StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Strategic Management Accounting in University - Essay Example

Cite this document
Summary
The study analyzed the different management accounting techniques by the management of University to assess the usefulness of those techniques and the other techniques which could be used in place of them which will enhance the quality of the strategic decisions. …
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER94.4% of users find it useful
Strategic Management Accounting in University
Read Text Preview

Extract of sample "Strategic Management Accounting in University"

?Strategic Management Accounting in Contents Introduction 3 2 Performance Indicators 3 2 Traditional method 4 2.2 Methods used by the university 5 2.2.1 Limitations of the current methods 7 2.3 Newer approaches 8 3 Costing 9 3.1 Service costing 9 3.1.1 Activity based costing 10 4 Budgeting techniques 11 4.1 Activity based budgeting 12 4.2 Cost reduction and zero based budgeting 12 4.3 Beyond budgeting versus better budgeting 13 5 Conclusion 13 6 Reference 15 1 Introduction Every organization whether it is a profit making organization or non-profit making organization has various vision and mission. The objectives or the organisations are focussed on this achievement of the vision and mission of the organisation. The organisation at various time adopt a number of strategies to achieve the mission of the organisation. These strategies are focussed on the objectives of the organisation. To achieve the organisational objectives it is very important to control the activities of the organisation. In this regard tools and techniques of management accounting can be used to control the organisational activities and direct them towards the attainment of the organisational goals. Thus strategic management accounting helps the mangers to take strategic decisions by providing useful financial and nonfinancial information. This project highlights the different segments of strategic management accounting including the performance indicators used by the University of Newland. The different management accounting techniques by the management of University of Newland have been analysed to assess the usefulness of those techniques and the other techniques which could be used in place of them which will enhance the quality of the strategic decisions. To assess the strategic position of the university the internal and external analysis has been done in order to assess the organisational and educational environment as a whole. 2 Performance Indicators The performance indicators are the tools which are used to measure and evaluate the performance of the company. Like business organisations other non profit organisations like the schools and universities also has some mission and objectives. Different strategies are taken from time to time to achieve these objectives. The strategies are implemented with the help of a number of activities whose progress has to be assessed in order to control the activities and assure the achievement of the goals of the organisations various type of performance indicators are used by the organisation. In this segment the various forms of performance indicators used by the organisations including those which are used by the University of Newland has been analysed to assess the present techniques used by the management of the of University of Newland and identify the alternative techniques which can be used by the university to measure the performance. 2.1 Traditional method Traditionally organisations used to measure their performance with the help of various financial techniques like ratio analysis, trend analysis etc. These techniques were used to evaluate the performance of the companies or other organisations and the results were often compared with that of the desired level of the organisation which is also termed as benchmark. Ratio analysis is done on the historical data that is after the activities have already been done and the financial statements have been prepared. Most of the data used in ratio analysis are mainly used from the financial statements. The ratio analysis helps to ascertain the financial position of the organisation as well as the profitability and the managerial performance of the organisation. This is a very useful and convenient performance indicator which is prevalent in today’s time also. The main disadvantage of ratio analysis is that ratio analysis uses historical data which cannot be used to analyse the ongoing performance of the organisation. Another disadvantage of this kind of performance measurement tool is that through this type of analysis only financial parameters can be assessed but the nonfinancial performance cannot be measured through the traditional performance indicators. Hence the ratio analysis is insufficient to indicate the ongoing performance. 2.2 Methods used by the university University of Newland uses a variety of techniques to measure the performance of the organisation. The main techniques which are used to measure and indicate the performance of the university are responsibility accounting, standard costing and return on capital employed. The three techniques which are used by the university are the management accounting techniques used for controlling the organisational activities. The University of Newland uses standard costing, responsibility accounting and return on capital employed as a base to ascertain the bonus and promotion of the staff. In order to assess the efficiency of the techniques all the three techniques have been discussed in detail: Standard Costing: Standards signifies the benchmark or a norm which is used as a yardstick to measure the performance of different activities of the organisation which are compared with the predetermined standards. Thus standard costing is that branch of cost accounting which is used to compare the actual performance of the organisation against the predetermined standards and reflects the variances of the actual performance from the standard ones. Hence standard costing is an effective tool for controlling the activities of the organisations as it enables the managers to compares the actual performance with that of the standards and helps them to assess the reason behind the variance in the performance. University