Management Accounting Tools in Decision Making within the Nigerian Banking Sector - Research Proposal Example

Summary Research in managerial accounting has focused on understanding and analyzing the demand of the internal information for the purpose of makingintelligent decisions in order to achieve operating efficiency and performance. (Selto & Widener, 2001). Research on the subject therefore has been concentrated on the objectivity as well as relevance of the research in terms of its use for decision making purposes. Managerial accounting therefore had more relevance for manufacturing sector rather than the services sector as there have been lesser interest in using managerial accounting as a preferred tool of management decision making specially in banking sector. However, as the de-regulation took place within the sector, the banks were forced to compete with each other on pricing as well as non-pricing factors and put further pressures on monitoring the costs as well as spreads in order to remain competitive. This research will attempt to study the relevance of management accounting, at different organizational levels i.e. strategic, tactical as well as at operational level, in the 10 major banks of Nigeria. Literature Review Nigeria is one of the promising economies in the world with strong growth prospects being shown in the recent past of the genuine economic growth to take place. The economic reforms in the country have however picked up during 1980s when an IMF led reforms took place however, they yielded mixed results for Nigeria mainly due to its internal strife, corruption and opinion which basically restricted the government to take much tougher economic reforms. After prolonged military rule in the country, it started its journey towards freedom is 1990s by inheriting an economy which was lot more weaker and riddled with external debt and mounting current account deficits.( Obadina,1999). However, what is also important to note that the Nigeria’s economy got a strong boost when the oil prices in the international market started to rise thus giving the economy much needed breathing space to initiate economic reforms directed at achieving sustainable economic growth. The banking sector reforms in Nigeria’s banking sector are happening since 1952 and as a result the sector has witnessed consolidation. (Ogidefa, 2008). As a result of this consolidation, the overall capital requirements have increased too therefore banks are now faced with not only becoming more efficient but also require to be profitable in order to increase their profitability so that the overall statutory requirements of minimum capital can be achieved. One of the aims of this consolidation into the banking sector of Nigeria is the fact that the increasing consolidation and mergers would flush out the weaker and more ineffective operators out of the business. This act of consolidation therefore would entail that the existing players must develop the internal capabilities to remain profitable while meeting the statutory requirements. This forceful drive towards profitability and more efficiency would therefore require banks to implement strong management practices which can help them to better control costs in order to be more robust and flexible in responding to the external as well as internal shocks. The consolidation into the banking sector is also a result of the implementation of BASEL II which requires banks to follow a set of best practices to avoid taking extra risks and cultivate the required degree of risk based capital enough to withstand the external as well as internal shocks to the banking sector. It defines Operation Risk as one of the risks faced by the banks and as such outlines that the banks must ensure that the risks arise out of the people, systems and procedures shall be minimized. However, implicit in this accord is the emphasis for being more efficient in terms of operations which also mean that banks must develop internal mechanism which can allow them to have better internal control environment in place so that they can insulate themselves against losses incurring from operational in-efficiencies. Given the current state of the Nigerian Banking sector, it is therefore, important that the management accounting shall be implemented as an evaluating tool for controlling the costs as well as profitability in order to achieve operational effectiveness. This research aims to study the relevance of the application of different management accounting tools and techniques within the banking sector of Nigeria in a wake of above consolidation of the banking sector. The tools included the analysis of profitability through contribution ratios, analysis of the variances under different expenditure heads such variable cost analysis, fixed cost/overhead analysis, preparation of flexible budgets, cost volume profit analysis etc. The major field of exploration therefore would involve a thorough understanding of the role of managerial accounting in the decision making within banking sector and subsequently this would be extended to the banking sector in Nigeria. This would be done with the aim of further understanding the relevance of managerial accounting to the Nigerian Banking sector by studying the current practices of the banks in order to analyze whether there is a need for implementing modern tools and techniques of managerial accounting in terms of achieving profitability and controlling costs. Aims & Objectives of the research This research paper will present a detailed understanding of the relevance of management accounting tools and techniques in decision making within the Nigerian Banking Sector by specifically looking at the following research objectives: 1. To define the overall scope of using managerial accounting in banking sector of Nigeria. 