1. NOV-JAN 2006 Topic 4. MA IN THE BUSINESS ORGANISATION

2. INTRODUCTION Goals Information Financial, production, marketing, legal, environmental Larger the organization greater the need Managerial accounting Process of identifying, measuring, analyzing, interpreting, and communicating information in pursuit of an organization's goals.

3. Management Accounting Information (1 of 5) The Institute of Management Accountants has defined management accounting as: A value-adding continuous improvement process of planning, designing, measuring and operating both nonfinancial information systems and financial information systems that guides management action, motivates behavior, and supports and creates the cultural values necessary to achieve an organization’s strategic, tactical and operating objectives

4. Management Accounting Information (2 of 5) In this definition: MA provides both financial information and nonfinancial information Role of management information as supporting strategic (planning) operational (operating) and control (performance evaluation) management decision making Management accounting information Pervasive and purposeful Intended to meet specific decision-making needs at all levels in the organization

5. Examples of MA information: The reported expense of an operating department, such as the assembly department of an automobile plant or an electronics company The costs of producing a product The cost of delivering a service The cost of performing an activity or business process – such as creating a customer invoice The costs of serving a customer Management Accounting Information (3 of 5)

6. Management Accounting Information (4 of 5) Management accounting Produces measures of the economic performance of decentralized operating units, such as: Business units Divisions Departments Help senior managers assess the performance of the company’s decentralized units

7. Management Accounting Information (5 of 5) Management accounting information Key source of information for decision making, improvement, and control in organizations Effective management accounting systems can create considerable value to today’s organizations Providing timely and accurate information about the activities required for their success

8. A Brief History (1 of 8) Earliest management accountants Scribes - Job to record receipt and disbursements of cash and to provide an accounting of the current stock of wealth (Evidence of scribes) Early Babylon, Greece, and the Roman Empire In Egypt Time of the Pharaohs Treasurer or head scribe, occupied the most senior administrative position in the empire, responsible for managing all aspects of the Pharaohs’ wealth Treasury role for management accountant Virtually the same until medieval England

9. A Brief History (2 of 8) Medieval England Producers (the Guilds) Detailed records of raw materials and labor costs as evidence of product quality Change of focus from measuring wealth to providing a basis for quality assurance Still, the role was primarily recording the assets 1400-1600 Rudiments of basic modern management accounting practice emerged Notions of standards for materials use, employee productivity, job costing forms, and budgets MA became more decision oriented Supported decisions relating to building or retiring fixed assets, managing costs, and product pricing

10. A Brief History (3 of 8) 19th century America Textile mill owners Kept detailed records of costs To direct efficiency improvement activities and to provide a basis for product pricing But there was little or no standardized management accounting practice Then, in 1885, Henry Metcalf published Cost of Manufacturers

11. A Brief History (4 of 8) Late 19th century Railroad managers Implemented large and complex costing systems Compute the costs of the different types of freight that they carried Supported efficiency improvements and pricing in the railroads Railroads First modern industry to develop and use broad financial statistics to assess organization performance Steel mills Andrew Carnegie Developed detailed records of the cost of materials and labor used to make the steel produced in his steel mills Highly effective in reducing costs and Unsentimental in closing very inefficient mills

12. A Brief History (5 of 8) Start of the 20th century Emergence of large and integrated companies Created a demand for measuring the performance of different organizational units DuPont and General Motors are examples Managers developed ways to measure the return on investment and the performance of their units

13. A Brief History (6 of 8) After the late 1920s management accounting development stalled Accounting interest focused on preparing financial statements to meet new regulatory requirements It was only in the 1970s that interest returned to developing more effective management accounting systems American and European companies were under intense pressure from Japanese automobile manufacturers During the latter part of the 20th century there were innovations in costing and performance measurement systems – the focus of this text

14. A Brief History (7 of 8) The history of management accounting comprises two characteristics: 1.Management accounting was driven by the evolution of organizations and their strategic imperatives When cost control was the goal, costing systems became more accurate When the ability of organizations to adapt and change to environmental changes became important, management accounting systems that supported adaptability were developed

15. A Brief History (8 of 8) 2.Management accounting innovations have usually been developed by managers to address their own decision-making needs Management accounting needs to be both pragmatic and add value to the organization

16. Managing Resources, Activities, and People An organization... Acquires Resources Hires People Organized set of activities Organized set of activities Decision Making Decision Making Planning Directing Controlling

17. Managing resources, activities and people Management Team Decision Making Choosing among the available alternatives. Planning Developing a detailed financial and operational description of anticipated activities Operations Running the organisation on a day to day basis. Controlling Ensuring that the organization operates in the intended manner and achieves its goals

18. How Managerial Accounting Adds Value to the Organization Providing information for decision making and planning. Assisting managers in directing and controlling activities. Motivating managers and other employees towards organization’s goals. Measuring performance of activities, managers, and other employees. Assessing the organization’s competitive position. Providing information for decision making and planning. Assisting managers in directing and controlling activities. Motivating managers and other employees towards organization’s goals. Measuring performance of activities, managers, and other employees. Assessing the organization’s competitive position.

