Management Accounting for Business Decisions

Management accounting is a system mainly utilized by the company managers to collect and analyze any accounting information purposely to be used for planning and reporting company matters. This information offers the managers with a basis to make logic business decisions that enable them to be better and fully equipped in their management roles and control functions. As opposed to financial accountancy information, the management accounting information is often confidential and utilized by the management body, worked out by reference to the requirements of the managers, regular using management information system rather by reference to common financial accounting standards (Management Accounting 1999). This assignment aims to study the changes impacted by Enterprise Resource Planning systems and Online Analytical Processing on management accounting practices.

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Background Information

Management accounting has been described as a process that offers relevant information for organizational managers in basis of performance evaluation and planning. Atkinson et al (2001) perceives that, management accounting is a value adding progressing improvement process of operating financial and non-financial information, designing and measuring information system that directs the management actions, creates and holds up the cultural values which are essential in achieving the organization’s goals, motivates behavior and assists in tactical and operating goals. According to the previous researchers, management accounting ought to support organizations’ in ongoing organizational transformation and in making decisions. As brought out by Atkinson (2001), the functions of management accounting comprise of, strategic control, management control, customer and product costing as well as operational control. Operational control offers information regarding the performed tasks. Customer and product costing resolves the products costs and services generated for customers. Management control task assesses the operating unit and the managers work, while strategic control function centers on long term strategic decisions (Management Accounting 1999). Management accounting may also be referred as internal accounting; therefore, management accounting information refers or directs to the accounting information utilized inside the company. By tradition, accounting information has been long considered as financial in its nature. Dissimilar kinds of financial information entail for example, cost of manufacturing goods or services or cost acquired in any department. Nevertheless, management accounting information has commenced to also take in non-financial information subjective measures for instance, customer satisfaction as well as quality (Management Accounting 1999).

Impacts of ERP

Enterprise resource planning systems well known as ERP have made it possible for most organizations to take advantage of their business information. From the introduction in the mid nineteen ninety’s, adopters of enterprise resource planning system have highly increased (Zeng 2003). The major important factor that differentiates enterprise resource planning system from the former generations of information systems like material requirement planning and manufacturing resource planning is that, enterprise resource planning allows the organizations to incorporate business practices and optimize the available resources. As stated by Zeng (2003), an enterprise resource planning system is always flexible and has the capacity to respond to the changing needs that an organization may have in future. This system is able to support a range of organizational processes, as well as covering different modules for instance, materials management, human resource, sales and distribution and financial accounting. An excellent enterprise resource planning system is not limited by the organizational boundaries, that is, it holds up linkages to entities outside an organization (Zeng 2003). However performance of enterprise resource planning does not repeatedly offer any merits for the organization, although there are some noted benefits which include;

Managerial benefits, the enterprise resource planning system with their data analysis and databases capacities can enhance the decision making and performance improvement in operating divisions. Thus enterprise resource planning systems offers planning benefits to the management.

Operational benefits, an enterprise resource planning system computerize daily operational procedures and therefore, one could expect that the system provides benefits in terms of customer service, cost reduction and improvement in productivity (Zeng 2003).

Strategic benefits, an enterprise resource planning system can offer an organization IT- based cutthroat merits by helping in establishment of outside alliance with clients and by promoting business development, differentiation and innovation. This enterprise resource planning system generates an infrastructure which enhances an organization to cope up with future changes and also decline the IT costs and raise the potential to implement other applications.

Organizational benefits, an enterprise resource planning system improves the working patterns, communication and organizational learning among people, hence, improvement in the organizational culture is also attainable (Zeng 2003).

Some researchers have studied the impacts of enterprise resource planning systems implementations on general firm performance and the study of Hunton (2003) disagreed from others because Hunton compared enterprise resource planning system adopters with the non-adopters from different financial companies whereby he came to an identical conclusions as the others-there were no notable improvements in the financial ratios during the subsequent period of assessment.

