Advanced Management Accounting - Essay Example

Advanced Management Accounting Contents Introduction 3 Discussion 3 Conclusion 10 References 11 Introduction Management control system is used as a parameter for evaluation of performance of the resources of the organization which will affect the organization behaviour towards implementation of organizational strategies. The techniques that are used in the management control system are activity based costing, balance score card, budgeting, capital budgeting, total quality management, just in time inventory, target costing, bench marking. It deals with planning, coordination, motivation, allocation of resources and measurement of performance. Management control system can be divided in two categories, the first categories includes the output or the result control which is measured and monitored. This will help the management in adopting corrective measure. This also includes administrative control which involves laws, regulations, norms, standard procedures. The second category deals with personal control, social control and behavioural control. Management control system serves as language and helps in communication system. Management control system also plays the role of transfer pricing for performing the strategic functions of the organization. Discussion The main challenges faced by the top level management while implementing management control system effectively are: Lack of dedication and commitment from the top level executives Management control system can be effectively designed and implemented if there is dedication and commitment in the top level executives (Giraud, Zarlowski, Saulpic, Lorain, Fourcade and Morales, 2007). The less involvement, less initiative and also less interest in the activities among the top level executives will lead the top management in diverting its attention to other areas, which is not suitable for the smooth running of the organization. Delay in delivery of projects, lack of proper synchronization between projects, lack of relation of project with the strategy The Organization’s which completes there project in time establishes its budget and fulfilment of the maintenance of quality is considered as a successful company or organization (NOEVERMAN, 2007). Therefore if the organization is not able to complete its project in time can lead or act as a challenge for delivery of project in time. Lack of cross – functional communication Effective communication is a main function for exchanging of information between the people in the organization. It serves as a source for exchanging of ideas (Arsh, 2010). The changes that are adopted in the organization have to be clearly communicated among the persons in the organization and also provide the rationale for the changes undergone by the organization (Neale & McElroy, 2004). Lack of proper method to measure the benefits of the project and the lack of the resources for analyzing the project data and constraints of the people The organization must clearly define the benefits that the organization expects from the project and the challenges or obstacles towards receiving those benefits (Malmi & Brown, 2008). The organization will require financial and human resources for analyzing the data for receiving the benefit and implementing the plan. Financial barrier and the lack of proper and adequate training Organization consists of the resources, equipments premises, materials, infrastructures. There should be skill and competency in the employees for successful implementation of the projects in the organization (Garrison and Noreen, 2012). The project will be successful only if the skill and competency is there in the management for the successful implementation of the organization. Analysis of results For the analysis of the results the qualitative data is to be presented. The analysis of the result requires deeper insight into the functions of the organization (Kaplan & Norton, 2004). Problem in implementation of the strategy The managers allocated for the different role in the organization as well as the employees must clearly understand the plan and the objectives of the organization for implementing the strategy of the organization (Drury, 2012). Simon pioneered the decision making process. He mainly focused on the three stages that are required for the effective decision making which includes the intelligence design and choice. Business strategy is developed or formulated for achieving the desired goal. Business strategy is designed for achieving the mission, vision, objectives of the organization. Business strategy provides core values, risk to be avoided, strategic uncertainties, and critical performance variables. Core value is a belief system it provides guidance an organization to maintain relationship with the internal as well as external world. Core values guides an organization in reaching to its desired goal. Business strategy provides guidance for the management of the risk by identifying, assessing and prioritizing the risk. Uncertainties are very often faced by the customers. Strategic business plan can help the organization in facing the strategic uncertainties of the organization. Critical performance variables come under the diagnostic control system which identifies and examines the resistance factor required for designing the strategy in the organization. The feedback received after formulating the business strategy. The data is collected and introduced to implement the model and future prediction is done accordingly. The data is implemented and output is provided. The output focuses on the liquidity and profitability, uncertainty of environment. Then the feedback is provided by the automatic regulator to update the model and the feedback control loop is then closed. The predictive model mainly deals with the feed forward and double loop. Figure 1: Predictive model Feed forward system provides signal to its external environment. It provides a pathway inside the control system. Double loop learning guides an individual and also the organization to modify and reformulate its goal on the basis of different circumstances in the perspective of the experience. The steps that are formulated for planning the Management