19. The Balanced Scorecard Financial Perspective Goals Measures Customer Perspective Goals Measures Operations Perspective Goals Measures Innovation Perspective Goals Measures How do we look to owner’s? How do customers see us? How can we continue to improve? In which activities must we excel?

20. Balanced Scorecard measures (examples) Financial Perspective Income from Operations Working Capital Cash Flow from operations Inventory Turnover Internal Operations perspective Reduction in process cycle time Number of engineering changes Capacity Utilization Order Response Time Customer perspective Rank in customer surveys Market share Repeat order rate Customer complaints Learning and growth perspective Leadership competence Percentage of patent protected turnover Training days for employees Quality Improvement Team Participation

21. Managerial versus Financial Accounting Focus in each of these objectives is on managers. On the needs of managers within the organization Rather than interested parties outside the organization. Financial accounting Use of accounting information for reporting to parties outside the organization. Users of financial accounting information Current and prospective stockholders, lenders, investment analysts, unions, consumer groups, and government agencies. Similarities between MA and FA information Both use data from an organization's basic accounting system. System of procedures, personnel, and computers used to accumulate and store financial data in the organization. Cost accounting system One part of the overall accounting system Accumulates cost data for use in both MA and FA E.g. Helping managers set prices - a managerial accounting use E.g. Helping value inventories - a financial accounting use

22. Managerial versus Financial Accounting Accounting System (accumulates financial and managerial accounting data) Accounting System (accumulates financial and managerial accounting data) Managerial Accounting Information for decision making, and control of an organization’s operations. Managerial Accounting Information for decision making, and control of an organization’s operations. Financial Accounting Published financial statements and other financial reports. Financial Accounting Published financial statements and other financial reports. InternalUsersExternalUsers

23. Managerial versus Financial Accounting

24. Financial v. Management Accounting Financial Accounting Communicates economic information to individuals and organizations that are external to the direct operations of the company Stresses the form in which it is communicated Is based on historical information Management Accounting Provides information to managers and employees within the organization Allows great discretion to design systems that provide information for helping employees and managers make decisions Forward looking

25. Line and Staff Positions A line position is directly involved in achieving the basic objectives of an organization. Example: A production supervisor in a manufacturing plant. A line position is directly involved in achieving the basic objectives of an organization. Example: A production supervisor in a manufacturing plant. A staff position supports and assists line positions. Example: A cost accountant in the manufacturing plant. A staff position supports and assists line positions. Example: A cost accountant in the manufacturing plant.

26. Evolution and Adaptation in Managerial Accounting Service Vs. Manufacturing Firms Emergence of New Industries Global Competition Focus on the Customer Cross-Functional Teams Computer-IntegratedManufacturing Product Life Cycles Time-Based Competition Information and CommunicationTechnology Just-in-Time Inventory Total Quality Management Continuous Improvement Change

27. Strategic Cost Management and the Value Chain How are goods and services created? Usually many activities Securing basic raw materials and Turning them into valuable products or services. Value chain The set of linked, value-creating activities, ranging from securing basic raw materials and energy to the ultimate delivery of products and services One or more value organization may be involved in a particular value chain Effective organisation Managers understand the entire value chain in which their organization participates very well. Managers ask, and answer, important questions about their organization's strategy

28. Strategic Cost Management and the Value Chain Questions involving fundamental, strategic issues Should the company concentrate on only a narrow link in the value chain, such as manufacturing and assembly? Or should it expand its operational scope to include securing the raw materials or distributing the final product to end users? Are there opportunities to form beneficial linkages with suppliers, which come earlier in the value chain? Or with customers? Cost drivers One important factor concerns costs incurred in creating value in each link in the value chain.

