Management accounting plays an important role in measuring performance and efficiency of the management of the company. Corrective measures are taken based on the same in order to improve the performance of the company. Management Accounting helps in assessment of risk so that risk can be minimized. It helps in proper allocation of resources. Lastly, Management Accounting helps in presenting the various statement and reports to management in order to make proper decisions.
Management Accounting is the process of making day-to-day and short term decisions by the management by providing timely and accurate statistical and financial information, by preparing various management reports and accounts. Management Accounting is basically an internal reporting system and is not meant for the external stakeholders of the company. Reports are prepared which are short –term like monthly or weekly for the internal audiences like the Chief Executive Officers, and Department heads. Reports are reported for the preparation of Budgets, Standard Costing, Raw Material Requirements, Stock Budgets, Sales Forecast, Orders in hand, Cash Availability, State of Accounts Payable and Accounts Receivable, Outstanding Debts, Variance Analysis, Trend Charts, Just in Time Costing and various other reports and statistics.
We have discussed earlier about what is management accounting and the various tools and techniques involved in it. The process of management accounting is designed in such a manner so that the efficiency of the organisation increases. An effective management accounting policy helps the organisation to use its resources optimally and also reduction in various costs.
Budgetary Control: A budget is prepared and the costs are incurred in accordance with the budget. This ensures that the company is not spending much amount and also the management is compelled to perform the activities within the set cost limits. Therefore to achieve the desired objectives management is required to ensure there is no wastage of any resources.
Proper Decision Making: With the implementation of management accounting policy, decision making process is simplified. Different level of management is provided with all the information required by them. It helps them to make a detailed analysis of what are the various kinds of resources required at different level of production. They can also have an analysis of past record to determine where there has been an adverse variance of resource utilisation and the reason behind it. Based on it the management would take corrective actions to ensure that such situations are eliminated in future.
Management of Resources: The resources should be allocated to any work based on their capabilities. An in depth analysis of past records and projected activities is required to be performed. Thereafter a resource planner is prepared which contains details of what are the activities required to be performed and what kind of resources will be required to support each activity. In case of personnel we should engage those people who posses adequate skill set and will perform the task in least time and with maximum accuracy. The machines employed should be such which would consume less power and prevent wastage of material. Based on the fixed cost, time availability and usage of time the manager can deploy there resources in an optimum manner. This also ensures that the resources are available at the right time in right place.
Resource Management Reports: Preparation of reports is very much important to determine whether the objectives could be achieved. The management is required to prepare a report on what resources has been deployed on different activities, the time available to perform that activity and the time taken to perform the given activity. Also this report helps in monitoring the wastage generated in the process. This report helps the management to determine their efficiency in resource utilisation and gives management an indication of the corrective actions required by them so that the objective of optimum resource utilisation is achieved.
For any decision making management requires information and management accounting information system is entrusted with providing the managers with required information. Since decision are required to be made at all levels of management i.e. operational level, tactic level & strategic level, therefore they all require information. Their requirement of information is based on the type of decision they are required to make. For example : Top level management is required to make decisions on policies, mergers and acquisitions, etc whereas operational level needs to make decisions on the basis of day to day operations of the entity. Therefore the information required by top level management will differ from that required by operational level.
Management accounting information system is management oriented and is designed to fulfil the information needs of the managers. Data is collected from various working level and organized it into useful formats. The system provides an overall view for a given period of time at a single place.
Management accounting system provides various tools and techniques so that information needs at all levels of management is met. It provides in depth analysis of all the data and results of the past. For example there is a constant fall in the sales revenue of the company year on year and the top management is evaluating various alternatives available. After examining various alternatives the top management has decided to implement online sales policy. Now it needs to answer a few questions. How much extra cost is to be incurred by the company? How huge is the online marketplace for the product of the company? What increase in sales can be achieved? Are the increased benefits greater that increased costs? For answering all these questions the management requires information both internal and external. On the other hand operational level in concerned with the daily operations of the organisation. The management needs information on various issues related to these online sales, the reason behind these issues. This will help the management to operate effectively and efficiently.
Customer value is the difference between the benefit derived by the customer from a product and the price that the customer is required to pay for that particular product. Any business entity is required to enhance its customer value to achieve greater profitability. There are three common strategies used to enhance customer profitability:
Shareholder value is the earnings derived by the company on the total investment made by the shareholders of the company. Enhancing shareholders value is one of the prime motive any business organisation. Shareholder value can be enhanced by increasing the profits of the company. There are various ways for a company to increase its profit, i.e. through increasing sale price or volume of sales of its product, through reduction of manufacturing cost or other administrative cost, etc.
Importance of enhancing customer value: If customers are satisfied by the organisation’s product then only they will come to repurchase it. For any business entity it is very important to satisfy their customer needs or else they will shift to any other supplier. To survive in any competitive business environment where there are many sellers offering the product, the ones who can satisfy their customers will survive in the long run. A customer satisfied from a company’s product would consistently contribute towards the revenue of the company.
Importance of enhancing shareholder value: Any investment made in any business entity has the motive of earning profits from it. Since shareholders are the ones who are investing their money in the entity so they also expect a good quantum of return on their investment. So the business activities should be monitored and controlled in such a manner which would increase shareholders value, i.e. there return on investment. This will motivate the shareholder to reinvest their returns or invest more money in the business for higher returns. So the organisation will be benefitted in the long run and will continue its operations as a going concern.
Westpac group has a great recognition in the global banking sector and has been able to deliver enhanced customer value and shareholder value with time. Some of the examples which reflect its enhanced customer value are as follows:
Creating Customers value is directly related to creating shareholders value. If the customers are satisfied the company’s business will increase which will help it to earn increased revenue and profits. With the increase of customer value in case of Westpac Group it has helped in increase of its loan book which has resulted in greater interest revenue and greater profits. Shareholders value is increased when the earnings per share of the company increases and Westpac group is continuously achieving this objective.
|
Particulars/ Year |
2012 |
2013 |
2014 |
2015 |
2016 |
|
Loan |
5,14,445.00 |
5,36,164.00 |
5,80,343.00 |
6,23,316.00 |
6,61,926.00 |
|
Interest Income |
12,502.00 |
12,821.00 |
13,542.00 |
14,267.00 |
15,148.00 |
|
EPS |
193.70 |
217.20 |
242.50 |
255.00 |
224.60 |
On the basis of 5 years summary derived from the annual report of the company it can be seen that the company has continuously been able to increase shareholders value through increased gross loans and interest income. However shareholder value of 2016 is less than 2015 but this is on account of sudden spike in impairment charges which is a non cash item.
References
Top 11 Techniques Used In Management Accounting. (2017). Retrieved from accountlearning.com › Accounting › Management Accounting
Management Accounting: Process, Advantages & Disadvantages. (2017). Retrieved from www.letslearnfinance.com/advantages-and-disadvantages-of-management-accounting
Customer Value Is The Best Strategy For Growth. (2017). Retrieved from Firstconcepts.com
The Importance Of Customer Satisfaction. (2017). Retrieved from blog.clientheartbeat.com/why-customer-satisfaction-is-important
Objectives Of Managerial Accounting Activity. (2017). Retrieved from Yourbusiness.azcentral.com
Wiley: Managerial Accounting: Tools For Business Decision Making, 7Th Edition International Student Version. (2017). Retrieved from Wiley.com
Management Accounting Systems And Organisational Structure On JSTOR. (2017). Retrieved from Jstor.org
Objectives Of Management Accounting – Management Guru. (2017). Retrieved from www.managementguru.net/objectives-of-management-accounting/
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