The Management Accounting Framework to Enable Managers to Plan and Control Business Operations - Essay Example

Management Accounting Name Institution’s Name Date Introduction Management accounting is a procedure which encompasses various aspects including identification, recognition, collection, interpreting, measuring, analyzing or communicating both non cost and cost information that is significant and that which has an economic value to the management (Raiborn et al. 1998). Such information is essential as it assist the management in planning, controlling, and assessing business procedures and organizational strategy. Generally, such information is internal to the company in order to enable management accountants make economically sound and informed decisions (Garrison, 1996; Drury, 2006). Management accounting entails offering information to various individuals within the organization in order to assist them in making economically sound and informed decisions with an aim of enhancing the effectiveness and efficacy of the organization. Therefore, it is true to say that management accountants are conversationalists in the world of business. Simply, this means that, in order to have a clear knowhow of management accounting, it is a requirement to understand the process of decision-making. Decision-making is believed to be an essential element for the success of any organization. According to research, efficient and good decisions that are based on sound reasoning and knowledge can lead an organization to prosperity whilst bad decisions, which are based on incomplete and inconsistent information, can cripple an organization (Atrill and McLaney, 2009). Eventually, the success of a company is driven by the quality and efficacy of decisions and how the same are implemented (Atrill and McLaney, 2009). This essay focuses on management accounting issues. The identified issue in this case is the likely advantages for management accountants in understanding the presence of different explications of decision making procedures. The essay will focus on various aspects including the functions of management accountants, the steps involved in the decision making process, and the benefits of understanding various explanations of decision making processes. Role of Management Accountants A management accountant is one of the members of functional team in an organization who contributes by offering figures and facts required for the welfare of the organization (Khan and Jain, 2006). Management accountants make certain that the facts offered are relevant, accurate, and timely and this is aimed at ensuring that decisions are made effectively. Generally, management accountants take care of financial data. However, they also have a responsibility of maintaining various records for the company as well as evaluating qualitative aspects including customer satisfaction, staff morale, and how the company’s image is viewed by the public (Young, 2003). Normally, management accountants have the responsibility of informing company managers in order to help them have the current and pertinent information, which would help them in making informed and economically sound business decisions (Khan and Jain, 2006). Such information is confidential and private and frequently never published. They are responsible for offering financial and operational information to the top management, keep track of modifications and novel information, reviewing business aspects such as costs, predicting for future based on available facts, and reviewing prior forecasts (Young, 2003). Keeping quality records is important as it allows the management accountants to quickly offer significant information of particular problems, which may crop up in the company requiring vital decisions. Besides, producing summaries of pertinent and vital information linked to business is another role, which allows managers to internally follow the growth. According to research, the role of management accountants to collect information means that they will probably be the initial ones to notice a problem and it is their responsibility to follow and resolve the problem (Atrill and McLaney, 2009). This specifically applies to smaller businesses. Steps in decision-making process The decision making process is normally considered to entail a number of steps including: Clarifying the decision issue by looking at the source of the problem instead of the noticeable problem Specifying the criteria for decision making Identification of the alternatives. This is an important step in the process of decision making. Developing a decision model, which highlights pertinent factors to the issue by bringing such elements as constraints, criteria and the alternative together? Collecting pertinent data which assist in incorporating objectivity in the decision making process. This data, which may be secondary or primary, should be current, accurate and timely. Selecting a suitable alternative after necessary the information has been acquired and processed and formalities concluded (Drury, 2006). Benefits for management accountants All companies are operated via the procedure of decision making. In these cases, managers have the responsibility of establishing the excellent decisions to put into practice. In order to establish such excellent decisions, management accounting makes use of mathematical calculations (Clinton and Merwe, 2006). As business procedures persist to turn into being increasingly multifaceted, management accounting has turned out to be a vital instrument in decision making. Studies have proven that there are numerous likely benefits for management accountants to having the knowhow of the subsistence of different elucidations of decision making procedures. Decision making encompasses the creation of policies to be employed in the attainment of an organization objectives and goals. Decision making procedure in a company is a step by step action, and it entails solving issues impacting the company as well as the stakeholders. The whole procedure encompasses formulating solutions to the issues impacting the company and it involves a number of persons. The eventual decisions are employed as the organizational policy and they have to be monitored by the senior management. Certainly, management accountants are responsible for providing information to the top management and as such, an understanding of various decision making processes will assist them in making proper decisions (Clinton and Merwe, 2006). It is apparent that companies are faced by different problems and each problem is unique from the other meaning that the solution offered to each problem is also unique. Besides, being communicators in the world of business, an understanding of decision making processes would help management accountants to know how each problem impacting an organizational can be solved (Bhimani and Bromwich, 1992). While