29. Strategic Cost Management and the Value Chain To achieve a sustainable competitive advantage (1) perform one or more activities in the value chain at the same quality level as its competitors, but at a lower cost, or (2) perform its value chain activities at a higher quality level than its competitors, but at no greater cost. Understanding the value chain, and these factors == crucial step in the development of a firm's strategy. Strategic cost management Overall recognition of the importance of cost relationships among the activities in the value chain Process of managing those cost relationships to the firm’s advantage

30. ProductDesignProductDesign ResearchandDevelopmentResearchandDevelopment Strategic Cost Management and the Value Chain Securing raw materials and other resources Securing raw materials and other resources ProductionProduction MarketingMarketing DistributionDistribution CustomerServiceCustomerService Start

31. Professional Ethics 4Competence 4Confidentiality 4Integrity 4Objectivity 4Resolution of Ethical Conflict

32. Changing Focus Traditionally, management accounting information has been financial information Denominated in a currency such as $ (dollars), £ (pound sterling), ¥ (yen), or € (euro) Management accounting information has now expanded to encompass information that is operational or physical (nonfinancial) information: Quality and process times More subjective measurements, such as: Customer satisfaction Employee capabilities New product performance

33. Role of Financial Information Financial information pervades our economy It is the primary means of communication between profit seeking organizations and their stakeholders For this reason organizations use financial measures internally as a broad indicator of performance This financial information provides a signal that something is wrong, but not what is wrong Financial information summarizes underlying activities But to explain financial results, managers need to dig deeper Detailed information provides additional insight into what is happening to profits

34. Business Level Strategy and the Value Proposition (1 of 2) A key element of any organization’s strategy is identifying its target customers and delivering what those target customers want What the organization tries to deliver to customers is called its value proposition Value propositions have four elements: 1.Cost – the price paid by the customer, given the product features and competitors’ prices 2.Quality – the degree of conformance between what the customer is promised and what the customer receives For example a defect free automobile that performs as promised by the salesperson

35. Business Level Strategy and the Value Proposition (2 of 2) Value propositions have four elements (cont.): 3.Functionality and features – the performance of the product, for example a meal in a restaurant that provides the diner with the level of satisfaction expected for the price paid 4.Service – all the other elements of the product relevant to the customer For example, for an automobile service might include: how the customer is treated as the automobile is purchased and the degree and form of after sales service Dell Computer’s value proposition is building to customer requirements, quickly, and at a low price

36. Delivering the Value Proposition Organizations use processes that they design and manage to deliver the value proposition Dell delivers its value proposition by providing customers easy and accessible access to ordering and insisting that suppliers locate close to its assembly facilities These steps enable Dell to minimize its inventories and avoid the costs of holding inventory and of obsolete inventory in a rapidly changing industry

37. Financial Control As previously stated, an organization can use financial and nonfinancial information to monitor the organization’s ability to deliver its chosen value proposition At a higher level, however, organizations use broad measures of financial performance to assess the overall success of the organization’s chosen strategies This approach to evaluating aggregate performance is called financial control

38. Origins in 20 th -Century Enterprises Many innovations in financial control systems occurred in the early decades of the twentieth century to support the growth of multiple-division diversified corporations E.g., DuPont and General Motors As the DuPont Company expanded, it had to: Acquire raw materials from many different suppliers Process these materials through many production stages in several different types of plants Produce a diversified mix of chemical products that were bought by companies in many different industries

39. Financial Control at DuPont The senior executives of the diversified DuPont Company devised techniques to coordinate operating activities in their different divisions: An operating budget The document that forecasts revenues and expenses during the next operating period, including monthly forecasts of sales, production, and operating expenses A capital budget The document that authorizes spending for resources with multiyear useful lives (capital assets) The vital return on investment (ROI) performance measure developed by Donaldson Brown, the chief financial officer (CFO) of DuPont

40. ROI: The DuPont Formula The ROI calculation gave DuPont executives a single number to evaluate the performance of their operating divisions and decide which of their divisions should receive additional capital to expand capacity The ROI measure combined a profitability measure with a capital intensity measure to produce return on investment or ROI Profitability Measure: = Operating income/Sales Asset or Capital Utilization Measure: = Sales/Investment

41. Financial Control at GM (1 of 4) Around 1920, Brown left DuPont to become CFO for General Motors under its new chief executive officer, Alfred Sloan Under Sloan’s and Brown’s leadership, General Motors introduced many management accounting initiatives to accomplish the company’s guiding operating philosophy of “centralized control with decentralized responsibility” Decentralized responsibility refers to the authority that local-division managers had in order to make their own decisions without having to seek higher approval on pricing, product mix, customer relationships, product design, acquisition of materials, and appropriate operating processes

