Strategic decisions and management accounting

Managers are a part of every organization, no matter how large or small. Managers are responsible for formulating strategy, directing and controlling operations, and organizing resources to accomplish the firm’s short and long-term goals. The primary task of management is to achieve goals and objectives in an efficient and effective manner. Efficiency means that they achieve maximum output for the level of input of each resource utilized. Effectiveness refers to how well the goal is accomplished.

Managerial Accounting: Purpose

The goal of a management accountant is to use their knowledge and skills to influence decisions that create value for organizational stakeholders while maintaining an unwavering commitment to ethical values. Management accountants must assess risk and implement strategy through planning, budgeting, and forecasting. Toward this end, they must understand the financial and operational sides of the business. They must report on financial and nonfinancial measures of performance.

Managerial accounting analysis has become so critical in managing a business enterprise that managerial accountants are considered integral members of the management team. They do far more than provide information and often take an active role in the day-to-day and strategic decisions that face an organization. Although much of the information provided by managerial accountants is financial, there has been more emphasis in recent years on providing nonfinancial performance measures. Managerial accountants are looked upon as strategic business partners in managing the firm’s activities. There has become a focus on all levels of the organization in helping the firm to achieve its goals in an increasingly competitive environment.

Managerial Accountant: Roles

The three major activities that help managers attain efficiency and effectiveness are planning, directing and motivating, and controlling. Planning establishes a basic strategy for achieving the firm’s goals. Directing and motivating facilitate the tasks to carry out the goals. Controlling ensures the plan is carried out and changes are made as needed.

Planning

Planning involves determining what needs to get done, how it will get done, and who will do it. Planning should be undertaken before management makes decisions or attempts to execute their functions. Through proper planning, the entire organization should be focused on the same goals and objectives no matter their level in the organization.

Long-range planning, called strategic planning, is carried out over a 1–10 year time period. While the strategic direction of the firm is established by senior management, they rely on management accountants to provide data to facilitate the process. Strategic planning is a big picture view of the company and requires higher level information than short-term budgets. Possible inputs to long-term planning are production and facility needs, capital funding, and forecasts of employee needs.