Management accountants were not involved in decision making processes in olden times. Most of the time they were involved after the diction had taken place. Their bulk of time was spent in the mechanical aspects of accounting. In fact their only job was to keep financial record. Mostly they spent their time internally consulting or business analysts within their companies. However in coming years technological advances have liberated them from the mechanical aspects of accounting. This prevented them spending less time on preparing standardized reports but more time on analysing and interpreting information.
Management accounting has changed due to nature of the organisations. Prior to 1800, most of the businesses were small family run businesses. During that time, management accounting was not that important for these types of firms. It was not important to plan for decision making processes because the owner could simply allocate the tasks directly in an entire organisation. The owner never really had to delegate decision making authority to other employees and did not care much about motivation. Only when organizations became larger management accounting become more important.
Management accounting started to develop in the period from 1825 to 1925 as the organisations started to get larger. Many organizations started to develop systems like to measure the cost per yard or per pound for the different manufacturing processes. This cost data enabled the managers to compare the cost of conducting processes. In a same way, railroads during 1850 to 1870 developed costs system that showed reports of the costs. This system allowed the managers to make wise decisions which enabled them to increase their operating profit. These systems allowed mangers to keep close eyes on operations and gave them much more accurate information on marginal costs for pricing decisions. This also enabled them to measure and evaluate performance of the business.
Since 1975, two huge environmental forces have changed businesses and managers raised questions whether traditional management accounting processes are still suitable. These two groups forced the businesses to change their system to technological devices and enter in global competition. In order for manager to adopt these changes, they had to reconsider the structure of the organisation and accounting procedures.
Technological advances had huge impact on management accounting, for example devices like internet, intranet, and wireless communication etc. There is more data available ever than before. For example analytical processing software has huge impact on management accounting. Now the managers have the ability to access to daily sales and operating cost at any time, therefore, there is no need to wait for two weeks like they used to wait.
The role of management accountants has changed from serving internal customers into being a business partner. The business partners have equal opportunities in decision making processes. Management accountant also have an authority to appoint any information that is irrelevant to the business decision making process, thus, it is expected to suggest ways to improve the quality of the decision. So here you seen that management accountants in this description are involved in decision making activities and controlling activities.
Functions of management
Functions of management are highly important in businesses such as in BMW Company. These functions includes such as goal setting, planning, monitoring, organising, motivating, communicating, coordinating and controlling. By using these tools, it enables the businesses to achieve their main objectives.
Goal setting is what businesses are hoping to achieve over a period of time. This might include increase profits, reduce costs etc. For example, BMW might decide to decrease its cost by 10% at beginning of the next year. They might do this by negotiating prices with the suppliers or by switching to cheaper suppliers. In other hand they might be interested in increasing their cars quality by using expensive materials, thus, it will enables them to gain reputation and makes their model better than other companies.
Planning is also essential in the businesses because it determines how a project will be carried out to ensure that the customers are satisfied with the products or services. BMW might use this tool to find out how long it will take them to complete a particular project and how much it will cost them etc. Therefore right number of employees can be recruited to complete the project. Effective planning enables businesses to prevent unpleasant surprises.
Organising is another function of management. It is necessary to carry out assign tasks, to set deadlines and allocate resources. It also helps the managers to decide whom to delegate responsibilities. This might include such as organising a team for a particular task, so the manager needs to plan who will be doing what.
Motivating is also vital element in businesses because it’s important to keep the employees motivated. By this function, it enables the businesses to encourage the employees to perform well. The most obvious way to do this is to offer incentives to employees. However not all the employees are motivated by this strategy, thus businesses take different approaches for different customers. ‘Every employee has a target of implementing three ideas a year to improve the business. 11,064 ideas were put into practice from a total of 14,333 submitted in 2003, an 80% implementation rate’ (the non billable hour web site. The main purpose of this is to make the employees feel more part of the business, thus, they know that they are recognised and it encourage them to work harder as it is their own business. Plus many businesses take this approach because they know they can extract good ideas from the employees. It is highly because employees are people that do the work and they know how they can do the work in a much more efficient way.
Communication allows the managers to communicate with the employees. It facilitates team interaction and ownership of tasks. It is also important to communicate efficiently with the customers because they are ones that are purchasing the products and services. BMW communicates with their customers in many different ways such as TV advert, magazines, newspapers etc. These sources provide to customers what BMW manufacture is offering them and how their car model is better than other manufactures. It also gives the customers overview of the cars before they can purchase them. Thus it’s important these potential customers are communicated in order to keep the sales healthy. More importantly communication is also vital to ensure that all the employees within the organisation have clear understanding about what is expected of them. It also encourages the manager to consider the problems before they arise.
It’s also important that managers coordinates the activates of the organisation. The managers might examine the relationships between their own operation and those of other departments.
Controlling is another function of management which is also important because it assess how close is the firm achieving its goals. This allows the managers to examine where they are lacking improvements. The most important issue which have to be taken into account is to identify the current results and their comparison with what has been planned. Therefore, effective managerial must be followed by feedback for correcting initial plans.
Importance of decision making
It is highly important to make an effective decision in order to be successful. Making a decision implies that they are alternative options to be considered and in such situations it is important that the manager select the best possible decisions that fits with their main objective.
Before proceeding a decision, BMW might reconsider about alternative decisions making. For example, BMW consider whether they should launch their car this season or next season because this might have seasonal affect on their company. Plus at same time, competitors might also be launching new model, thus, they can affect their sale if competitor product is more attractive.
BMW might also need to make decision how much raw material to order or how many employees to recruit. Poor decision can arise from this if they brought too much material than they even need. Thus, this can tight up money within the business and most of all its also wasting space.
The qualities of the decisions have to be gathered to see whether the decisions are good or bad. A good decision is a logical one based on the available information and reflecting the preferences of the decision maker. BMW might conduct a survey to find out what sort of car they are looking for, so they can meet their demands.
It is also important that decisions are made by consulting other employees because someone else might have better ideas. It also gives others an opportunity to share their ideas, so as a result they know they have value and they are recognised.
To conclude this section, it is not always true that good decisions always have good outcome because there might have been drawback that the managers failed to identify. In other hand poor decision might have been conducted based on inadequate information or reflecting the decision maker’s preferences but however the outcome might still have good outcome.
Conclusion
As we found out Management Accounting is vital element to aid management accounting in their functions within organisation. . It is common knowledge to many managers and employees today that the very goal of one organization is to be as efficient and effective as possible. Planning, which can otherwise be known as the “first” function of management, places the groundwork in position for the other functions of management Good decision making is reflected on the experience of the manager but however poor decision can also arise if there has been misunderstanding in decision making process.
Bibliography
Bateman, T.S., & Snell, S.A. (2004). Management: The new competitive landscape. (2nd
ed.). New York: McGraw-Hill/Irwin.
R de Roover, “A Florentine Firm of Cloth Manufacturers,” Speculum XVI (January 1941), pp. 3–33.
Peter F (2001) Management Tasks, Responsibilities, Practices, Oxford, England
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