Impacts of online analytical processing

Online analytical processing (OLAP) is an assortment of techniques that the organization can make use of to accomplish multidimensional analysis and toil with comprehensive data. Generally the online analytical processing enables the user to observe information in a range of dimensional views (Yazdifar 2005). There are online analytical processing systems that support management decision making, budgeting and reporting. It’s very beneficial in any management accounting department for it offers more flexible ways to access the data as compared to data warehouses. Its tools provide more highly developed reporting formats and offers possibilities to view the data from a variety of perspectives thus making the work easier (Yazdifar 2005). Data in online analytical processing environment is normally structured in a departmental format, this means that the department is well able to identify metrics that are pre-computed and hoarded in the online analytical processing system. Online analytical processing facilitates the querying of data, that is, it raises the level of aggregation and also depreciating the level of aggregation. It holds up departmental customization, hence, departments are in a position to come up with their own summaries on the similar data according to their requirements (Yazdifar 2005).

OLAP, ERP Systems and Management Accounting

According to studies, management accounting ought to assist organizations to cope up with coming changes in the business environment. It should enable the organization to recognize the requirements to undertake changes by suggestive of suitable measures (Tin, 2006). Equally very crucial, management accounting should not block the changes by putting an emphasis on performance measures that sustain the status quo. A researcher suggests that management accounting may lead to growth of custom based on former experience. Although these customs will assist the organizational to respond to identical kind of situations as encountered in the former periods, they lessen the organizations capability to respond to latest events (Tin, 2006).

At lower levels, the management accounting systems have traditionally centered on assisting middle level supervisors to supervise floor workers. The routine has, however, shifted from the managers’ supervision on the assistant to self regulating by the assistants (empowerment). At the senior levels, management accounting is used to organize the federal decision making and also to offer information for decision making in the decentralized organization. From this, we can clearly observe that, the online analytical processing and enterprise resource planning systems are being used as a way to assist the organizations to change (Tin, 2006). As laid down from the previous information, organizations performing in a regularly changing business environment calls for real time information which may somehow be structured into multidimensional contexts. Online analytical processing technology allows the user to produce multidimensional presentation of data in a data warehouses and generate cubes that systematize and summarizes the data permitting well-organized analytical querying. According to Jordan (1999), the implementation of an online analytical processing database lessened the time linked to forecasting, distributing and consolidating financial management reports. To add on, the online analytical processing database makes analysis of data more successful and competent, while at the same time lowered the risk of depending on a single individual to sustain the systems supporting the management reporting (Tin, 2006).

Conclusion

As explained from the above information the online analytical processing and enterprise resource planning systems have a direct or indirect impact on the management accounting. In spite of the benefits towards the management accounting, these two systems may also have a limitation. Although in different organizations the enterprise resource planning system implemented had resulted in organizational sovereignty or new tasks, these adjustments had not led to changes in the sense of management accounting (Neely 2001). Hence, the top benefits of these current systems for accounting have only mirrored in enhanced heap processing of documents, whilst no noteworthy improvements can be observed in decision making. A small impact of enterprise resource planning on the management accounting can be well explained by the fact that, a number of organizations who were in their early phase of implementation, were under pressure due to functionality issues which had left less time to dedicate on value adding features like management accounting. In addition the enterprise resource planning system may have a steady role and end up reinforcing the existing management accounting routines instead of developing them (Neely 2001). The impact of the changing business environment on management accounting may in future come with more advanced changes which will improve the management accounting by making the work easier accessible and faster.

References

Management Accounting (1999); The changing role of the management accountant and Its implications for qualification development, September 1998; 76, 8, pp. 68-69

Neely A, M. R. Sutcliff, H. R. Heyns (2001): Driving Value Through Strategic Planning and Budgeting, New York, NY: Accenture.

Tin, H. (2006). Management Accounting Practices And Management Accounts. Retrieved on 26 November 2010, Available at; http://webcache.googleusercontent.com/search?q=cache:0INPxMw6QDIJ:www.pafis.shh.fi/graduates/tinho04.pdf+The+Impact+of+the+Changing+Business+Environment+on+Management+Accounting+Systems&hl=en

Yazdifar, H and Tsamenyi, M (2005): Management accounting change and the Changing roles of management accountants: a comparative analysis between dependent And independent organizations, Journal of Accounting & Organizational Change, Vol. 1, Issue 2.

Zeng Y, R.Chiang H and D. C. Yen (2003): Enterprise integration with advanced Information technologies: ERP and data warehousing, Information Management & Computer Security, Vol. 11, Issue 3 September 1998; 76, 8, pp. 68-69

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