Management Accounting Innovations Role in Modern Organization - Essay Example

Management Accounting Innovation’s Role in Modern Organization Student’s Name: Institutional Affiliation: Management Accounting Innovation’s Role in Modern Organization Organizational management has been changing with the dynamic world to ensure that there is proper running of organizations, according to existing situations. In the attempt to achieve this objective, management scholars have widened organizational management, where today, we have several management processes working together for a common objective of succeeding in achieving organizational objectives (Kotha & Vadlamani, 1995). Management accounting is one of newly developed management disciplines. Traditional accounting proved to be insufficient in managing modern organization, which are surrounded with complicated environments and changing circumstances. It called for a complimenting approach for effective management of organizations. This paper discusses issues on management accounting innovation, particularly on the role it plays in a modern organization. Management accounting is the process through which management accounts are prepared from the financials of an organization for a given period. This process provides management accounting and statistical information required by management accounting managers and highly ranked organizational officers for decision making. As financial report provides information on the amount of assets and liabilities to an organization, management accounting provides a detailed analysis for the purpose of informed and objective decision making. A part from financial information, management accounting provides information on processes involved in an organization. Financial reporting does not provide proper grounds for decision making among managers in an organization. With the introduction of management accounting, accountants involved in the preparation of these accounts advices managers on the best course of action to undertake. Traditionally, managers used to make decisions from subjective grounds of view, which in one way or the other, led to mismanagement of many organizations (Kotha & Vadlamani, 1995). With the increased opportunities and investment projects, managers are advised on the best course of action. In this case, management accounting analyses all the opportunities at hand in terms of initial capital outlay, operational costs, technicality of each projects, and expected returns. This assists the management to make investment decisions. Strategic management is an essential concept in a modern organization. It, therefore, requires application of skills and knowledge to ensure that strategies developed are applicable and effective to the organization concerned. Strategic management requires an analysis of an organization’s past performance, current situation and future expectations, along with objectives of an organization. Management accounting analysis assists in compiling data and information from past experience, and forecast on the future. From this point, the management team compiles this analysis to set up viable strategies. Performance in many modern organizations applying management accounting has improved. As a result, many organizations have gained a competitive edge in their industry of operation. Internal audits, as well as checks and balances are significant in modern organizations. Through this processes, an organization is in a position to safeguard assets and interests of all stakeholders in an organization. Management accounting as a process assists in identifying areas of weakness and non observation of set procedures and guidelines. Management accountants’ are also experts in business processes and procedures, and, therefore, advises an organization on best practices in their organization. The outlined procedure and operations are used by internal auditors and controllers to ensure that they are followed accordingly. Management Accounting techniques such as Activity Based Costing and Balance Score card, have been a turning point for many organizations. These techniques, particularly the Activity Based Costing, assist organizations to analyze costs involved in their production process (Kotha & Vadlamani, 1995). Eventually, an organization is in a position to establish cost components and units. From these ground, it is easy to controls cost at each stage of production, with the aim of reducing cost of production. This enhances efficiency and effectiveness in the production process; the cost output per unit in this case is reduced. There are possible implications of this effect. First, the organization can sell its products at reduced prices to gain competitive advantage over its competitors. Secondly, such an organization may continue to sell its outputs at its current price, and enjoy high profit margins. In either case, the organization has a tremendous advantage as a result of application of management accounting techniques. Innovation is one of key factor used by many modern organizations, in management and operational units. It is evidenced that innovative companies expand their business and achieve their objectives effectively, unlike the companies applying traditional and conservative management style. Management accounting provides both the financial and non financial reports to managers, and proposals on how to improve on various business processes. From these processes, management team compiles all the necessary factors to come up with appropriate innovative strategies. In addition, management accounting through the application of research, points out areas where innovation is required most. This takes place in continuous bases, and hence, management accounting acts as an innovative agent (Kotha & Vadlamani, 1995). Communication is an essential process in a modern organization. There are various ways through which communication can be used to enhance performance in an organization. It is through communication that stakeholders in an organization are able to relate with each other, and work as a team. In large organizations with a series of operations, it is challenging to have people working towards one course of action. Management accounting is an integrative process, which does not only rely on reports from departments, but also through active engagement in these departments. The accounting department must communicate with stakeholders in these departments to ensure that they understand all the presences, the costs and challenging