Sense-Making in Strategic Management Accounting - Literature review Example

Mаnаgеmеnt Aссоunting Name Course Lecturer Date 1,500 Words According to Tillmann & Goddard (2008), strategic management accounting is the overall skills base that combines the top management, strategies development and implementation in order to create customer value and provide an organization with a strong competitive position. There are various segments involved with strategic management accounting including sustainable value creation, creation of organizational value, performance measurement and the use of various technologies in value creation and management. There are specific tools and techniques that are applied in value analysis, project management, ethics and governance, investment evaluation, strategic business analysis, risk assessment and response and auditing procedures. As Tillmann & Goddard (2008) argues, sense-making is the capacity to integrate the past, present and future knowledge in looking at plans, abstractions and events in a certain context and come out with appropriate decisions that last beyond a specific time space. It applies in situations that are highly complex, uncertain or ambiguous. The need for situational awareness motivates a continuous effort in application of the knowable to understand the connections that exist in a context and thus anticipate a course and act effectively. Precisely, sense-making may involve a single or multiple actions as a response to a complex or a chaotic situation. It combines diverse interventions so as to create options. Analytical techniques are applied to determine the facts and the range of option. A standard process is reached with review cycle and clear measures. Sense-making in strategic management accounting In an organizational financial management, sense-making can be applied in project risk management through strategic management accounting. Sense-making contribute to a decision and practice that is taken to identify, measure, manage and report risks for achievement of project objectives. Risk is a chaotic and a major factor that accountants look into for a successful completion of a project. First, risk is uncertainty of an outcome which may be a negative threat or a positive opportunity. Strategic management accounting then takes the necessary action for keeping exposure to acceptable level and in cost-effective way. Four steps of sense-making can be applied in a project risk management scenario. Accounting managers are involved in identification, analysis and accessing reliable and up-to-date information pertinent with the project risks. The process would involve the contributions of various managers through their divergent viewpoints, ideas and information in analyzing various risks such as the change of capital and resources prices in the course of the project. This might be a two way traffic where some equipment such as hardware or software needed for the completion of the project may increase or decrease the allocated cost in project cost integration. Having wide-range ideas for a scenario, promote the capacity to see the risk in different dimensions. This gives small, multiple and diverse techniques to create the most appropriate option among them (Bhimani, 2009). Malmi & Granlund (2009) points out that, the decision-making process follows through the support of critical accounting frameworks in risk analysis and evaluation. At this point, they have to consider the facts about the material prices through historical and projections of the market conditions and circumstances. From the options range, a decision may be reached like involving settling for the cost set by the project and buying the equipments and resources needed before the prices changes. This would mean foregoing an opportunity to save some amount of money in case the prices goes down in the course of the project implementation. They might also set a certain amount of money to cater for the prices increase if at all it happens. They conclusively have to deliver the standard process for the project risk management and include a review cycle to ascertain its continuous application throughout the project. This should also incorporate some clear measures to ensure that the decision made will be delivered for the benefit of the project. Core phenomenon and the rationale of its use in the study A core phenomenon entails overall objectives for a specified value, predetermination of strategies and design, identification of value drivers, development of action plans, selecting measures, setting targets and evaluation of performance. This is taken in cost determination, financial control, information for planning and control, reduction of risk in the processes and value creation by effective use of resources. For accurate decision making, a complex issue is divided into manageable pieces and appropriate resources ensured for delivery of activities. A regular, brief management report is incorporated to take into account the vital points of accounting needs. Three aspects are put into consideration in strategic management accounting. Strategies, performance and evaluation management is applied in various organizational undertakings. Proper estimation of costs ensures that every organizational undertaking takes the appropriate or exactly amount of money as expected. This allows the combination of adequate knowledge and skills in planning and resources coordination. Sense-making is proactive and this allows strategic management accounting to deliver early warnings, make use of build experience and repeatable strategies. Precisely, this is ensured to make everyone involved in a strategy to know what to expect, how, when and where. Any change thus becomes controlled and particularly where investment and return are concerned (Cadez & Guilding, 2008). Sense-making ensures that the decision reached is responsive to the organizational, functional, management, services and environmental requirements that are specific to a cost-benefit activity. As a complex issue is broken down, any organizational undertaking assume a controlled start, the middle and the end and apply regular reviews to the progress based on the decision set. Flexibility in decisions points is ensured where the accountants takes an active review or various decisions with the delivery of organizational value. This sets an agreed quality at activity outset and a continuous monitoring of activity requirements. Sense-making in a strategic context Kivijärvi, et al (2008) argues that, there are various activities that are undertaken by a business and for them to be strategic; sense-making then becomes critical in application. For instance technology has continually shaped the strategic business advancements. In this case, any of technological development should encompass the totality of change. If it is only a single element that will be changed by application of a costly technology, it is wise to stop such an undertaking. Managers must ensure that, the cost used in buying the new equipment have to take account of and the impact on organizational personnel, relationships with the public, changed procedures, training and accommodation changes. Automation machines are such a development that may reduce need for more employees but require training and accommodating operational changes. Every development must describe the reasons for its undertaking and justify its purpose. Such reasoning and justification must be made in accordance to the estimated cost of the new development, the expected organizational benefits, the risks and the savings that are realistic and measurable. The entire scope involved with change in the organization must be covered and how the implementation will affect it. The set of information gained is then set to drive the decision-making process and to continually align the progress of the new developments. Every development must take into account the organizational standards that exist. Since such developments have major effect and impact to an organization, significant effort is required before approval. The level of investment which is required influences the rigor activity a development undergoes before acceptance. As Langfield-Smith (2008) points out, where sufficient reasons are not provided, an organizational development agenda should embody further investigation until the rationale is established. Various options should be outlined and described accordingly to consider the delivery of the required outcome. The information is particularly important since it shows that all the other alternatives were considered. Each benefit claimed to be achieved in such development have to be defined and quantified to allow measurable improvements. For instance, in application of activity-based costing a manufacturing industry that has taken on to incorporate and integrate the use of technology for the purposes of productivity improvements may consider the cost involved. Where many workers are employed to deliver a task for a department, direct costs are also involved in terms of wages. However, technology application can reduce in relative way the proportion of direct costs that are pertinent with labor and materials. However, relative proportion in indirect costs has to increase accordingly. Increased automation reduce labor, a direct cost, however, it increases depreciation, an indirect cost. References Bhimani, A. (2009). Risk management, corporate governance and management accounting: Emerging interdependencies. Management Accounting Research, 20(1), 2-5. Cadez, S., & Guilding, C. (2008). An exploratory investigation of an integrated contingency model of strategic management accounting. Accounting, Organizations and Society, 33(7), 836-863. Kivijärvi, H., et al (2008). A Support System for the Strategic Scenario Process. Encyclopedia of Decision Making and Decision Support Technologies, 822-836. Langfield-Smith, K. (2008). Strategic management accounting: how far have we come in 25 years?. Accounting, Auditing & Accountability Journal, 21(2), 204-228. Malmi, T., & Granlund, M. (2009). In search of management accounting theory. European Accounting Review, 18(3), 597-620. Tillmann, K., & Goddard, A. (2008). Strategic management accounting and sense-making in a multinational company. Management accounting research, 19(1), 80-102. Read More