42. Financial Control at GM (2 of 4) Decentralization allowed managers to use their superior access to information about local opportunities and operating conditions to make better and more timely decisions Centralized control of decentralized operations was accomplished by having corporate managers receive periodic financial information about divisional operations and profitability This summary financial information helped assure the senior managers that their division managers were making decisions and taking actions contributing to overall corporate goals

43. Financial Control at GM (3 of 4) The management accounting system at General Motors, enabled such a complex organization to plan, coordinate, control, and evaluate the operations of multiple, somewhat independent operating divisions E.g., assembly divisions producing Chevrolet, Pontiac, and Buick automobiles And component divisions producing parts E.g., radiators, batteries, fuel pumps, engines, and transmissions

44. Financial Control at GM (4 of 4) The management accounting system enabled the managers of these divisions to pursue their individual financial, operating, design, and marketing objectives aggressively while contributing in a coherent fashion to the overall wealth of the corporation Sloan’s and Brown’s initiatives played a critical role in creating an enormously successful enterprise from 1920 to 1970

45. Organization Control and the Management Accountant Organization control comprises the systems that organizations use to ensure that managers and employees behave in a way that is consistent with the organization’s ethics and best interests Although internal control systems protect the organization’s assets from fraud or theft, little interest or attention was paid to evaluating the appropriateness of management’s governance and strategic choices Massive corporate governance failures in 2002 caused intense interest in organization control

46. Changes in Organization Control (1 of 2) After massive corporate governance failures organizations call on management accountants to develop structures to motivate and monitor compliance with behavior that is consistent with the organization’s best interests

47. Changes in Organization Control (2 of 2) Innovations will likely include developing: Information that independent Boards of Directors can use to evaluate the organization’s strategy Monitoring employee attitudes toward the organization’s success, environment, and decisions to ensure behavior consistent with the organization’s objectives Developing information systems to assess whether the organization’s ethical standards are actually being practiced

48. Management Accounting and Control in Service Organizations The major changes in the demand for management accounting and control information experienced by manufacturing companies in recent years have also occurred in virtually all types of service organizations Service companies have existed for hundreds of years Their importance in modern economies has increased substantially during the twentieth century

49. Service Companies (1 of 2) Service companies differ from manufacturing companies in several ways Obvious difference: service companies do not produce a tangible product Less obvious: many employees in service companies have direct contact with customers Service companies must be especially sensitive to the timeliness and quality of the service that their employees provide to customers

50. Service Companies (2 of 2) Customers of service companies immediately notice defects and delays in service delivery The consequences from such defects can be severe Dissatisfied customers usually choose alternative suppliers after an unhappy experience They also usually tell others about their bad experience

51. Service Companies’ Use of Management Accounting Information Managers in service companies have historically used management accounting information far less intensively than managers in manufacturing companies Such a lack of accurate information about the cost of operations probably occurred because many service organizations operated in noncompetitive markets Either highly regulated or government owned E.g., national railroads, airlines, postal services, and telecommunications companies Others, such as local retailers, were subject only to local, not national or global, competition

52. Lack of Competition In a noncompetitive environments, managers of service companies were not under great pressure to: Lower costs Improve the quality and efficiency of operations Introduce new products that made profits Eliminate products and services that were incurring losses Accordingly, there was little demand from them for information to help them make decisions on those issues Management accounting systems in most service organizations were simple, designed to allow managers to: Budget expenses by operating department Measure and monitor actual spending against these functional departmental budgets

53. Competitive Environment (1 of 2) The competitive environment has now become far more challenging and demanding for both manufacturing and service companies Accordingly, companies now demand better management accounting information Starting in the mid-1970s, manufacturing companies in North America and Europe encountered severe competition from Asian companies that offered higher-quality products at lower prices Before long it was not sufficient for a company to have cost and quality parity against its domestic competitors A company could survive and prosper only if its costs, quality, and product capabilities were as good as those of the best companies in the world

54. Competitive Environment (2 of 2) The ground rules under which many service companies operate have completely changed The deregulation movement in North America and Europe since the 1970s The switch from centrally controlled socialist economies to free market economies in much of the world Managers of service companies now require accurate, timely information: To improve the quality, timeliness, and efficiency of the activities they perform To make decisions about their individual products, services, and customers

55. Government Agencies Government and nonprofit organizations as well as profit-seeking enterprises are feeling the pressures for improved performance Citizens are demanding more responsive and more efficient performance from their local, regional, and national governments The U.S. Congress passed The Chief Financial Officers (CFO) Act of 1990 The Government Performance and Results Act (GPRA) of 1993

