1. Strategic Management Accounting
AFM 31130
Strategic Management Accounting By
Isuru Manawadu
B.Sc in Accounting Sp. (USJP), ACA

2. Content
Introduction to Management Accounting and Strategic Management Accounting
A brief historical review of Management Accounting
Financial Accounting Vs. Management Accounting
Decision Making process
Strategic Management Accounting pracices
Impact of Information Technology

3. What is Management Accounting ?
Management accounting is concerned with the provision and use of accounting information to managers within organizations, to facilitate the managers in their decision making and management control functions. Unlike financial accountancy information (which, for the most part, is made publicly available), management accounting information is used within an organization and is usually confidential. 3

4. - The Chartered Institute of Management Accountants (CIMA)
Management Accounting is "the process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its resources”.
- The Chartered Institute of Management Accountants (CIMA) 4

5. Financial Accounting focuses on preparing information for the use of internal and external decision makers.
Management Accounting focuses on the requirements of Managers within the organization & the information they require making decisions. 5

6. Financial Accounting Management Accounting
Financial Accounting Vs. Management Accounting
Financial Accounting
Management Accounting
Principal Objectives
Stewardship or business for the benefit of shareholders
Seek to improve economy, efficiency and effectiveness of operations
Time horizon
Past
Not only look at the past, but the present and the future which affects the operation of the company
Report recipients
External/ Outsiders namely Shareholders and Government(tax)
Internal parties like Directors and Managers 6

7. Financial Accounting Vs. M.A. Contd…
Outputs
Summary (usually annual) comprehensive income statement , financial position statement and cash flow statement
Detailed monthly and annual management accounts showing results by product and function ad hoc reports
Regulating framework
Accounting standards, Accounting concepts plus statutory requirement by the companies Act
None prescribed 7

8. Cost Accounting Vs. Management Accounting
‘Cost Accounting is a systematic set of procedures for recording and reporting measurements of the cost of manufacturing goods and performing services in the aggregate and in detail. It includes methods for recognizing, classifying, allocating, aggregating and reporting such costs and comparing them with standard costs’ 8

9. Decision Making Process
Planning process
1. Identify objectives
2. Search for alternative courses for action
3. Gather data about alternatives
4. Select alternative courses of action
5. Implement the decisions
Control Process
6. Compare actual and planned outcomes
7. Respond to divergences from plan

10. STRATEGIC MANAGEMENT
“The fundamental idea of strategic planning is quite simple: Continuously re-assess what customers want, what competitors are doing, and other relevant environmental elements (such as emerging technology and trends in government legislation); size up these environmental changes; and use, or develop, available resources to turn these changes into advantages.
Obviously, carrying out strategic planning successfully is a lot more difficult than understanding what it is.”
Atkinson, Anthony A., Rajiv D. Banker, Robert S. Kaplan, and S. Mark Young, Management Accounting, Prentice Hall, Inc., 1995, p. 471.

11. Strategic Management Accounting
“The provision and analysis of financial information on the firm’s product markets and competitors’ costs and cost structures and the monitoring of the enterprise’s strategies and those of its competitors in these markets over a number of periods”
(Bromwich, 1990: 28)

12. STRATEGIC MANAGEMENT ACCOUNTING
“Accounting exists within an business primarily to facilitate the development and implementation of business strategy...
Three important generalizations emerge from this way of viewing management accounting:
Accounting is not an end in itself, but only a means to help achieve business success
Specific accounting techniques or systems must be considered in terms of the role they are intended to play
In evaluating the overall accounting system... the key question is whether the overall fit with strategy is appropriate.”
Shank, John K. and Vijay Govindarajan, Strategic Cost Management, The Free Press, Macmillan, Inc., 1993, pp. 6-7.

13. Surveys of Strategic Management Accounting Practices.
Competitive position monitoring
Strategic pricing
Competitor performance appraisal
Competitor cost assessment
Strategic costing
Value chain costing
Brand value monitoring
Brand value budgeting
Quality costing
Life cycle costing
Target costing
Bromwich, 1990

14. STRATEGIC MANAGEMENT AND ACCOUNTING
Stakeholder analysis
Corporate objectives
Sustainable competitive advantages
Strategic Management Accounting
Appropriate analysis
Long-term considerations
Nonfinancial data

15. STRATEGIC MANAGEMENT AND ANALYSIS
Strategic considerations
Strategic Marketing Analysis
Total Value-Chain Analysis
Target Costing
Life-Cycle Management and Costing
Operational considerations
Activity Based Analysis
JIT Operations: A Management Philosophy
Total-Quality Management and Costing

16. Strategic Cost Management
Strategic position analysis--an organization’s basic way of competing to sell products or services.
Value chain analysis--the study of value-producing activities, stretching from basic raw materials to the final consumer of a product or service.
Cost driver analysis--the study of factors that cause or influence costs.

17. Porter’s Strategic Positions
Cost leadership
Product or service differentiation
Focus on market niche

18. DEVELOPING COMPETITIVE ADVANTAGE
Differentiation
with Cost
Advantage
Superior
Differentiation
Advantage
Relative
Differentiation
Position
Low
Cost
Advantage
Stuck-in-the
Middle
Inferior
Inferior
Superior
Relative Cost Position

19. VALUE CHAIN ANALYSIS Focus of the analysis
External vs. Internal (traditional)
Highlights profit improvement areas
Linkages with suppliers
Linkages with customers
Process linkages within a business unit
Linkages across business units
Steps in the analysis
Identify an industry’s value chain
Assign costs, revenues, and assets to value activities
Diagnose cost drivers
Develop sustainable competitive advantages

20. VALUE-CHAIN & STRATEGIC MANAGEMENT
Research
and
Development
Product
And
Service
Process
Design
Service
Customer
Focus
Distribution
Production
Marketing

21. ESTABLISHMENT OF TARGET COSTS
Estimated
Market
Price
Market
Research
Define
Product/
Customer
Niche
Target
Cost
Understand
Customer
Requirements
Define
Product
Features
Competitor
Analysis
Required
Profit
Required
Profit

22. Group Activity
Instructions
Each group should have 5 students
At least two members should present about the findings
Topic
Explain the impact to the Strategic Management Accounting on Information Technology

23. Explain the impact to the Strategic Management Accounting on Information Technology
E- Commerce
ERPS

24. &
Answers
Questions
Lecturer - Isuru Manawadu