of Newlands uses standard costing to control the various service departments like cleaning, catering etc. This means that that the university fixes standards of material cost, usage, labour rate, efficiency of labour, cost of overheads etc. The University of Newlands compares the actual performance of the services department with that of the predetermined standards which in turn helps the management of the university to identify and assess the probable reason behind the variance in the performance. The main advantage of this techniques is that it helps to control the costs, enable the management to identify the reasons behind the wastage of resources, helps in measuring performance, helps the managers in controlling and decision making using the principle of ‘management by exception’ etc (Rajshekharan and Lalitha, 2011, p.605-608). Responsibility Accounting: The University of Newlands uses responsibility accounting as a basis to evaluate the performance of the employees and other staffs of the university in order to commute the incentives and bonus. The basic premise of the responsibility accounting is that each cost to be incurred in the organisation must be the responsibility of some or the other person. Like the head of the sports department will be responsible for the costs to be incurred for sports activities and equipments. Thus the persons who will be managing the activities will be responsible to manage the costs of those activities. This method helps to enable the managers to have a customised reports of costs and also the performance of each head of the responsibility centre can be easily assessed which in turn helps in evaluating the performance and controlling the activities of the organisation. In a research done on the controllability aspect of responsibility accounting it was that if the activities or ‘variable’ of an organisation can get affected by the actions or the decisions of the manager then the mangers can also control that activity or particular ‘variable’(Antle and Demski, 1988, p.715). Return on capital employed: Return on capital employed is a part of the traditional approach of performance measurement. Every investment in made with a view of achieving some return from that investment. University of Newlands has different departments like computing social science etc. These departments are considered as the investment centres as various types of investments are done in these departments like cost of selection tests, developments of different laboratories, expenditure on study materials etc. The standard return which each of the investment centre has to earn every year is 7% on the capital employed that is the funds used for the investment centres. Thus ROCE is used to measure the performance of the different investment centres by comparing the actual ROCE with the desired one. This helps the university to analyse whether the funds provided to the various investments centres have been utilised well or not. 2.2.1 Limitations of the current methods The current methods used for measuring the performance of the university suffer from a numbers of limitations. First of all the return on capital employed which is used to measure the performance of the investment centres highlights only the financial aspects to the departmental performance. The efficiency of the departments is also affected by a number of nonfinancial factors like training of the employees, structure of the organisation etc. The non financial aspects of the departments cannot be analysed with the current techniques practised by the university. Again the standard costing also suffers from a number of limitations like for activities which are no repetitive and unique cannot be judged with the help of standard costing. Standard costing can only help in controlling the future activities and hence the present or past activities cannot be corrected (Rajshekharan and Lalitha, 2011, p.208). Therefore the management of the University of Newlands should consider the newer techniques of control and performance measurement and could include the newer techniques like balance score card along with the other performance indicators. The educational institutions are developed for a certain cause like intellectual growth etc and are generally financially supported by a number of charitable institutes and other business organisation therefore the management has to attain a correct balance in fulfilling the desires of the stakeholders and improving the performance of the institution in terms of student developments, finance, utilization of the resources of the organisation and the growth the intellectual capital (Philbin, 2011, p.34-35). In this regard the methods which the university is currently working on will not be sufficient to achieve and maintain that specific balance. 2.3 Newer approaches In the previous section the limitations of the current methods which are followed by the University of Newlands have been discussed. In order to offset the limitations of the current performance indicators the University of Newlands should consider to new approaches of performance measurement and control. As mentioned in the previous section that the educational institutes like universities are also answerable to its stakeholder. Therefore the universities should also have to measure their performance in an efficient manner (Papenhausen and Einstein, 2006, p.15). The most popular method which is used for controlling and performance appraisal is balanced scorecard which was developed by Robert Kaplan and David Norton. Balanced score card is a strategic tool which is used to analyse, monitor and measure the organisational performance by comparing the performance with that of the goals of the organisation. Apart from the financial perspective balanced scorecard measures the organisational performance from point of view of internal business process, learning and growth and customer (stakeholders). Every perspective has different objectives and targets like in case of a university the financial targets can be increasing grants, developing revenues etc the targets of the internal process perspective can be increasing quality of the faculties, teaching excellence etc; the actual performance is measured against the set targets with the help of the specified measures. With