2. To understand and analyse which tools and techniques are most beneficial and will yield maximum results. 3. To define whether the implementation of such tools and techniques shall be the part of the prudential regulations set by the supervisor of the banks in order to force banks to become more disciplined. 4. To establish the relationship between the use of managerial accounting with the emerging concepts of risk management specially operational risk management. 5. To identify the organizational factors responsible for the success and failure of the implementing such control measures. The researcher would therefore focus on understanding and assessing how the following managerial accounting tools can be used in Nigerian Banks: 1. The analysis of different variances including variable as well as fixed costs. This analysis may be used at the tactical level. 2. Possibility of implementing budgets and monitoring of such budgets. The relevance of these tools at the operational level will be considered in this research. 3. The analysis of the contribution margin and ratios for profitability analysis of interest as well as non-interest based profits. This will be a strategic level usage of the management accounting. 4. Profitability analysis on Strategic business unit level as well as individual product levels. This will be a strategic level usage of the management accounting. 5. Analysis of the variances between actual versus target deposits and lending. This will be a strategic level usage of the management accounting. 6. Analysis of the different valuing methodologies such as NPV, Payback period etc strategic level decision making. Research Paradigm and Methodology The major aim of this research is to understand the relevance of management accounting tools and techniques to the Banking sector of Nigeria. Therefore, the major emphasis would be on assessing and analyzing the major banks of the country. It is for this purpose that this research would be conducted on top 10 banks of the country with an aim to explore the existing practices of banks in terms of internal control and decision making. Based on the intended research objectives, this research will be divided into both qualitative research methodologies. It has been argued that the study of the qualitative factors defines the motivational factors behind understanding and evaluating any phenomenon. Ambert et.al ( 1995) is of the view that qualitative research rather focuses on depth than the breadth of the variables under study. As such qualitative research also focuses on how the different variables behave to. Therefore, focus on the structural and procedural issues. (Ambert et.al, 1995). Therefore, as a part of this research therefore a detailed research questionnaire will be developed consisting of both the close ended as well as open ended questions. The major data collection will be through this questionnaire as well as survey methodology which will also be performed hand to hand while collecting data through questionnaire. Apart from the survey of existing documents and banking practices, researcher will also involve into conducting in-depth interviews of the executives of the banks in order to assess their views and opinions regarding the possibility of how the existing management accounting tools can be implemented within the banking sector to achieve the necessary efficiency and effectiveness. The ultimate outcome of this data collection wills the evaluation of the relevance of the managerial accounting tools and techniques for banking sector in Nigeria. The first phase of this research will be spent on designing the questionnaire as well as interview questions besides designating and setting up priorities for conducting the survey. The research intends to complete this task within first quarter of initiating the research. For next six to 9 months, data will be collected through questionnaire, interviews as well as the surveys and finally subsequent period will be spent on analyzing and evaluating the data besides integrating it into the final dissertation. Access I have been granted access to 10 major banks of Nigeria that have allowed me to approach their managers, on a regular basis to conduct in-depth interviews, questionnaire filling as well as allowing access to their accounting manuals. References 1. Ambert, Anne-Marie, Adler, Peter and. Detzner. Daniel F (1995). Understanding and Evaluating Qualitative Research. Journal of Marriage and the Family. 57 (4), pp. 879-893. 2. Ogidefa, Ivor. (2008). Consolidation in Nigerian Banking Industry. Available: http://www.bizcovering.com/Business/Consolidation-in-Nigerian-Banking-Industry.326505. Last accessed 07 Feb 2009 3. Rezaee, Zabihollah. (2005). The Relevance of Managerial Accounting Concepts in the Banking Industry. Journal of Performance Management. 0 (0), 1-10. 4. Selto, Frank H. & Widener. Sally K. (2001). Relevance of Management Accounting Research. Available: http://www.clt.astate.edu/ddearman/ACCT6003/Course%20Documents/Papers/RelevanceOfMgmtAcctResearch.pdf. Last accessed 07 Feb 2009. Read More