WHAT IS MANAGERIAL ACCOUNTING? The process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of financial information used by management to plan, evaluate, and control within an organization and to assure appropriate use of and accountability for its resources. Institute of Management Accountants, Statement on Management Accounting #1A, 1981

AGAIN I ASK, WHAT IS MANAGERIAL ACCOUNTING? A profession that involves partnering in management decision making, devising planning and performance management systems, and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization’s strategy. Institute of Management Accountants, Statement on Management Accounting, Definition of Management Accounting, 2008

IN SIMPLER TERMS… Exhibit 1-1

MANAGERIAL ACCOUNTING vs. FINANCIAL ACCOUNTING An internal rather than external focus

MANAGERIAL ACCOUNTING vs. FINANCIAL ACCOUNTING An internal rather than external focus Lack of mandated rules GAAP

MANAGERIAL ACCOUNTING vs. FINANCIAL ACCOUNTING An internal rather than external focus Lack of mandated rules Focus on operating segments © geopaul/iStockphoto

MANAGERIAL ACCOUNTING vs. FINANCIAL ACCOUNTING An internal rather than external focus Lack of mandated rules Focus on operating segments Focus on the future © Michelle Hillmer/iStockphoto

MANAGERIAL ACCOUNTING vs. FINANCIAL ACCOUNTING An internal rather than external focus Lack of mandated rules Focus on operating segments Focus on the future Emphasis on timeliness © Mirjana Jovic/iStockphoto

WHAT DO MANAGERS DO? Planning Controlling Evaluating Decision Making

PLANNING IS… What: Who: When: Setting strategic and operational goals and objectives Translating these into specific activities Allocating resources for their achievement Who: Upper and middle managers When: Strategic: annually, with a 5 to 10 year horizon Operational: monthly, quarterly, or annually

CONTROLLING IS… What: Who: When: Monitoring day-to-day operations Exerting managerial influence on operations to conform to plans Taking corrective action as needed Who: Managers and line workers When: In real time – hourly, daily, weekly

EVALUATING IS… What: Who: When: Comparing actual results to planned results Assessing individual performance Taking corrective action as needed Who: Managers When: Weekly, monthly, quarterly, or annually

DECISION MAKING IS… What: Who: When: Using information to choose the best alternative from available options made in pursuit of a particular goal or objective Who: Managers and line workers When: As needed

MANAGER PRACTICE SESSION 1 Think of yourself as the manager in your approach to this managerial accounting course. What is your plan (goal) for the course? How will you control your day-to-day operations? How will you evaluate your performance? What decisions will you make?

STRATEGY DETERMINES INFORMATION NEEDS An organization needs to set strategies first and then determine the information required to monitor achievement of those strategies Different strategies require different information sets Product differentiation vs. low-cost production Market share: build, hold, harvest, or divest Many tools are available to provide this information and assist in decision making activities

THE BALANCED SCORECARD Developed in the early 1990s to provide a multidimensional assessment of strategic achievement Measures go beyond traditional financial indicators of success

SUPPLY CHAIN MANAGEMENT A network of trading partners (customers and suppliers) From raw material creation to end user Get the right products to the right location, in the right quantities, at the right time, at the right cost Identify the supply chain trading partners involved in getting your textbook for this course into your hands.

JUST-IN-TIME (JIT) INVENTORY An inventory management philosophy that attempts to minimize the amount of inventory on hand Requires frequent deliveries of small lots of materials Requires a complementary quality program since there is no extra inventory to replace defective components

ENTERPRISE RESOURCE PLANNING (ERP) SYSTEMS An information system that integrates the organization’s data into a single system Facilitates the sharing of information across the organization to support decision making activities

WHAT IS ETHICAL BEHAVIOR? Knowing right from wrong, and then doing the right thing Ethical behavior is not necessarily the same thing as legal behavior Unethical behavior can result in catastrophic results Top managers in the organization must model ethical behavior for the rest of the organization

IMA Statement of ethical professional practice Overarching principles: Honesty, Fairness, Objectivity, Responsibility Four standards Competence Confidentiality Integrity Credibility Steps to resolve ethical conflict

UNETHICAL BEHAVIOR IS AROUND Sources: Ethics Resource Center, National Business Ethics Survey: How Employees View Ethics in Their Organizations 1994-2005 and National Business Ethics Survey: An Inside View of Private Sector Ethics, 2007