Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-1 Chapter 1 Management accounting: information for managing resources and creating value

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-2 Australian organisations in the 21st century Increasing global competition in the 1990s Reduction/elimination of input tariffs, quotas and bounties Deregulation of telecommunications industries Corporatisation and privatisation of public sector Changes in the regulation of labour markets continued

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-3 Australian organisations in the 21st century Shift from primary production to resources and now to service-based economy Increasing customer demands Rise of the internet and e-commerce New organisational structures, strategies and management philosophies

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-4 What is management accounting? … the processes and techniques that focus on the effective use of organisational resources to support managers in their tasks of enhancing both customer value and shareholder value continued

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-5 What is management accounting? Customer value –The value that a customer places on particular features of a product or service Shareholder value –The value that shareholders or owners place on a business Resources –Financial and non-financial, including information, work processes, employees, committed customers and suppliers

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-6 Management accounting systems An information system that produces the information required by managers to manage resources and create value Includes regular estimates of the cost of goods and services, information for planning and controlling operations and information for measuring performance Ad-hoc information to satisfy managers’ short-term and long-term decision-making needs

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-7 Management accounting information Focus is on the needs of managers within the organisation Great flexibility in the nature of information that is supplied Influenced by –Production and service technologies, organisational structure, organisational size, level of sophistication of computer systems Relevant to senior managers through to operational managers

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-8 Differences between management accounting and financial accounting information Financial accounting –The practice of preparing and reporting accounting information for parties outside the organisation Costing systems are common to both financial and management accounting –A system that estimates the cost of goods and services as well as the cost of organisational units, such as departments

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-9

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-10 Management accountants within organisations Most large organisations have a ‘finance function’ at the corporate level Senior accountants –Financial controller, chief accountant, finance manager, GM of accounting, group accountant Accounting staff may be found in each operating division ‘Management accounting’ increasingly involves managers in other areas of the business

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-11 Management accounting processes and techniques Management accounting … Supports the organisation’s formulation and implementation of strategy Contributes to improving the organisation’s competitive advantage in terms of quality, delivery, time, flexibility, innovation and cost, through modern process improvement and cost management techniques continued

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-12 Management accounting processes and techniques Management accounting … Provides information to help managers manage their resources through systems of planning and control Provides estimates of the costs of an organisation’s outputs, to support the strategic and operational decision-making needs of managers

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-13 Management accounting and strategy Management accounting can support the organisation's formulation and implementation of strategy Mission statement –Defines the purpose and boundaries of the organisation Vision –The desired future state or aspiration of an organisation –Used by senior managers to focus the attention and energies of staff continued

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-14 Management accounting and strategy Objectives –Specific statement of what the organisation aims to achieve, often quantified, and relates to a specific period of time Strategies –The direction that the organisation intends to take over the long term to meet its mission and achieve its objectives –Ways to manage the organisation's resources to create value for customers and shareholders continued

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-15 Management accounting and strategy Major decisions in formulating strategy –What business will we operate in? –How should we compete in that business? –What systems and structures should we have in place to support our strategies? Corporate strategy –Decisions about the types of businesses to operate in, which businesses to acquire and divest, and how best to structure and finance the organisation  In publicly-listed companies, strategy may be heavily influenced by the expectations of major shareholders and share market continued

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-16 Management accounting and strategy Business (or competitive) strategy –The way a business competes within its chosen market –Specific business strategies for each business unit Strategy implementation –Putting plans into place to implement and support business strategies –New structures, new systems, new production processes, new marketing approaches, new HRM policies continued

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-17 Management accounting and strategy Competitive advantage –Cost leadership  Through economies of production, superior process technologies and tight cost control –Product differentiation  Superior quality, customer service, delivery performance, product features Management accounting systems should provide information to support the formulation and implementation of an organisation's strategies continued

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-18 Management accounting and strategy Strategic planning –Long-term planning, usually undertaken by senior managers with a three to five year timeframe –Involves corporate strategy decisions –Draws on management accounting information Implementing strategies –Managers at all levels share the responsibility for implementation –Long-term plans linked to budgeting systems –Performance measurement systems to compare actual outcomes to targets

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-19 Planning A broad concept that is concerned with formulating the direction for future operations Allows an organisation to consider and specify all resources needed in the future Occurs at all levels of the organisation A budget is an example of a short-term plan that summarises the consequences of an organisation’s operating activities for a specified time period

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-20 Controlling Involves putting mechanisms in place to ensure that operations proceed according to plan, and objectives are achieved Management accounting information provides information for control by comparing actual performance against plans, targets or budgets Control systems are the systems and procedures that provide regular information to assist in control

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-21

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-22 Costing goods and services Estimates of the cost of producing goods and services are needed to support a range of operational and strategic decisions Routine costing systems form part of the financial accounting system Product costs are produced outside of the financial accounting systems, to better meet managers’ decision-making needs

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-23 Some important considerations in the design of management accounting systems Behavioural issues –An awareness of the expected and unexpected outcomes of management accounting systems –A key purpose of management accounting systems is to motivate managers and employees to direct their efforts towards achieving the organisation’s goals –An important motivational tool is the use of performance measures that reflect organisational objectives, and reward systems continued

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-24 Some important considerations in the design of management accounting systems The trade-off between the cost and benefits of management accounting information Costs –Salary of accounting personnel –Cost of purchasing and operating computers –Cost of gathering, storing and processing data, and –Cost of managers’ time to read, understand and use the information continued

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-25 Some important considerations in the design of management accounting systems Benefits –Improved decisions –More effective planning –Greater operational efficiency –Better control and –Improved customer and shareholder value

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-26 Management accounting responses to the changing business environment By the 1990s, many realised that they needed to improve their product and service quality, delivery responsiveness and cost performance in order to improve market share and profits Adoption of new management structures, systems and practices, including new management accounting techniques and systems continued

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-27 Management accounting responses to the changing business environment Conventional management accounting systems –Includes budgeting, costing systems and financial performance measurement systems –In wide use for many decades, and still used in many organisations Contemporary management accounting systems –Includes activity-based costing, performance measurement systems (such as balanced scorecards), cost management systems (such as business process re- engineering), new approaches to customer profitability analysis and supplier cost analysis continued

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-28 Management accounting responses to the changing business environment Contemporary management accounting techniques have been developed over recent years, and support the adoption of new structures, systems and practices Some organisations continue to use conventional management accounting systems, while others are in the midst of implementing contemporary systems

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-29

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith 1-30