The Changing Business Environment: A Manager’s Perspective

1. The Changing Business Environment: A Manager’s Perspective 18

2. The Role of Management Accounting OBJECTIVE 1: Distinguish management accounting from financial accounting and explain how management accounting supports the management process.

3. Table 1: Comparison of Management and Financial Accounting

4. Figure 1: Overview of the Planning Framework

5. Figure 2: The Supply Chain

6. Exhibit 1: A Management Accounting Report

7. The Role of Management Accounting • Like financial accounting, management accounting assists decision makers by providing pertinent information and communicating the information through reports.

8. The Role of Management Accounting • Management accounting differs from financial accounting in many respects: • Primary users • Management accounting information: managers, employees, supply chain partners • Financial accounting information: owners or stockholders, lenders, customers, government agencies

9. The Role of Management Accounting • Management accounting differs from financial accounting in many respects: (cont.) • Report format • Management accounting: flexible format, driven by user’s needs • Financial accounting: based on generally accepted accounting principles

10. The Role of Management Accounting • Management accounting differs from financial accounting in many respects: (cont.) • Purpose of reports • Management accounting: to provide information for planning, control, performance measurement, and decision making • Financial accounting: to report on past performance

11. The Role of Management Accounting • Management accounting differs from financial accounting in many respects: (cont.) • Nature of information • Management accounting: objective and verifiable for decision making; more subjective for planning (relies on estimates) • Financial accounting: historical, objective, and verifiable

12. The Role of Management Accounting • Management accounting differs from financial accounting in many respects: (cont.) • Units of measure • Management accounting: dollars at historical, current market, or projected values; physical measures of time or number of objects • Financial accounting: dollars at historical and current market values

13. The Role of Management Accounting • Management accounting differs from financial accounting in many respects: (cont.) • Frequency of reports • Management accounting: prepared as needed; may or may not be on a periodic basis • Financial accounting: prepared on a periodic basis (minimum of once a year)

14. The Role of Management Accounting • Management accounting provides relevant information at each stage of the management process. • Planning stage: Management accounting provides information for the planning process, which involves a mission statement, the development of strategic, tactical, and operating objectives, and the formulation of a business plan.

15. The Role of Management Accounting • Management accounting provides relevant information at each stage of the management process. • Performing stage: Managers implement the business plan, using management accounting information to manage the supply chain and make optimal use of resources.

16. The Role of Management Accounting • Management accounting provides relevant information at each stage of the management process. • Evaluating stage: Management accounting complements the efforts of managers at this stage to compare actual performance with the performance goals they established in the planning stage, analyze any significant differences, and correct the problems.

17. The Role of Management Accounting • Management accounting provides relevant information at each stage of the management process. • Communicating stage: Management accounting reports communicate the results of managers’ efforts in the planning, performing, and evaluating stages.

18. The Role of Management Accounting • The key to producing accounting reports that clearly communicate accurate information is to apply the four w’s: why, who, what, and when.

20. Value Chain Analysis OBJECTIVE 2: Describe the value chain and its usefulness in analyzing a business.

21. Figure 3: The Value Chain

22. Exhibit 2: Value Chain Analysis

23. Value Chain Analysis • The value chain conceives of each step in the manufacture of a product or the delivery of a service as a link in a chain that adds value to the product or service.

24. Value Chain Analysis • The primary processes that add value to a product or service include research and development, design, supply, production, marketing, distribution, and customer service.

25. Value Chain Analysis • The value chain also includes support services (such as human resources, legal services, information services, and management accounting); these services are necessary for promoting the effectiveness and efficiency of the primary processes, but they do not add value to the product or service.

26. Value Chain Analysis • Value chain analysis enables a company to focus on its core competencies. • Value chain analysis often results in a decision to outsource a product or service.

28. Continuous Improvement OBJECTIVE 3: Identify the management tools used for continuous improvement.

29. Figure 4: The Continuous Improvement Environment

30. Continuous Improvement • The concept of continuous improvement, which evolved in response to an increase in global competition, has given rise to several important management tools, all of which rely on management accounting information: • Just-in-time (JIT) operating philosophy • Total quality management (TQM) • Costs of quality

31. Continuous Improvement • The concept of continuous improvement, which evolved in response to an increase in global competition, has given rise to several important management tools, all of which rely on management accounting information: (cont.) • Activity-based management (ABM) • Value-adding activities • Nonvalue-adding activities • Activity-based costing (ABC)

32. Continuous Improvement • The concept of continuous improvement, which evolved in response to an increase in global competition, has given rise to several important management tools, all of which rely on management accounting information: (cont.) • Theory of constraints (TOC)

33. Continuous Improvement • All these tools are designed to • Reduce production or service costs and delivery time • Improve product or service quality • Increase customer satisfaction

35. Performance Measures: A Key to Achieving Organizational Objectives OBJECTIVE 4: Explain the balanced scorecard and its relationship to performance measures.

36. Figure 5: The Balanced Scorecard for Good Foods Store

37. Performance Measures: A Key to Achieving Organizational Objectives • Performance measures • Quantitative tools that gauge an organization’s performance in relation to a specific process, activity, or task • May be financial or nonfinancial

38. Performance Measures: A Key to Achieving Organizational Objectives • Performance measures (cont.) • Financial performance measures include • Return on investment • Net income as a percentage of sales • Costs of poor quality as a percentage of sales

39. Performance Measures: A Key to Achieving Organizational Objectives • Performance measures (cont.) • Nonfinancial performance measures include • Number of customer complaints • Number of orders shipped the same day • Hours of inspection • Time to fill an order

40. Performance Measures: A Key to Achieving Organizational Objectives • Performance measures (cont.) • Performance measures are useful in reducing waste and inefficiencies in operating activities.

41. Performance Measures: A Key to Achieving Organizational Objectives • Performance measures are used in all stages of the management process. • Planning stage: Managers establish performance measures that will motivate employees to fulfill the company’s mission and achieve its objectives. • Performing stage: Performance measures guide and motivate actual performance and assist in assigning costs.

42. Performance Measures: A Key to Achieving Organizational Objectives • Performance measures are used in all stages of the management process. (cont.) • Evaluating stage: Managers use performance measures to analyze significant differences between actual and planned performance. • Communicating stage: Performance measurement information is used in communicating performance evaluations and developing new budgets.

43. Performance Measures: A Key to Achieving Organizational Objectives • Balanced scorecard • Approach to performance measurement that links the perspectives of an organization’s four stakeholder groups to the organization’s mission, objectives, resources and performance measures.

44. Performance Measures: A Key to Achieving Organizational Objectives • Balanced scorecard (cont.) • Stakeholders have one of four perspectives: • Financial perspective • Learning and growth perspective • The business’s internal procedures • A customer perspective

45. Performance Measures: A Key to Achieving Organizational Objectives • Balanced scorecard (cont.) • The balanced scorecard enables a company to determine whether it is making continuous improvement in its operations.

46. Performance Measures: A Key to Achieving Organizational Objectives • Benchmarking is a technique for determining a company’s competitive advantage by comparing its performance with that of its closest competitors in the same industry. • Benchmarks are measures of the best practices in an industry.

48. Standards of Ethical Conduct OBJECTIVE 5: Identify the standards of ethical conduct for management accountants.

49. Exhibit 3: Statement of Ethical Professional Practice

50. Exhibit 3: Statement of Ethical Professional Practice