Lesson 1 - Strategic Cost Management and Management Accounting

Lesson 1 - Strategic Cost Management and
Management Accounting
OVERVIEW
 MANAGEMENT
 PROCESS OF DOING DIFFERENT ACTIVITIES IN ACHIEVING ORGANIZATIONAL
OBJECTIVES. THIS INVOLVES PLANNING, ORGANIZING, LEADING, AND
CONTROLLING. PLANNING AND CONTROLLING ARE THE TWO IMPORTANT
FUNCTIONS OF MANAGEMENT.
 PLANNING – IS SETTING GOALS AND DEVELOPING STRATEGIES AND TACTICS TO
ACHIEVE THEM.
 CONTROLLING – IS DETERMINING WHETHER GOALS ARE BEING MET, AND IF NOT,
WHAT ALTERNATIVE COURSES OF ACTIONS CAN BE DONE.
 DECISION MAKING – IS SELECTING ONE ALTERNATIVE FROM A SET OF CHOICES.
MANAGEMENT ACCOUNTING
 MEASURES, ANALYZES AND REPORTS FINANCIAL AND NONFINANCIAL
INFORMATION TO HELP MANAGERS MAKE DECISIONS TO FULFILL
ORGANIZATIONAL GOALS. MANAGERIAL ACCOUNTING NEED NOT BE GAAP
COMPLIANT.
 FOCUSES ON THE INFORMATION NEEDS OF AN ORGANIZATION’S INTERNAL
MANAGERS THAT ARE RELATED TO THEIR PLANNING, CONTROLLING, AND
DECISION MAKING FUNCTIONS.
 IT IS THE PROCESS OF IDENTIFYING, MEASURING, ACCUMULATING, ANALYZING,
PREPARING, INTERPRETING AND COMMUNICATING INFORMATION THAT HELPS
MANAGERS FULFIL ORGANIZATIONAL OBJECTIVES.
 SOME MANAGEMENT NEEDS ARE SATISFIED BY HISTORICAL, MONETARY
INFORMATION BASED ON GAAP.
 OTHER NEEDS REQUIRE FORECASTED, QUALITATIVE AND FREQUENTLY NON-
FINANCIAL
INFORMATION THAT HAS BEEN DEVELOPED AND COMPUTED FOR THEIR SPECIFIC
DECISION MAKING.
OBJECTIVES OF MANAGEMENT ACCOUNTING

 PROVIDING MANAGERS WITH INFORMATION FOR DECISION MAKING AND
PLANNING
 ASSISTING MANAGERS IN DIRECTING AND CONTROLLING OPERATIONS
 MOTIVATING MANAGERS TOWARD ACHIEVING ORGANIZATION’S GOALS
 MEASURING PERFORMANCE OF MANAGERS AND SUB-UNITS WITHIN THE
ORGANIZATION
FINANCIAL ACCOUNTING
 FINANCIAL ACCOUNTING – FOCUS ON REPORTING TO EXTERNAL USERS INCLUDING
INVESTORS, CREDITORS, AND GOVERNMENTAL AGENCIES. FINANCIAL
STATEMENTS MUST BE BASED ON GAAP.
MAJOR DIFFERENCES BETWEEN FINANCIAL & MANAGERIAL

ACCOUNTING
Managerial Accounting Financial Accounting

Purpose Decision making Communicate financial
position to outsiders
Primary Users Internal managers External users
Focus/Emphasis Future-oriented Past-oriented
Rules Do not have to follow GAAP; GAAP compliant;
cost vs. benefit CPA audited
Time Span Ultra current to very long Historical monthly, quarterly
time horizons reports
Behavioral Issues Designed to influence Indirect effects on
employee behavior employee behavior
STRATEGY & MANAGEMENT ACCOUNTING
 STRATEGY – SPECIFIES HOW AN ORGANIZATION MATCHES ITS OWN CAPABILITIES
WITH THE OPPORTUNITIES IN THE MARKETPLACE TO ACCOMPLISH ITS
OBJECTIVES.
 STRATEGIC COST MANAGEMENT – FOCUSES SPECIFICALLY ON THE COST
DIMENSION WITHIN A FIRM’S OVERALL STRATEGY.
 MANAGEMENT ACCOUNTING HELPS ANSWER IMPORTANT QUESTIONS SUCH AS:
 WHO ARE OUR MOST IMPORTANT CUSTOMERS, AND HOW DO WE DELIVER
VALUE TO THEM?
 WHAT SUBSTITUTE PRODUCTS EXIST IN THE MARKETPLACE, AND HOW DO
THEY DIFFER FROM OUR OWN?
 WHAT IS OUR CRITICAL CAPABILITY?
 WILL WE HAVE ENOUGH CASH TO SUPPORT OUR STRATEGY OR WILL WE NEED
TO SEEK ADDITIONAL SOURCES?
MANAGEMENT ACCOUNTING AND VALUE

 CREATING VALUE IS AN IMPORTANT PART OF PLANNING AND IMPLEMENTING
STRATEGY
 VALUE IS THE USEFULNESS A CUSTOMER GAINS FROM A COMPANY’S PRODUCT OR
SERVICE
 VALUE CHAIN IS THE SEQUENCE OF BUSINESS FUNCTIONS IN WHICH CUSTOMER
USEFULNESS IS ADDED TO PRODUCTS OR SERVICES
 THE VALUE-CHAIN CONSISTS OF:
 RESEARCH & DEVELOPMENT
 DESIGN
 PRODUCTION
 MARKETING
 DISTRIBUTION
 CUSTOMER SERVICE
THE VALUE CHAIN ILLUSTRATED
A VALUE CHAIN IMPLEMENTATION

