Benefits for Management Accountants in Understanding the Explanations of Decision-Making Processes - Article Example

Running Head: Potential benefits for management accountants in understanding the existence of diverse explanations of decision-making processes. Decision Making in Accounting Name Institution date The disciple of accounts for many years has been viewed by management community as a fundamental tools in the decision making process. Traditionally, the accounting system has been known to provide much financial data which are very helpful in decision making. Today, there has been conspiracy whereby the field of management is greatly dissatisfied with current accounting systems. Many managers believe that the accounting systems have greatly failed in adjusting its activities and objectives towards decision making. This study will focus on defining potential benefits for management accountants in understanding existence of diverse explanations of decision making processes. For a good argument, the study will neither assume that accountants are not in touch with management process so as to be obsolete nor accountants are far from van guarding newer management so as to be more contented (Emsley, 175). Managerial accounting is concerned with providing information to managers inside organization assisting in directing and controlling its daily operations. It can be defined as a process whereby there is measurement, accumulation, identification, analysis, preparation and communication of information used by managers in decision making. It further comprises the preparation of financial information for non-management group such as regulatory agencies, creditors, shareholders and tax authorities. The aim of these management accounting include; safeguarding companies asserts, formulation of strategies, supporting of financial reports preparation, assists in making decision and planning and constructing business activities. Accounting for decision making greatly involves a certain way of viewing managing process and decision making within a business. Here, decision making does not necessarily consist solely on choice involved between two or more alternatives. Here, decision making entails more than a final choice which is considered to be the culmination of decision making process. Further, accounting entails coming up with decisions that have many ethical elements to them. This is because the impact that arises from accountant made decisions is expected to greatly affect stakeholders in various ways thus expressing various ethical values (Simons, 124). It is quite observable that in management accounting, most decision making is simply defined as choosing a specific quality action from various alternative. Clearly, when there are no alternatives then there is no need for any decision to take place. In accounting, it is assumed that the best decision is one that entails most revenue as well as least amount of cost involved. Decision making for accountants entails achieving the best among all alternatives. To achieve this process of decision making generally follow the following steps namely; clearly identifying various alternative to which a concrete decision will emerge, obtaining all necessary date that will greatly assist in evaluating all alternatives, analyzing and determining the various consequence that may be linked to each alternative, selection of alternative that is likely to result to achievement of stipulated goals, implementing the alternative chosen and finally at a specified alternative time evaluating results based on decision against other desired or standard result. It is from these steps that management of accounting forms a focal point for decision making (Simons, 124). Strategic decisions are defined as those decisions which are broadly based and can be termed to be qualitatively since they widely reflect organizational goals and objectives; they are further based on subjective thinking of management accounting concerning stipulated objectives and goals. Tactical decisions are defined as those decisions considered being quantitative and greatly resulting from strategic decisions. The difference that exists in these two decisions is very essential in marketing accounting since most decisions are pertained to be primarily related to tactical decisions. It is quite evidence that management accounting has a basis in making a decision that does not have to be a best decision but good one. Organizational accounting management is finding it hard in making best decision due to nature of complexity especially when interacting with other major relationships. Statistical and tactical decision making offer potential benefit in such whether decision made is good it highly depends on objectives and goals designed by accounting management. For a substantial strategic and tactical decision, potential benefit is displayed in the sense that management must decide on strategic objectives which incorporates pricing strategy, companies’ product line, quality of product, profit objective and most important risk management (Emsley, 175). Benefits of classifying decisions as either tactical or strategic assist the accounting management into quantitative and qualitative objectives and goals. Decision making within management account can either be that of long or short run. It is argued that the decision between long and short term widely depends on setting what kind of profitability objectives required by an organization. The benefits linked to these kinds of decisions are one associated to those of success of the organization. Decision in accounting management ensures that organizations are able to achieve maximum profit through substantial choice on long or should term decisions. These decisions have been termed to increase sales. In order to increase perceived sales, it is important to note that method of financing is not necessarily of importance. It is quite arguably that, decisions that are made on short term basis benefits also benefit from long term decisions. These decisions always ensure that an accounting manager is always possible to be aware when any kind of conflict takes place (Bjpoornenak, 325-338). The decision making in management will entail the use of management accounting tools and this will go a long way to place the burden to the management accountant. The management accountant will be put