setting the objectives and goals of an organization, it is helpful for the management accountants to differentiate between tactical and strategic decisions (Bhimani and Bromwich, 1994). This however can only be differentiated by understanding the decision making processes. Strategic decisions are qualitative and widely based and mirror the objectives and goals of an organization. They are founded on subjective opinion of the management accountants regarding organizational objectives and goals. On the other hand, tactical decisions are executable and quantitative which directly result from strategic decisions. The understanding of the various explanations of decision making processes will assist management accountants in differentiating between tactical and strategic and this is very significant in management account. This is based on the fact that management accounting techniques mainly relate to tactical decisions (Bhimani and Bromwich, 1994). Normally, techniques for helping in formulating strategic decisions are not offered by management accounting but this can be obtained from a clear understanding of decision making processes. As a result, with this awareness, management accountants can be in a position to assist in making organizational strategic decisions, which relates to the goals and objectives of a company. Strategic decisions are followed by tactical decisions and these offer the historical information from which financial statements are prepared by the management accountant. Each element or item in financial statements prepared by the management accountants is a result of formulation of good decisions. Management usually employs management accounting instruments in formulating decisions and this is a burden to the management accountant. This is based on the fact that every tool necessitates unique information and the management accountant is required to offer the specific information required (Young, 2003). Understanding the decision making processes will enable the management accountant to be capable of obtaining the needed information as he can make use of alternatives. In management accounting, the main aim is making good decisions rather than essentially making best decisions. Due to the multifaceted interacting linkages, it is very hard, although likely, to formulate best decision. Decision making in organizations tend to be greatly subjective as they are highly influenced by objectives of goals of the management. However, management necessitates setting the goals of an organization and this is deemed a prerequisite to the process of decision making. By understanding decision making processes, management accountants will be able to present the best decisions fro the organizations obtained from accurate, precise and timely information. According to research, information on managerial accounting serves to offer the members of an institution or the decision makers of organization adequate information to constantly enhance upon the several processes and operations through an informed decision making process using the financial data that is product as well as process specific (Atkinson et al, 2005: (Noreen and Brewer, 2008). Despite the fact that historic data provides assistance in the decision making process as well as in the understanding of the progress, management accountants through the managerial accounting has a bares a present and or future focus as the data collected and accumulated is basically applied into making decisions that affect the present and future operations, budget creation as well as control and planning (Atkinson et al, 2005). The reliable inflow of the information regarding production cost serve to help in changing as well as creating new product lines with the advent of new technologies and the influences of the continual external market continue to be realized in production and operational costs (Atkinson et al, 2005). It is apparent that the particular products as well as the costs of the processes will continue to offer a foundation upon which the pricing decisions are to be made (Noreen and Brewer, 2008). Conclusion The management accounting framework is evaluated in the context of offering organizational managers with the required and necessary information to enable them plan and consequently control business operations. In this case, the stress is on formulating informed decisions, and having knowledge on managerial judgment needed to facilitate managers to formulate correct decisions. As discussed in the essay, the main aim of management accounting is supporting decision making through gathering, processing, interpreting and communicating both non cost and cost information that is significant and that which has an economic value to the management. Such information is essential as it assist the management in planning, controlling, and assessing business procedures and organizational strategy. Management accountants have various roles in an organization, which encompass offering relevant, accurate, and timely information and facts, and this is aimed at ensuring that decisions are made effectively. Normally, management accountants have the responsibility of informing company managers in order to help them have the current and pertinent information, which would help them in making informed and economically sound business decisions. As a result, it is of great importance for the management accountant to have an understanding of decision-making processes, as this is vital in assisting them formulate good rather than best decisions. References Atkinson, A.A., Kaplan, R.S., and Young. S.M. (2005). Management accounting, custom ed. Pearson Custom Publishing, Pearson Prentice Hall. Upper Saddle River, NJ.Garrison, R.H., Atrill, P. and McLaney, E. (2009). Management Accounting for Decision Makers, 6th Ed. Trans-Atlantic Publications. Bhimani, A and Bromwich, M. (1992). Management Accounting: evolution in progress. Management Accounting Handbook. Oxford: Buterworth-Heineman. Bhimani, A and Bromwich, M. (1994). Management Accounting: Pathways to Progress. London: CIMA Publications. Clinton, B.D.; Merwe, A. V. (2006). Management Accounting - Approaches, Techniques, and Management Processes. Cost Management. New York: Thomas Reuters RIA Group. Drury, C., (2006). Cost and Management Accounting: An Introduction, 6th Ed. Cengage Learning EMEA. Garrison, R. H. (1996). Managerial Accounting, 8th Ed. Boston: Richard D. Irwin, Inc., Khan p. and Jain, M., (2006). Management Accounting, 4th Ed. Tata McGraw-Hill Education. Noreen, E.W., and Brewer, P.C. (2008). Managerial accounting, 12th Ed. Boston, MA: McGraw-Hill Irwin Raiborn, C., Barfield, J.T. and Kinney, M. R. (1998). Managerial Accounting, 3rd Ed. Cincinnati: South-Western. Young, D.W. (2003). Techniques of Management Accounting: An Essential Guide for Managers and Financial Professionals. New York: McGraw-Hill Professional. Read More