56. CFO Act The U.S. Congress, in 1990, passed the Chief Financial Officers Act Requires each major federal agency to have a chief financial officer who is responsible for: The development and reporting of cost information The systematic measurement of performance

57. GPRA The Government Performance and Results Act of 1993 requires that each U.S. federal agency: Establish top-level agency goals and objectives, as well as annual program goals Define how it intends to achieve those goals Demonstrate how it will measure agency and program performance in achieving those goals In signing GPRA, President Clinton announced that the act would: Chart a course for every endeavor paid for by taxpayers’ money See how well we are progressing Tell the public how we are doing Stop the things that don’t work Never stop improving the things that are worth investing in

58. Implementing CFO Act and GPRA In response to the CFO and GPRA acts, the Financial Accounting Standards Board issued a document of “Managerial Cost Accounting and Standards for the Federal Government” This document stated, “In managing federal government programs, cost information is essential in the following five areas: Budgeting and cost control, Performance measurement, Determining reimbursements and setting fees and prices, Program evaluations, and Making economic choice decisions.” The demands for cost information in government will be identical to those in for-profit manufacturing and service companies

59. Nonprofit Organizations (1 of 2) Nonprofit organizations are also feeling the pressure for cost and performance measurement There has been explosive growth in nongovernmental organizations dealing with: Economic development The environment Poverty Illiteracy Hunger and malnutrition Public and private health Social services and the arts

60. Nonprofit Organizations (2 of 2) These organizations compete for funds from governments, foundations, and private individuals Increasingly the public and private donors are demanding accountability from the organizations they fund, including measures of effectiveness Are the organizations achieving their intended purpose and measures of efficiency? Are they using their resources productively? Managers of all types of nonprofit organizations are looking to adapt management accounting procedures, developed in the private sector, to meet the demands placed on them for accountability and cost and performance measurement

61. Financial & Nonfinancial Information in Government and Not for Profit Organizations (1 of 2) The objectives of customers should be the objectives of the organization In innovative government and not-for-profit organizations, managers use nonfinancial and financial performance measures to evaluate how well and how efficiently these organizations use their funds to provide services to their customers

62. Financial & Nonfinancial Information in Government and Not for Profit Organizations (2 of 2) Governments and not-for-profits need to look at the processes they use to deliver services to their customers to verify that these processes meet customer requirements at the lowest possible cost For example, what is the best way to approach training for an individual who is chronically unemployed so that the person’s needs are met at the lowest cost to society?

63. Behavioral Implications (1 of 4) As measurements are made on operations and especially on individuals and groups, their behavior changes People react when they are being measured, and they react to the measurements They focus on the variables and behavior being measured and spend less attention on those not measured Two old sayings recognize these phenomena: “What gets measured gets managed” “If I can’t measure it, I can’t manage it.”

64. Behavioral Implications (2 of 4) People familiar with the current system may resist as managers attempt to introduce or redesign cost and performance measurement systems They have acquired expertise in the use (and, perhaps, misuse) of the old system and wonder whether their experience and expertise will apply to the new system People also may feel committed to the decisions based on the information the old system produced Actions taken may no longer seem valid based on the information produced by a newly installed management accounting system A new management system can be a threat or lead to embarrassment and may lead to a resistance to change

65. Behavioral Implications (3 of 4) Management accountants must understand and anticipate the reactions of individuals to information and measurements An analysis of the behavioral and organizational reactions to the measurements must accompany the design and introduction of new measurements and systems More importantly, when the measurements are used not only for information, planning, and decision-making but also for control, evaluation, and reward, employees and managers place great pressure on the measurements themselves

66. Behavioral Implications (4 of 4) Managers and employees may take unexpected and undesirable actions to influence their score on the performance measure For example, managers seeking to improve current bonuses based on reported profits may skip discretionary expenditures that may improve performance in future periods Preventive maintenance Research and development Advertising

67. Ethics & the Management Accountant (1 of 9) When management accounting information is used for control, management accountants may find themselves in complex situations, fraught with conflict Especially when it is used for performance evaluation Pressure may be exerted to influence the numbers to make a favored product, customer, or line of business appear more profitable than it actually is Department managers may distort information so that unfavorable factors are not revealed in a management accounting report The cost of inefficient processes The existence of substantial amounts of excess capacity