accounting control system are as follows. The Management accounting control system while decision making have to establish various short term and long term plans which can help the organization in reaching to its goal. Next is implementation of the plan that was established and carries out the work according to the plan. After implementation the performance is to be measured. And finally comparison is to be done with the target set by the organization. The target set for management accounting control system. Figure 2: Performance Targets The target motivates an employee to work more productively. The basic things that are required to achieve the targets are that the targets are to be clearly defined and explained. The targets are to be set up on the basis of financial or quantitative term so that it can be negotiated the data should be engineered and historical. The targets are to be mutually agreed by all the people in the organization and also the top level; executives for attaining the goals of the organization. The target should not be set up in such a way that it becomes impossible for an organization or the top level executive to achieve it. Consistency in the implementing the management control system is very important. The consistent control system the following factors are to be considered: Culture and norms or beliefs of the employees in the organization, Sales people should be motivated, encouraged and incentives should be provided to them, customers are to respected and there issues are to be solved, Priorities should be given for the attainment of goal and customer satisfaction, Resources should be well utilized. The effective measure adopted for facing the challenges faced by the organization The balance score card which was introduced as an improvement over the traditional technique adopted by the organization (Hill, and Jones, 2007). It is not a replacement of the financial measures that were adopted but a compliment to the old financial service. Now day’s companies have started using the balance score card as a measure to implement a new strategic management control system. Balance score card have reduced the deficiency and disadvantage of the traditional method of formulating short as well as long term management strategy. Many company operational and management control system are developed on the basis of the financial methods and targets which have a very less relation in the progress of the company for attainment of long term objectives of the organization for fulfilment of its strategy (Johnson, Schools and Whittington, 2007). The executives who adopt the balance score card do not depend or undertake the short term financial measures as a standard for measuring the performance of the company. The balance score card helps in the combination of the short term and the long term strategy for effectively implementing the management control system. Figure 3: Managing Strategy of Balance Score Card The first step or the process for managing the strategy is translating the vision which helps the organization in developing objectives towards attainment of the vision and the strategy of the organization. For implementing the vision and the strategy the objectives should be coordinated and integrated. The second step or the process is communicating and linking, the managers should be able to communicate its strategy in all the levels of the organization both up and down for the attainment of its individual as well as departmental objectives. The balance score card provides the managers in all levels of the organization to understand the long term strategy for the alignment of both departmental as well as individual objectives of the organization. The third step or the process is business planning which provides the companies to combine its business as well as financial plans. The top level executives now a day’s face difficulties in integration of the different initiatives towards the achievement of the strategic goal (Kaplan and Norton, 2006). The managers when they use balance score card undertake various ambitious goals for allocating and establishing priorities which will help them towards attainment of long term objective. The fourth step and the process is the feedback and learning provides the company for strategic learning. The reviews and the feedback of the organization helps the organization is assessing whether the employees have reached the goals of the organization or fulfilled the financial budget of the organization (Kaplan and Norton, 2006). Conclusion Management control system same as any other system of management faces various obstacles and challenges towards the effective implementation of the management control system. Challenges are faced at the time of implementation of the strategies of the organization. The framework required for the effective implementation of the management control system includes transforming unawareness to awareness, understanding, planning, implementation, consolidation and customization. The balance score card was developed with an intention for formulating new strategic system of management which helps the top and the senior level executives in focusing the critical issues of the management. The criteria or the perspectives that are covered under the balance score card are customers, process, internal business, learning and growth. It helps the organization in tracking and monitoring the financial results of the organization and also for acquiring the intangible assets of the organization such as the goodwill for the growth and development of the organization. Thus the score card acts as a mirror in reflecting and modifying the strategies of the organization. References Arsh, H., 2010. Management control system. [pdf]. 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Alignment: How to apply the balance scorecard to corporate strategy. Cambridge, Mass: Harvard Business School Press. Neale, B. & McElroy T. 2004. Business finance: A value based approach (1ed). Harlow: FT/Prentice Hall. NOEVERMAN, J., 2007. Managementcontrol systems,evaluative style, and behaviour. [pdf]. Available at: < file:///C:/Users/omkar/Downloads/EPS2008120F&A9058921512Noeverman.pdf>. [Accessed 15 November 2014]. Read More