A key purpose of management accounting systems is to motivate managers and employees to direct their efforts towards achieving the organisations goals An important motivational tool is the use of performance measures that reflect organisational objectives, and reward systems
continued
23
Important considerations
The tradeoff between the cost and benefits of management accounting information Costs
Salary of accounting personnel Cost of purchasing and operating computers Cost of gathering, storing and processing data, and Cost of managers time to read, understand and use the information
continued
24
Important consideration
Benefits
Improved decisions More effective planning Greater operational efficiency Better control, and Improved customer and shareholder value
25
Management accounting responses to the environment

Conventional management accounting systems
Includes budgeting, costing systems and financial performance measurement systems In wide use for many decades, and still be used in many organisations
continued
26

Contemporary management accounting systems
Includes activity-based costing, performance measurement systems such as balanced scorecards, cost management systems, such as business process reengineering, new approaches to customer profitability analysis and supplier cost analysis
continued
27

Contemporary management accounting techniques have been developed over recent years, and support the adoption of new structures, systems and practices Some organisations continue to use conventional management accounting systems, while others are in the midst of implementing contemporary systems
28
Key influences on management accounting systems
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Management Accounting: Information For Managing Resources and Creating Value

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Chapter 1

resources and creating value

Australian organisations in the 21st century

Australian organisations in the 21st century

What is management accounting?

What is management accounting?

Management accounting systems

Management accounting information

Relevant to senior managers through to operational managers

Management accounting vs. financial accounting

Costing systems are common to both financial and management accounting

Management accounting vs. financial accounting

Management accounting within organisations

Processes and techniques of management accounting

Processes and techniques of management accounting

Management accounting and strategy

Management accounting and strategy

Management accounting and strategy

Management accounting and strategy

Management accounting and strategy

Planning and control

Costing goods and services

Contributing to competitive advantage

Management accounting responses to the environment

Management accounting responses to the environment

Management accounting responses to the environment

Key influences on management accounting systems

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