to task to provide the specialized information that is needed. Management accounting will involve the use of the necessary mechanics to provide the necessary information which at sometimes will be hampered rendering the techniques of obtaining the accounting information to be useless. Various tools will be needed in order to obtain the information that is required. These tools will include the flexible budget which will offer information on the variable cost rates, the variance analysis which will give the information on the standards costs. The EOQ will go ahead to provide the carrying as well as the purchasing cost. The incremental analysis will offer information related to the opportunity as we as escapable costs. The other tool will be the capital budget models which will give the information on the future cash inflows as well as the future cash outflows. The final tool will be the cost volume profit analysis which will provide the information on the variable cost percentage and the fixed costs as well as the desired income (Thompson, 234). Decision making is a complex network in as far as management accounting is concerned. There are various models which have been put forward to assist in making of decisions in management accounting. The decision making in management will involve the identification of variables as well as the minute decision relationships. Decision making in this case will be linked at various levels and this will include the financial statement items, the strategic and tactics decisions, management accounting techniques and the decision making information to be used. The relationships of the above variable will be summarized into the financial items which will now be used in the making of strategic decisions and this will go a long way to yield the tactical decision making tool that will end up giving the management accounting information from which the accounting decision will be based upon. The whole of the above approach in the making of a management accounting decision is what is referred to as a comprehensive management accounting decision model (Foster, 90). The very essence of management in accounting is the ability to make decisions that can be classified into the marketing, production and financial groupings. the tactical decisions will as ways be described from the strategic decisions in order to provide the historical data from which the management will be able to formulate and prepare the various financial statements. The financial statements will now be regarded as the pillars of the descriptive model for decision making. Every item that is on the financial statements will be useful in the making of decisions and is a result of a decision that had been taken or made. The management accounting tools will enable the management to come up with good decisions and the tools will only be used when the management accountant is successful in the provision of information that will be demanded by the various tools of decision making (Argyris, 234). The performance of a business can be measured through the use of accounting ratios such as the capital employed, return on investment, and the earnings per share. Initially, the businesses were easier on based on the use of strong cash flows diversification which created a value gap which is the difference between the market value of the shares and the value of the business if it was initially managed to maximize the shareholder value. This ended up providing take over movement and subsequent asset stripping which has ended up providing the powerful incentive for the managers to focus on the creation of value for the shareholders (Argyris, 234). The takeover movement however led to the high acquisition of premiums being paid to the owners and financed by high number of debts. The dominance of share ownership is what now created the pressure on the management in order to improve financial performances of the companies. The effectiveness in accounting decision making will be able to develop an analysis of available resources and the environment where the business it is to be located. This has to be done with a lot of care since inaccuracy can result to wastage of resources and emerging opportunities. This can be achieved trough reviews to its business through holding interviews with stakeholders and carrying intensive researches on customer need and competitive markets. The purpose in this stage is to build knowledge that is applicable in development and solving issues (Thompson, 234). The organization researches on the competitors and the available market. They also try to understand the external and internal environment. This is achieved through data collection on the customers and their culture as well as analysis of collected information. The organization has managerial positions that are continuously evaluated to determine the effectiveness of the managers and the set processes. Good decision in management accounting systems serves the decision control of the top managements as well as the lower level mangers. When the accounting systems are used for decision control, innovation brings about potential for wealth effects to occur. Innovation is considered one of the major determinants of long term organizational performance (Clark, 90). This means that management accountants are a major body for an organization to meet its goals which is the core aim of any firm; however, this is effective if the managers take and implement the information given to them by the management accountants. The main objective of any organization is to maximize profits and attain its goals. Management accounting innovations are a main consideration when an organization is aiming at improving its performance. For example, when product innovation is applied it results to improved sales. Product innovation is the development and the launching of products that are unique from the existing one (Emsley, 157). Management accounting management is used to improve performance. Performance in any organization is the degree of goals achievement which is financial or non – financial. In this matter, self rating instruments are developed for evaluating the business effectiveness (Gupta, 45).therefore when Management accounting innovations are incorporated in running any organization; they result to offering innovative information which helps the organization to attain its