Changing Role of Management Accounting in an Organization

Changing Role of Management Accounting in an Organization

The whole idea of management accounting is to assist strategic managers in performing management functions more effectively by providing relevant economic information. Management is the process of planning, decision-making, and control. An organization is the common place where different physical resources, people, and activities are managed by the system force. It is an integrative function directed toward achieving organizational goals. It is the management, which plans, decides, implements, and has a control over different activities of the organization.

Also Read: Benefits & Limitations of Management Accounting

Every business organization begins with the objective of earning profit. The owners, directors, or trustees of an organization set its goals, often with the help of management. In pursuing its goals, an organization acquires resources, hires peoples, and then engages in organized sets of activities. It is up to the management team to make the best use of the organization’s resources, activities, and people.

Nowadays, management accountants serve as internal business consultants working side by side in cross-functional teams with managers from all areas of the organization. In many organizations; management accountants take on leadership roles in their teams and are sought out for the valuable information they provide. They are trusted as advisors. They are more than just accountants; they are in fact very important business partners.

Management accounting, although it is prepared by an accountant, is the subject of higher-level management. The top-level management plays a great role in integrating all the activities by mobilizing different resources to create value for the organization and to ensure a successful future for the organization. To be competitive in the market, every aspect of an organization should be considered from the very beginning of the business selection to daily operational matters, which demands the best formulation of planning, the best selection of alternatives, and lastly the best monitoring of implementation.

In managing the resources, activities, and people of the organization, the management process involves the following activities:

Planning

Planning is the process of thinking in advance about future activities. It is a forward-thinking process that contemplates to manage uncertainties and risks. It is the act of controlling an organization from deviating from its goal.

A well-set plan is the key to success for an organization. Planning should be such that it reflects the true picture and reality of the organization. Planning is done at both strategic and operational levels. The strategy itself is a plan to lead the organization with a long-term vision. Planning is developing a detailed financial and operational description of anticipated operations.

Managerial accounting assists business planning by providing techniques for cost estimation, budgeting, cost-volume-profit analysis, and long-term investment planning.

Decision Making

Decision-making is the process of selecting the best-perceived alternative from the available different options. It is to be done at all levels of management. Decision-making is all about choosing from among the available alternatives. The management team often comes across situations where decisions need to be taken considering the best interest of the organization.

Organizational success primarily depends upon the decisions made by the management. For example, given the current political situation in Nepal, if a local consultancy firm is asked to implement a project in a conflict area, the management team needs to take a decision on whether or not to accept the consultancy and, if yes which site to select so that it will be the most cost-effective and safest for the company and whether the job is worth taking at the situation. The best decision taken from among the several choices directs the company in the future.

Make or buy decision, further processing decisions, recruitment decision, product mix decision, product line drop or continue decision, etc. are some examples of common problems in businesses.

Controlling

Controlling is the process, which assures the management that the organization is not deviating from its basic philosophy. It is applied basically at the operational level because the actualization of the plans and strategies is done in this level.

The component of management, which is engaged in ensuring that the organization operates in the intended manner and achieves its goals, is termed as controlling.

For example, making sure that the branch in Dadeldhura is set up in time to accomplish the activities needed to deliver the results comes under controlling.

Responsibility accounting system is a management accounting technique that is of key importance to the management control process. Management accountants prepare the budget or develop standards and compare it to the actual performance. For any deviation that arises, corrective actions are taken to improve it.

Management is a process of planning, decision-making, and control. Management accounting is a quantitative approach that assists the basic functions of general management.

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