the help of the balanced score card the ongoing activities can be monitored and any variance can be corrected before the activity gets completed. Thus balance score card enable the mangers to control the present activities on every day basis. It not only helps in appraising the financial performance but also the non financial performance can also be evaluated (Balanced Score Card Institute, 2011). In the research done by Al-Ashaab et al it was found that the effects of the different projects of the universities can be easily tracked, improved and measured with the help of balance scorecard (Al-Ashaab et al, 2010, p.554). Hence balance scorecard eliminates all the defects of the current performance indicators of the university. The proponents of the balanced score card has also mentioned that the perspectives of the balanced score cards are not limited to the four as developed by them in fact the more perspectives can be added which could make the tool more effective in performance measurement and control this would in turn make the implementation more difficult. Moreover the balance score card can only be useful if it can be effectively implemented which is quite tough in an operational situation. Therefore other techniques like TQM, Six Sigma, and Benchmarking etc should also be adopted as a measure performance instrument (Paranjape, Rossiter and Pantano, 2006, p.4-10). Apart from this the fulfilment of social responsibilities can also be used as a measure to assess the performance. 3 Costing In this segment the issues regarding the methods of costing used in the University of Newlands have been discussed. 3.1 Service costing Service costing is a segment of cost accounting which provides the tools to measure the cost of the services. Like products, different types of services provided by different organisations incur various types of costs. As the services are intangible therefore different cost units are ascertained like the costs of services provided by the hospital is ascertained by patient per bed or patient per operation or the costs of the services of a passenger transport company is measured as passenger kilometre. In this regards the cost unit used by educational institutions is student hours or ‘equivalent full time students’ (Dutta, 2009, p.8.2). The total cost of the services also includes the variable cost, semi variable cost and the fixed cost. The most difficult part of costing is the allocation of the overhead costs. Wrong allocation of the overhead costs would unnecessarily increase the cost of the services which can in turn decrease the profits of the services. Currently the university is using direct labour hours (DHL) methods to allocate the overhead expenses. The main short coming of this method is that allocating all the expenses using DLH is logically not correct. In case of the University of Newlands the direct labours hours has increased due to decrease in the number of staff and as the costs are allocated using DLH which in turn would lead to wrong allocation of overhead costs and hence the profits of the some of the departments would be overvalued and some would be undervalued. Hence the university should allocate the overheads costs using activity based costing method in which costs are allocated on the basis of the cost drivers of the different activities. Therefore issue of service costing can be solved with the help of activity based costing but in order to adapt this method the University of Newlands has to identify the factor which can be used to allocated the costs of the activities. 3.1.1 Activity based costing In the previous section the issue faced by the University of Newlands while allocating indirect expenses has been discussed. The main problem that the organisations may face while allocating all types of overhead expenses on the basis of one single factor is that the costs of individual costs centres may be either over charged or undercharged. As mentioned in the previous section the university can combat this limitation by adopting more advanced approach of cost allocation like activity based costing. As per activity based costing the costs of the overheads are allocated to production or different service providing departments according to definite factors which are called cost drivers. The activity for which the cost is incurred is called as the cost driver for example floor space occupied drives the cost of rent of the room or building. As per the activity based costing the reason behind every overhead cost is different therefore the cost allocation should also be done as per the reasons behind the cost as allocating different overhead costs on the basis of a single factor will not give correct results. In order to implement activity based costing first of all the major organisational activities have to be identified, secondly the factors behind the activity’s cost have to be identified, thirdly the costs pools have to be developed by collecting the total costs of all the organisational activities and fourthly allocating those costs as per the costs drivers (Lucey, 2007, p.14-16). 4 Budgeting techniques In this segment the budgeting techniques have been discussed. The University of Newlands currently uses the incremental technique of budgeting. The incremental budgets are prepared on the basis of the past year’s budget or the actual costs and income incurred in the previous year. This is increased or decreased as per the possibilities of inflation. The main disadvantage of this type of budgeting is that it assumes that all the costs which have been incurred in the previous year will also incurred in the present year and all these costs will increase year after year which in turn does not enable the managers to reconsider the costs and analyse them from the point of view of optimum allocation of resources (Oliver, 2000, p.60). 4.1 Activity based budgeting Activity based budgeting is a new type of budgeting technique in which those activities for which the organisation incur costs are recorded and analysed in detail to assess and identify the relation of those activities with that of the strategic objectives of the organisation. After ascertaining the importance of each activity separate budgets are prepared as per the activities. This type of budgeting helps determining the budgets as per the activities enables the management to understand the behaviour of the indirect costs in a better way and at the same time improves strategic decisions making (Smith, 2007, p.225). 