68. Ethics (2 of 9) Senior executives whose incentive compensation is based on the reported financial numbers may put pressure on accountants To recognize revenue from a customer early To defer until subsequent periods the recognition of an expense In some circumstances, to recognize certain expenses early so that much higher earnings may be reported in future periods All of these behaviors were evident in the frauds dominating the financial news in recent years Organizational leadership plays a critical role in fostering a culture of high ethical standards

69. Ethics (3 of 9) The way an individual responds to pressure derives from inner values and beliefs, but individuals are strongly influenced by their view of organizational standards If individuals see unethical or illegal behavior practiced by the organization’s leaders and superiors or coworkers, they may feel that such behavior is accepted and sanctioned An individual without a strong set of personal beliefs and values may find it difficult to withstand the pressure to “go along with the flow” and participate in this behavior when a difficult or conflicting situation arises Such as being asked to misrepresent an organization unit’s performance potential when the unit is being offered for sale

70. Ethics (4 of 9) Beyond the example set by senior executives, companies may use two types of control systems to foster high ethical standards among their employees Beliefs systems Boundary systems A beliefs system is the explicit set of statements, communicated to employees, of the basic values, purpose, and direction of the organization: Credos Mission statements Vision statements Statements of purpose or values

71. Ethics (5 of 9) The statements in a beliefs system are intended to inspire and promote commitment to the organization’s core values and its purpose for being in business When conflicting situations arise, however, the lofty rhetoric in the statements will only have true meaning and serve as guides to actions if employees observe senior managers acting according to the statements In this way, employees learn that the company’s stated beliefs represent deeply rooted and actionable values Articulate and actionable beliefs systems may inspire people to higher values and aim at higher missions but they may not communicate clearly what behavior and actions are unacceptable

72. Ethics (6 of 9) Companies also need boundary systems that communicate what actions must never be taken Boundary systems are stated in negative terms, or in minimal standards of behavior Intended to constrain the range of acceptable behavior For example, the organization might tell employees in the Purchasing Department that accepting any gifts under any circumstances from suppliers will result in immediate termination Boundary systems also include clear communication of the laws under which the company operates Examples include antitrust laws; zero tolerance for sexual, racial, and gender discrimination and harassment; environmental, health, and safety laws; and foreign corrupt practices regulations

73. Ethics (7 of 9) Management accountants, like all employees, must be aware of and be deeply committed to act in ways that do not violate their organization’s code of conduct and societal laws governing organizational behavior and actions As designers and custodians of the organization’s reporting and control systems, they have an additional obligation to ensure that such boundary systems exist in their organization, and that the boundary systems are clearly communicated throughout the organization They should also monitor that senior executives act quickly and decisively when behavior in violation of these standards is detected

74. Ethics (8 of 9) If violations are detected but not acted upon, management accountants can communicate with the audit committee of the board of directors, who are the shareholders and society’s representatives in the organization Management accountants, as members of a profession, also operate with an additional boundary system: the code of behavior promoted or advocated by their industry and professional association In the United States, the Institute of Management Accountants (IMA) In the United Kingdom and elsewhere, the Chartered Institute of Management Accountants (CIMA)

75. Ethics (9 of 9) Professional organizations usually establish ethical norms and codes of professional conduct for their members The professional association can monitor and police its norms and codes through peer reviews They have procedures for disciplinary action when violations are detected Many of the guidelines are phrased in terms of what management accountants should not do, consistent with how boundary systems operate

76. Meeting the Challenge (1 of 3) Management accounting An exciting discipline that is undergoing major changes to reflect the challenging new environment that organizations worldwide now face Need for organizations to develop and use appropriate financial and nonfinancial information that will: 1.Focus on aggregate, usually financial, measures of performance in for-profit organizations that provide an overall summary of performance, and the ability of the organization to meet its financial objectives

77. Meeting the Challenge (2 of 3) In government and not-for-profit organizations the focus will be on the organization’s performance in meeting the needs of their citizens or clients 2.Focus on the organization’s success in meeting its customers’ requirements in for-profit organizations so that the organization can react promptly to failures in delivering the value proposition In public sector and not-for-profit organizations focus on the cost to deliver services to customers and to monitor and improve process efficiency 3.Enable all organizations to identify process improvements needed to improve the organization’s ability to deliver its value proposition

78. Meeting the Challenge (3 of 3) 4.Enable all organizations to identify the potential of the organization’s members to manage and improve process performance 5.Enable the for profit organization to assess the profitability and desirability of continued investment in various entities such as products, product lines, departments, and organization units 6.Enable the organization to motivate, monitor, and detect noncompliance with inappropriate organization behavior