Implications of Political Factors on Planning - Example

Implications of Political factors on Planning Student’s Name Subject Professor University/Institution Location Date Introduction Management accounting is a discipline in business that helps the managers and investors to make informed decisions for the success of their businesses. According to Hogget and Edward (1987), management accounting refers to the process of identifying, preparing and reporting both financial and non-financial economic information. It does so after evaluating or measuring and accurately investigating about that economic information so as to permit timely and informed decision making and planning by the managers in the financial organizations. Planning is one of the elements advocated by management accounting for the success and improved performance of organizations. It outlines the goals of the organization to the workers so as to direct and coordinate their activities towards such functions as optimal production and improved sales. In most cases planning in the financial settings is normally in form of budget, that is, what the organization aims to earn in terms of profits, production level, as well as the staffing and marketing strategies. Recently it has been observed that planning, although it is a vital tool in the operations of an organization, it is normally confronted by various issues due to political, social or cultural issues in a country. This paper critically evaluates the political implications of planning element in management accounting. The main political issues that affect planning are such as regulation and de-regulation trends in a country, tax policies, trade and tariff controls, environmental and consumer’s protection rules, government type and the stability and other changes in the political arena. This and other implications are critically analysed in this paper. The main reason as to why these factors ought to pose a problem in planning is because a company considers the current state of a nation and then makes its organizational plans with an aim that the political environment won’t change. Even though to some extent some firms may put into consideration some of the possible implications the changes in the political arena may have on their planning, some implications are very unpredictable Type of government and the political stability When making plans the organization has to consider the type of government in which the business is operating. Planning entails determining such factors as the prices to charge on the goods produced, remuneration of workers, internal auditing arrangements and marketing strategies. In a centralized type of government there are labour laws, price controls as well as policies that govern businesses market strategies. This means that if in such a type of government the managers of organizations make their organizational plans without considering the governments take on such factors, there may be contradictions between the two and hence the planning may not be effective. For example if the government decides to set price controls at a given point below the companies’ price level the company will have to adhere to the set prices. This means that if the company had projected to make a certain level of profit its goals will not be achieved due to the hiccup caused by the government on prices. Similarly if the government sets the minimum remuneration rate the company will still have to comply thus, making it difficult to meet their targeted business plans. (Alesina and Perotti 1994) In addition, the study conducted by Alesina et al (1996) on how political instability affects the country’s economic growth suggests that, political unrest creates fear and uncertainity in the market. This leads to firm’s inability to make any plans about the business’ goals that can be achieved in future. The study further suggests that, not only the occurrences of political stability that affects business operations but also the expectations of them occurring shun investors out of the market. Bureaucracy and press freedom While planning, some factors are inevitable unless the managers comply with them. This limits the organization managers the ability to make long lasting plans for their business. Bureaucracy for example in a nation leads to poor governance that affects the operations of businesses in those countries. This is because under bureaucracy leaders may come together and make or set senseless objectives just to benefit their own tailored agendas. Such goals may affect the progress of the country economically thus affecting the organizations too. (Diamond and Morlino 2004). Moreover, when the press freedom is tampered with, the flow of information is greatly affected too. This makes it difficult for the firms to look for information especially regarding the market so as to make informed plans in their businesses. Lack of information may also affect the company in knowing the needs of consumers who are far away from the firms. Marketing strategies also become difficult without the help of the media. However when the press has enough freedom it is actually able to fight corruption and other malpractices that would affect market performance of a country. (Brunetti and Weder 2003). Rule of law and Corruption Rule of law ensure equality among all citizens in the country through having an independent judiciary that works to see that the rights and dignity of all individuals are upheld under all circumstances. In a country where such rules are strongly followed without fear or favour of anyone, all sectors of the country are guaranteed to improve including the economic sector. Planning in the business sector by the managers is also possible under such conditions. (O'Donnell 2004) However where this is not observed and instead, corruption prevails planning in the businesses may become difficult. In the recent past, cases of corruption especially in the developing countries have taken a lead, not only within the public offices staffs but also in private sectors. Before a manager makes plans for his or her firm regarding the type or the method to adopt for the marketing of the company’s product, he first of all checks on the public audited results of other firm’s performance. The investors also check on such information to determine where they may invest. This enables managers to make informed decisions even on matters pertaining the profit target, prices etc. However, if there are cases of corruption some firms may sweet talk the public auditors to fake their financial reports so that they may appear appealing to the investors and so that they may also have an upper hand as far as competition is concerned. Corruption may also be portrayed when consumer protection rules are being implemented. The government’s officials implementing such rules may be corrupt and fail to take any action to those firms found with mistakes just because they receive some money in return. (Mauro 1995) Tax policy, trade and tariff