4.2 Cost reduction and zero based budgeting Zero based budgeting is a method in which the budgets are prepared without referring any previous data or budget. In zero based budgeting every cost centre or department is analysed in detail to assess the costs to be incurred. In simple terms as per the zero based budgeting techniques the budgets are prepared every time as if they are being prepared for the first time. The concept of zero based budgeting came in 1970s. Zero based budgeting helps in identification of main organisational activities, importance of each activity with that of the organisational objectives and mission and enables the organisation to identify the probable sources of funds (Maddox, 1999, p.224). The University of Newlands may have an admission department which may perform several activities like organising selection process, processing applications, arranging interviews etc. A zero based budgeting in this regard will unable to department to identify the most important activity as per the situation and organisational objective and will help the management to plan the activities as per the priority and locate the source of funds in a more planned manner. This type of costing is aimed at allocating resources optimally. In costs reduction techniques the activities which are adding value to the organisations are analysed and the budgeting is done as per the analysis. 4.3 Beyond budgeting versus better budgeting In budgets the future activities are planned in terms of numerical figures. Many limitations were detected in the traditional budgeting system and in order to overcome these limitations the concept of beyond budgeting was developed. Beyond budgeting can be described as the principles which would help the companies in managing their performance and at the same time would also help to make decisions. Beyond budgeting techniques will enable the company to mould itself as per the different unforeseen conditions. As per the beyond budgeting idea instead of using traditional budgeting newer techniques like benchmarking, rolling forecasts etc should be followed. This can be implemented by setting targets, rewarding employees, resource management, coordinated actions, measuring performance etc. There are also views that the budgets can be efficiently used if the budgeting process is improved (Michael and Technical Information Service, 2007). In fact the organisations should improve the budgeting techniques and mix some of the beyond budgeting techniques which would make the budgets more useful and efficient. Research on South England’s companies proved that employees’ satisfaction has increased more in those companies where budgeting techniques were improved than those where it wasn’t (Chartered Institute of Management Accountants and Faculty of Finance and Management, ICAEW, 2004, p.14). 5 Conclusion After analysing the strategic environment, costing and budgeting techniques it can be concluded that the education environment is quite favourable to successfully run universities but the costing and budgeting techniques used by the University of Newlands is quite outdated and the University must adopt the newer approaches of cost allocation and budgeting which would improve the strategic position and efficiency of the organisation. The organisation should also adopt the newer performance indicators which would not only increase the efficiency of the organisation but will also help the organisation in achieving the strategic goals. 6 Reference Antle, R. and Demski, J. S. (1988). The Controllability Principle in Responsibility Accounting. [Pdf]. Available at: http://www.personal.psu.edu/sjh11/ACCTG597E/Class15/AntleDemskiTAR88Controll.pdf. (Accessed: December 1, 2011). Balanced Score Card Institute. (2011). Balanced Scorecard Basics. [Online]. Available at: http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx. (Accessed: December 1, 2011). Chartered Institute Of Management Accountants and Faculty of Finance and Management, ICAEW. (2004). Better Budgeting. [Pdf]. Available at: http://www.cimaglobal.com/Documents/ImportedDocuments/betterbudgeting_techrpt_2004.pdf. (Assessed on: December 3, 2011). Dutta, M. (2009). Cost Accounting: Principles and Practice. India: Pearson Education India. Lucey, T. (2007). Costing 6th ed. China: Cengage Learning EMEA. Maddox, D. C. (1999). Budgeting for not-for-profit organizations. USA: John Wiley and Sons. Michael, A. and Technical Information Service. (2007). Beyond Budgeting. [Pdf]. Available at: http://www.cimaglobal.com/Documents/ImportedDocuments/cid_tg_beyond_budgeting_oct07.pdf. (Accessed: December 1, 2011). Oliver, L. (2000). The cost management toolbox: a manager's guide to controlling costs and boosting profits. USA: AMACOM Div American Mgmt Assn. Rajshekharan,V. and Lalitha, R. (2011). Cost Accounting. India: Pearson Education. Smith, J. A. (2007). Handbook of Management Accounting 4th ed. Great Britain: Elsevier. Al-Ashaab et al. (2010). A balanced scorecard for measuring the impact of industry–university collaboration. UK: Taylor & Francis. Philbin, S. P. (2011). Design and implementation of the Balanced Scorecard at a university institute. Emerald Group Publishing Limited. Papenhausen, C. and Einstein, W. (2006). Insights from the Balanced Scorecard Implementing the Balanced Scorecard at a college of business. Emerald Group Publishing Limited. Paranjape, B. Rossiter, M. and Pantano, V. (2006). Insights from the Balanced Scorecard Performance measurement systems: successes, failures and future – a review. Emerald Group Publishing Limited. Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Strategic Management Accounting in University Essay”, n.d.)
Retrieved from https://studentshare.org/finance-accounting/1392918-strategic-management-accounting-in-university
(Strategic Management Accounting in University Essay)
https://studentshare.org/finance-accounting/1392918-strategic-management-accounting-in-university.
“Strategic Management Accounting in University Essay”, n.d. https://studentshare.org/finance-accounting/1392918-strategic-management-accounting-in-university.
  • Cited: 0 times