KEY SUCCESS FACTORS
 THE DIMENSIONS OF PERFORMANCE THAT CUSTOMERS EXPECT, AND THAT ARE
KEY TO THE SUCCESS OF A COMPANY INCLUDE:
 COST AND EFFICIENCY
 QUALITY
 TIME
 INNOVATION
PLANNING & CONTROL SYSTEMS

 PLANNING SELECTS GOALS, PREDICTS RESULTS, DECIDES HOW TO ATTAIN GOALS,
AND COMMUNICATES THIS TO THE ORGANIZATION
 BUDGET – THE MOST IMPORTANT PLANNING TOOL
 CONTROL TAKES ACTIONS THAT IMPLEMENT THE PLANNING DECISION, DECIDES
HOW TO EVALUATE PERFORMANCE, AND PROVIDES FEEDBACK TO THE
ORGANIZATION
A FIVE-STEP DECISION MAKING PROCESS IN PLANNING &

CONTROL
 IDENTIFY THE PROBLEM AND UNCERTAINTIES
 OBTAIN INFORMATION
 MAKE PREDICTIONS ABOUT THE FUTURE
 MAKE DECISIONS BY CHOOSING BETWEEN ALTERNATIVES
 IMPLEMENT THE DECISION, EVALUATE PERFORMANCE, AND LEARN
MANAGEMENT ACCOUNTING GUIDELINES

 COST – BENEFIT APPROACH IS COMMONLY USED: BENEFITS GENERALLY MUST
EXCEED COSTS AS A BASIC DECISION RULE.
 BEHAVIORAL & TECHNICAL CONSIDERATIONS – PEOPLE ARE INVOLVED IN
DECISIONS, NOT JUST DOLLARS AND CENTS.
 DIFFERENT DEFINITIONS OF COST MAY BE USED FOR DIFFERENT APPLICATIONS.
A TYPICAL ORGANIZATIONAL STRUCTURE AND THE MANAGEMENT
ACCOUNTANT
PROFESSIONAL ETHICS
 THE FOUR STANDARDS OF ETHICAL CONDUCT FOR MANAGEMENT ACCOUNTANTS
AS ADVANCED BY THE INSTITUTE OF MANAGEMENT ACCOUNTANTS:
 COMPETENCE
 CONFIDENTIALITY
 INTEGRITY
 OBJECTIVITY
COMPETENCE
 MANAGEMENT ACCOUNTANTS HAVE A RESPONSIBILITY TO
 MAINTAIN AN APPROPRIATE LEVEL OF PROFESSIONAL COMPETENCE BY ON-GOING
DEVELOPMENT OF THEIR KNOWLEDGE AND SKILLS.
 PERFORM THEIR PROFESSIONAL DUTIES IN ACCORDANCE WITH LAWS,
REGULATIONS, AND TECHNICAL STANDARDS.
 PREPARE A COMPLETE AND CLEAR REPORTS AND RECOMMENDATIONS AFTER
APPROPRIATE ANALYSES OF RELEVANT AND RELIABLE INFORMATION.
CONFIDENTIALITY
 MANAGEMENT ACCOUNTANTS HAVE RESPONSIBILITY TO.
 REFRAIN FROM DISCLOSING CONFIDENTIAL INFORMATION ACQUIRED IN THE
COURSE OF THEIR WORK, EXCEPT AUTHORIZED, UNLESS LEGALLY OBLIGED TO DO
SO.
 REFRAIN FROM USING OR APPEARING TO USE CONFIDENTIAL INFORMATION
ACQUIRED IN THE COURSE OF THEIR WORK FOR UNETHICAL OR ILLEGAL
ADVANTAGE EITHER PERSONALLY OR THROUGH THE THIRD PARTIES.
INTEGRITY
 AVOID ACTUAL OR APPARENT CONFLICTS OF INTEREST AND ADVISE ALL
APPROPRIATE PARTIES OF ANY POTENTIAL CONFLICT.
 REFUSE ANY GIFT, FAVOR, OR HOSPITALITY THAT WOULD INFLUENCE OR WOULD
APPEAR TO INFLUENCE THEIR ACTIONS.
 COMMUNICATE UNFAVORABLE AS WELL AS FAVORABLE INFORMATION AND
PROFESSIONAL JUDGMENTS OR OPINIONS.
OBJECTIVITY
 COMMUNICATE INFORMATION FAIRLY AND OBJECTIVELY
 DISCLOSE FULLY ALL RELEVANT INFORMATION THAT COULD REASONABLY BE
EXPECTED TO INFLUENCE AN INTENDED USER’S UNDERSTANDING OF THE
REPORTS, COMMENTS, AND RECOMMENDATIONS PRESENTED.

Lesson 1 - Strategic Cost Management and Management Accounting

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Lesson 1 - Strategic Cost Management and Management Accounting

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Lesson 1 - Strategic Cost Management and

OBJECTIVES OF MANAGEMENT ACCOUNTING

MAJOR DIFFERENCES BETWEEN FINANCIAL & MANAGERIAL

Managerial Accounting Financial Accounting

MANAGEMENT ACCOUNTING AND VALUE

THE VALUE CHAIN ILLUSTRATED

A VALUE CHAIN IMPLEMENTATION

PLANNING & CONTROL SYSTEMS

A FIVE-STEP DECISION MAKING PROCESS IN PLANNING &

MANAGEMENT ACCOUNTING GUIDELINES

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