control Planning in organizations is mainly based on budgeting, therefore if the tax system of a country is not stable, the planning will be difficult. Planning for the future without being certain how the prices will change due to the unpredictability of the tax system puts organizations in a dire problem. For instance, raising the Value Added Tax on goods directly affects the prices of goods offered by the firms. Trading is also affected by the changes in taxes and tariffs which in turn limit proper decision making as far as company planning is concerned. The national government may sometimes give incentives to encourage importation of given goods by lowering the tariffs or doing away with them fully. Such an action may affect the domestic firm that could have been providing a similar product locally. On the other hand the government may give a subsidy to a local producer with an aim to promote production in a certain sector for instance agriculture sector. When such go head are declared by the state, it means that everyone has to abide, thus even planning will be done in line to such decrees (Rodriguez and Rodrik 2001). Possible changes in the political environment Organizations perform well when the political state of a nation is condusive. Businesses experience faster growth in all aspects including their profit margin as well as an improved scale of operations. This is as a result of smooth flow of activities in the nation with minimal disturbances. Markets are easily accessible and factors of production can easily be acquired by the firms. However, according to Kobrin (1979), if firm managers expect changes in the political arena they may not be able to make plans soberly, especially if they expect instability in the country. Such situations create anxiety both to the business owners and the consumers. The implication of such feelings in the business sector causes lack of confidence in investors. Therefore planning is adversely affected by the uncertainties in the political scene. Another possible factor resulting from the changes in the political environment is the change in regime. When powers move from one regime to the other several other things including economic factors also changes. The new regime may want to put up new economic practices and rules that may not necessarily be in line with those that existed previously. Such a change may lead to deteriorating economic results in a country before the organizations adjust. Most of the companies’ plans fail to be achieved leading to losses. (Miller 1993) Other political environments include wars or conflicts in a country, if a country has ever experienced such a political unrest (especially among the developing countries), the loom of it occurring again may hinder them from entering into the business. Consumer protection rules and their environment Consumer rules are normally enforced by the government in bid to ensure that business environmental standards are met and adhered to by all the involved parties especially the producers. These rules are mainly fashioned to take care of the consumers from the mal-practices of scrupulous producers. Every plan that a company make, is always geared towards reaching out to as many consumers as possible. If the efforts to get them deems unproductive, then the planning may also fail to bear fruits that the firms expect. This may happen if the government decides to put in place consumers protection rules that are not favorable to the businesses (Brignall and Modell 2000). If the consumer protection rules and regulations are relaxed giving room to unfair competition in business, marketing plans of a company cannot succeed in such an environment. When a firm is making its marketing plans it takes into consideration al the possible counteracting activities of their competitors, hence if no rules that are put I place to safeguard them, then there is a problem. For example if there are two firms producing a similar product, say good X, and due to lack of proper consumer protection rules, one firm decides to reduce the quantity of good X but still sells it at the same price without consumers’ knowledge, the firm will be advantaged over the other one that holds into its rightful quantity of good X.(Dunbar 1984). Summary From the critical evaluation discussed above, about the implications of political factors it is clear that there are a number of issues that adversely affect the planning function of management accounting. Political stability is among them which I believe is the most undermining factor as far as planning function is concerned. When there is a political unrest or if it is expected planning becomes difficult due to the fear of the unknown possible missus in the economy resulting from the political instability. Freedom of the press also plays a vital role in either encouraging planning in the business or not. Press may help in fighting corruption and creating awareness about the product, thus, contributing positively to the planning function of an organization. However if tampered with it limits the performance of the function. Other factors discussed include; consumer protection and their environment, tax policies and tariff systems, regulation and de-regulation. All these factors limit the managers from attaining the objectives that they postulate during the planning process. References Alesina, A, & Perotti, R 1994 The political economy of growth: a critical survey of the recent literature The World Bank Economic Review, 83, 351-371. Alesina, A, Özler, S, Roubini, N, & Swagel, P 1996 Political instability and economic growth Journal of Economic growth, 12, 189-211. Brignall, S. & Modell, S. 2000, "An institutional perspective on performance measurement and management in the `new public sector'", Management Accounting Research, vol. 11, no. 3, pp. 281-306. Brunetti, A, & Weder, B 2003 A free press is bad news for corruption Journal of Public economics, 877, 1801-1824. Diamond, L J, & Morlino, L 2004 An overview Journal of democracy, 154, 20-31. Dunbar, A P 1984 CONSUMER PROTECTION: THE PRACTICAL EFFECTIVENESS OF STATE DECEPTIVE TRADE PRACTICES LEGISLATION Tul L Rev, 59, 427-1604. Hoggett, P, & Hambleton, R 1987 Decentralisation and democracy: localising public services No 28 University of Bristol, School for Advanced Urban Studies. Kobrin, S 1979 Political risk: A review and reconsideration Journal of International Business Studies, 101, 67-80. Mauro, P 1995 Corruption and growth The quarterly journal of economics, 1103, 681-712. Miller, P. & O'Leary, T. 1993, "Accounting expertise and the politics of the product: Economic citizenship and modes of corporate governance", Accounting, Organizations and Society, vol. 18, no. 2-3, pp. 187-206. O'Donnell, G A 2004 Why the rule of law matters Journal of Democracy, 154, 32-46. Rodriguez, F, & Rodrik, D 2001 Trade policy and economic growth: a skeptic's guide to the cross-national evidence In NBER Macroeconomics Annual 2000, Volume 15 pp 261-338 MIT Press. Read More