AFM 31130 Strategic Management Accounting By Isuru Manawadu B.Sc in Accounting Sp. (USJP), ACA.
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Transcript of AFM 31130 Strategic Management Accounting By Isuru Manawadu B.Sc in Accounting Sp. (USJP), ACA.
ContentIntroduction to Management Accounting and Strategic Management AccountingA brief historical review of Management AccountingFinancial Accounting Vs. Management AccountingDecision Making processStrategic Management Accounting pracices Impact of Information Technology
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What is Management Accounting ?
Management accounting is concerned with the provision and use of accounting information to managers within organizations, to facilitate the managers in their decision making and management control functions. Unlike financial accountancy information (which, for the most part, is made publicly available), management accounting information is used within an organization and is usually confidential.
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Management Accounting is "the process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its resources”.
- The Chartered Institute of Management Accountants (CIMA)
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Financial Accounting focuses on preparing information for the use of internal and external decision makers.
Management Accounting focuses on the requirements of Managers within the organization & the information they require making decisions.
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Financial Accounting Vs. Management Accounting
Financial Accounting
Management Accounting
Principal Objectives
Stewardship or business for the
benefit of shareholders
Seek to improve economy, efficiency and effectiveness of
operations
Time horizon
Past
Not only look at the past, but the present and the future
which affects the operation of the company
Report recipients
External/ Outsiders namely Shareholders and Government(tax)
Internal parties like Directors and Managers
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Outputs
Summary (usually annual)
comprehensive income statement ,
financial position statement and cash
flow statement
Detailed monthly and annual
management accounts showing results by product
and function ad hoc reports
Regulating framework
Accounting standards, Accounting concepts
plus statutory requirement by the
companies Act
None prescribed
Financial Accounting Vs. M.A. Contd…
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Cost Accounting Vs. Management Accounting
‘Cost Accounting is a systematic set of procedures for recording and reporting measurements of the cost of manufacturing goods and performing services in the aggregate and in detail. It includes methods for recognizing, classifying, allocating, aggregating and reporting such costs and comparing them with standard costs’
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Decision Making ProcessPlanning process1. Identify objectives2. Search for alternative courses for action3. Gather data about alternatives4. Select alternative courses of action5. Implement the decisionsControl Process6. Compare actual and planned outcomes7. Respond to divergences from plan
STRATEGIC MANAGEMENT
“The fundamental idea of strategic planning is quite simple: Continuously re-assess what customers want, what competitors are doing, and other relevant environmental elements (such as emerging technology and trends in government legislation); size up these environmental changes; and use, or develop, available resources to turn these changes into advantages.
Obviously, carrying out strategic planning successfully is a lot more difficult than understanding what it is.”Atkinson, Anthony A., Rajiv D. Banker, Robert S. Kaplan, and S. Mark Young, Management Accounting, Prentice Hall, Inc., 1995, p. 471.
Strategic Management Accounting
“The provision and analysis of financial information on the firm’s product markets and competitors’ costs and cost structures and the monitoring of the enterprise’s strategies and those of its competitors in these markets over a number of periods”
(Bromwich, 1990: 28)
STRATEGIC MANAGEMENT ACCOUNTING
“Accounting exists within an business primarily to facilitate the development and implementation of business strategy...
Three important generalizations emerge from this way of viewing management accounting:
Accounting is not an end in itself, but only a means to help achieve business success
Specific accounting techniques or systems must be considered in terms of the role they are intended to play
In evaluating the overall accounting system... the key question is whether the overall fit with strategy is appropriate.”
Shank, John K. and Vijay Govindarajan, Strategic Cost Management, The Free Press, Macmillan, Inc., 1993, pp. 6-7.
Surveys of Strategic Management Accounting Practices.
Competitive position monitoring Strategic pricingCompetitor performance appraisalCompetitor cost assessmentStrategic costingValue chain costingBrand value monitoringBrand value budgetingQuality costingLife cycle costingTarget costing
Bromwich, 1990
STRATEGIC MANAGEMENT AND ACCOUNTING
Strategic ManagementStakeholder analysisCorporate objectivesSustainable competitive advantages
Strategic Management AccountingAppropriate analysisLong-term considerations Nonfinancial data
STRATEGIC MANAGEMENT AND ANALYSISStrategic considerationsStrategic Marketing AnalysisTotal Value-Chain AnalysisTarget CostingLife-Cycle Management and Costing
Operational considerationsActivity Based Analysis JIT Operations: A Management PhilosophyTotal-Quality Management and Costing
Strategic Cost Management
Strategic position analysis--an organization’s basic way of competing to sell products or
services.
Strategic position analysis--an organization’s basic way of competing to sell products or
services.Value chain analysis--the study
of value-producing activities, stretching from basic raw
materials to the final consumer of a product or service.
Value chain analysis--the study of value-producing activities,
stretching from basic raw materials to the final consumer
of a product or service.
Cost driver analysis--the study of factors that cause or influence
costs.
Cost driver analysis--the study of factors that cause or influence
costs.
Porter’s Strategic Positions
Cost leadership
Product or service differentiation
Focus on market niche
DEVELOPING COMPETITIVE ADVANTAGE
DifferentiationAdvantage
Stuck-in-theMiddle
Differentiationwith Cost
Advantage
LowCost
Advantage
Relative Cost Position
Inferior Superior
RelativeDifferentiation
Position
Inferior
Superior
VALUE CHAIN ANALYSISFocus of the analysis
External vs. Internal (traditional)Highlights profit improvement areas
Linkages with suppliersLinkages with customersProcess linkages within a business unitLinkages across business units
Steps in the analysis
Identify an industry’s value chainAssign costs, revenues, and assets to value activitiesDiagnose cost driversDevelop sustainable competitive advantages
VALUE-CHAIN & STRATEGIC MANAGEMENT
Customer Customer FocusFocus
Customer Customer FocusFocus
Research Research and and
DevelopmentDevelopment
Research Research and and
DevelopmentDevelopmentProductProduct
AndAndServiceServiceProcessProcessDesignDesign
ProductProductAndAnd
ServiceServiceProcessProcessDesignDesign
ProductionProductionProductionProduction
MarketingMarketingMarketingMarketing
DistributionDistributionDistributionDistribution
ServiceServiceServiceService
ESTABLISHMENT OF TARGET COSTS
MarketResearch
DefineProduct/Customer
Niche
Define ProductFeatures
RequiredProfit
Target Cost
CompetitorAnalysis
UnderstandCustomer
Requirements
EstimatedMarketPrice
RequiredProfit
Group ActivityInstructions- Each group should have 5 students- At least two members should present
about the findings Topic -Explain the impact to the Strategic Management Accounting on Information Technology