facing them (Cravens & Guilding, 2001). The management accounting department complies a report from these departments, and forwards it to the top management. The management team analyses the reports and reports back to all departments. This process, spearheaded by the management accounting department, plays the role of enhancing indirect form of communication throughout the organization. Innovative management accounting is essential in attracting investors and financiers to a modern organization. Investors and financiers are nowadays applying all manner of due diligence to ensure that their resources are not committed to unproductive organization (Clinton, Matuszewski & Tidrick, 2011). Investors are interested in return from the amount they commit to an organization, they are also concerned about security for their investment. On the other hand, financiers such as commercial banks and institutions are also concerned. Financial reports are nowadays not fully reliable for investors and financiers in making their decisions. Though management accounting reports are meant for internal management, investors and financiers may demand for them. From these accounts, they are in a position to have finer details of their target organization and their operations. They, therefore, relate these factors with the financial reports provided to measure any correlation among them. Forecasting and planning processes have been commonly used by many modern business organizations to achieve their goals and objectives. These processes are essential in managing business performance. Planning involves setting of goals and establishes means through which these goals can be achieved. This gives a sense of direction to all stakeholders in an organization as they are always aware of what is expected and means to achieve it. In addition, the actual performance is compared with expected outcomes on a continuous basis. This assists in reducing deviation, which assists an organization to achieve its overall objective. Forecasting, on the other hand, assists an organization to predict what future outcomes are likely to be and possible risks. An organization will then have a chance to prepare a contingent plan to mitigate effects of some outcomes. Management accounting concepts are highly applied in planning and forecasting processes in many modern organizations, and hence they are significantly influential managing performance (Bouwens & Abernethy, 2000). Management accounting assists in creating value in all business processes. It has been used to identify redundant processes in an organization, which is essential in enhancing efficiency in an organization. Value created to an output is essential in enhancing customer satisfaction and retention. It also reduces cost of production, and hence such a company enjoys cost leadership. Management accounting innovation influences motivation among members in an organization. Setting goals in advance for individuals departments, and for the whole organization, motivates them to remain focused and determined to achieve these goals. In addition, performance appraisal, which is based on predetermined goals, facilitates the identification of excellent performers, who are rewarded to encourage then to maintain the appealing performance (Hoque, 2002). In some organizations, management accounting prediction and actual performance calculated are used in the compensation process, while employees are rewarded according to individualized performance. On the other hand, underperformers are assisted on how to improve their performance in future. These employees are eventually motivated, which results into a forward moving organization from to time to time. Management accounting is also crucial to a modern organization because of its multiple edged importances. In financial management, management accounting assists in making crucial financial decisions, such as massive investment. In addition, management accounting provides information necessary for decision making through application research and evaluation of alternatives. Many Modern organizations have fully established management accounting department, with its representative in key management teams (Friedl, Kupper & Burkhard, 2005). In this case, it plays a vital role, not only as a source of information to managers, but also in managing such an organization. Management accounting has played an active role in enhancing flexibility in an organization. It has been evidenced in many organizations that employees in this department are all around in that, they participate in affairs affecting different units in an organization (Dent, 1991). These employees can be engaged in any department in an organization. In addition, these employees have proved to be potential managers in many organizations. They are aware of all processes in an organization on top of their academic qualification, and hence they’re better placed to manage an organization than employees from other departments. In conclusion, it is clear that management accounting plays an immense role in management of modern organization. Through its theories and practical application, many organizations have improved their performance, and achieved their overall goals in a better manner than before. It is evident that there are basic areas of management accounting application. First, it plays a great role in strategic management of an organization through the provision of information and practical participation. Secondly, it is highly applicable in performance management. Through planning and forecasting, actual performance is compared with predetermined goals and objectives to establish deviations, and to establish measures for better performance. Thirdly, management accounting is highly applied in risk management for the organization, its investors, and financiers. It is, therefore, highly recommended for organizations who have not adopted the application of management accounting to put on strategies to adopt it as soon as possible, in order to realize its benefits. References Bouwens, J., & Abernethy M. A. (2000). The consequences of customization on management accounting system design. Accounting, Organizations and Society, 25(3), 221-259. Clinton, B. D., Matuszewski, L. & Tidrick, D. (2011). Escaping Professional Dominance?  Cost Management. New York, NY: Thomas Reuters RIA Group. Cravens, K. S., & Guilding, C. (2001). An empirical study of the application of Strategic Management Accounting Techniques. 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