goals and objectives. Management accounting innovations are strategic management accountings that join the strategies to the value chain and link activities across the organization which relate to cost objectives. These innovations are very important in an organization setting. This is because they affect the activity based costing and activity based management. Activity based costing is developed to suit the manufacturing context, where activities are identified and costs allocated depending on the proportion of the resources it uses, and then the cost pool is allocated to the extent of cost driver absorbed by the product or service. Activity based management is where deals with the identifying the benefits and influence of the innovation to the managers and employees satisfaction. This results to increased production in an organization when it is implemented (Emsley, 158-169) . For effective performance of any company, the nature of information required for effective management and decision making is important. This calls for an innovative strategy which is supplied by the management accounting to the managers who in the end make decision which affect the performances of the organization from the information given by the management accountants. Therefore management accountant’s innovations are important and play a vital role in decision making in any organization. Management accounting innovation plays a vital role is the running of an organization. This is because the innovations make the managers make decision which will result to improved performance. For example, management accounting innovations affect the organization in two areas of decision making. Strategic decision making and Tactical decision making. Strategic decision making focuses on the impact of competing strategies and their influence on how the organization handles their resources. An organization achieves a competitive advantage by controlling resources that create customer value and that is not easily replicated (Emsley, 169-175) . The use of managerial accounting innovations for tactical decision making is a major area for management of a company. In this case, the focus is shifted to how worker motivation affects production. When workers are motivated there is higher chance that they will work hard and smart thus improving the performance of the organization. Management accounting aims at meeting the decision needed by managers in an organization. Recently, there have been changes in organization designs due to change in information technology and competitive environments, resulting to new management accounting techniques (Bjpoornenak, 325-338). These changes lead to innovations from management accounting which aims at fitting in the changing economic logics, social and political changes. Therefore, Management accounting plays a big role in coming up with these innovations which influence the unit managers to make decision that are aimed at increasing the organization’s performance. Therefore, a Management accountant plays a vital role in initiating innovations in an organization. Management accountants can easily know whether an innovation is appropriate or not because they work together with the business unit managers. This means that these management accountants have a clear understanding of the decision made by the managers. In this case they are therefore an important unit in the organization because they know the right information for the right decision. Management accountant develop innovations to improve the performance of the organization by motivating the workers through incentives to innovate. These are rewards that enhance job satisfaction that is derived from greater job enrichment (Argyris, 234). The use of non – financial measures and financial controls improve the firm’s performance. Management accountants are involved in several roles in the organization. They play roles like scorekeeping, attention directing and solving problems (Simons, 124). Scorekeeping and attention directing involves compliance reporting and control type issues while problem solving role involves providing relevant information to unit mangers for decision making ( Friedman, 54), for any organization to improve performance, there must be a good supply of information and innovations that convince the unit managers to make decision that improve performance. This therefore requires great innovation by the management accountant. Management accountants are involved in giving information to unit managers that result to decision making. They are involved in controlling output, behaviors and social roles in operational and executive levels of an organization which at the end improves competency and performance (Emsley, 175). Therefore innovations in an organization are influenced by the management accountants. Management accounting is an operation containing value added and continuous improvements of programming, measuring, designing and implementing financial and non financial information that helps managers towards decision making that help the organization attain tactical, operative and strategic objectives (Foster, 90). Therefore, innovation of important information is required and this is influenced by management accountants. Effective decision making in the global business is important in driving the modern organization. This is due to the fact that these decisions affect the running of the entire organization towards attaining its objectives. They link the senior management and the workers who affect the performance of the organization. It is therefore true that a effective decision making in accounting plays a key role in initiating innovations (Emsley, 175-178). References Argyris, C., Kaplan, R.S., 1994. Implementing new knowledge: the case of activity-based costing. Acc. Horizons 8. Baldvinsdottir, et al 2009 ‘The changing roles and changing discourses of the management accountant. Bjørnenak, T. & Olson, O1999 Unbundling management accounting innovations, management accounting research. Vol 10 No 4, pp. 325-338 Burns, J & Scapens, R 2000 ‘conceptualizing management accounting change and institutional framework’, Management accounting research. Clark, K.B., & Fujimoto, T 1991 Product development performance. harvard business school press:boston. Dunk, A 1989 Management accounting lag Abacus. 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