CHECK THESE SAMPLES OF Strategic Management Accounting in University

Strategic vs Traditional Management Accountancy

It is due to this reason that strategic management report is considered to be one of the most important forms of management accounting in the present days.... strategic management accounting Table of Contents Table of Contents 2 Literature Review 3 Role of Strategic management accountant and its contrast with traditional management accountant 3 The contribution of strategic management accounting techniques for increasing the global competitiveness 5 Practical implications 5 Critical View 6 Reference List 7 Literature Review Role of Strategic management accountant and its contrast with traditional management accountant strategic management accounting which is one of the forms of management accounting emphasizes on the information related to the external and non-financial factors of an organization....
5 Pages (1250 words) Literature review

Nature and Importance of the Finance Function

management accounting is the process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information that assists managers in specific decision-making within framework of fulfilling the organizational objectives (The ICFAI University Press, 2004).... anagement accounting --- Importance of Stakeholders In the highly competitive environment, the survival of an organization may depend on how well stakeholders are managed....
12 Pages (3000 words) Essay

Management Accounting as a Part of Strategic Process

Furthermore, the essay would describe and evaluate tools and techniques used for the purpose of management accounting with regard to organizational performance.... hellip; CIMA London defines management accounting as “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”....
4 Pages (1000 words) Essay

Strategic Management Accounting

In its basic and easy form, strategic management accounting is basically a study that gives financial information about the expenses of the competitor; company's financial position as far as the market is concerned and also has an eye on ventures plans of both of its own and of its competitor's over a number of periods.... This emerging concept had given an emerging life and provided emerging ways in strategic management accounting.... The dealings that required developing strategic management accounting came thoroughly on the end that is rather conflicting....
20 Pages (5000 words) Essay

Management and Cost Accounting

(Samford university, School of Business, Birmingham, Alabama, USA) We at William & Co.... The paper "Management and Cost accounting" highlights that the divisional performance measures should be established after taking into consideration both the long term and short term objectives and analyzing the strategy to be followed to achieve those objectives.... Consultants have made a feasibility study on the implications and benefits of implementing throughput accounting at BITE ME....
8 Pages (2000 words) Assignment

Future of Strategic Management Accounting

The research paper “Future of strategic management accounting” has dealt with the traditional and modern methods of accounting.... The objective of this paper is to analyze the different flaws of 'Management Accounting' and present the modern technicalities of 'strategic management accounting'.... hellip; The research paper studies the future of 'management accounting' in an organization.... management accounting is that branch of accounting that helps the managers in an organization to take business decisions and thus equips them with better implementation of their accounting knowledge....
10 Pages (2500 words) Coursework

The Future of Management Accounting

There are many different factors that classify strategic management accounting.... There are fundamental differences associated with management accounting practices and those calling for strategic management accounting.... This paper “The Future of management accounting” identifies the difference between the two roles in order to identify whether management accounting will evolve into a strategic function over time....
10 Pages (2500 words) Coursework

The Imperative of Adopting Strategic Management Accounting at Jessup

This report "The Imperative of Adopting strategic management accounting at Jessup" highlights the role of strategic management accountant and makes a recommendation to Jessup about the most viable opportunity for incorporation into the existing business model.... There are distinct differences and similarities to the role of strategic management accounting versus traditional management accounting function.... strategic management accounting maintains many of the same economics-based functioning, with less emphasis on existing systems and more emphasis on long-term imperatives for the business....
10 Pages (2500 words) Research Paper
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us