Managerial Accounting and the Business Environment

1. Managerial Accounting and the Business Environment Chapter 1

2. Strategic Management Skills A strategyis a “game plan”that enables a companyto attract customersby distinguishing itselffrom competitors. The focal point of acompany’s strategy shouldbe its target customers. LO 1

3. Customer Value Propositions CustomerIntimacyStrategy Understand and respond toindividual customer needs. OperationalExcellenceStrategy Deliver products and servicesfaster, more conveniently,and at lower prices. ProductLeadershipStrategy Offer higher quality products. LO 1

4. Work of Management Planning Directing and Motivating Controlling LO 1

5. Select alternative that does the best job of furtheringorganization’s objectives. Develop budgets to guideprogress toward theselected alternative. Planning Identifyalternatives. LO 1

6. Directing and Motivating Directing and motivating involves managing day-to-day activities to keep the organization running smoothly. • Employee work assignments. • Routine problem solving. • Conflict resolution. • Effective communications. LO 1

7. Controlling The control function ensuresthat plans are being followed. Feedback in the form of performance reportsthat compare actual results with the budgetare an essential part of the control function. LO 1

8. Planning and Control Cycle Formulating long-and short-term plans (Planning) Begin Comparing actualto planned performance (Controlling) Implementing plans (Directing and Motivating) DecisionMaking Measuringperformance (Controlling) LO 1

9. Business Plans A business plan consists of information about the company’s basic product or service and about the steps to be taken to reach its potential market. The plan includes information about: • production methods • competition • management team, and • details on how the business will be financed. The business plan is a key document for: • the organization’s internal management, and • external use in attracting creditors and investors. New businesses typically formalize their strategic planning in the form of a business plan. LO 1

10. Comparison of Financial and Managerial Accounting: Seven Key Differences LO 2

11. Organizational Structure Decentralization is the delegation of decision-making authority throughout an organization. LO 3

12. Line positions are directly related to achievement of the basic objectives of an organization. Example: Production supervisors in a manufacturing plant. Staff positions support and assist line positions. Example: Cost accountants in the manufacturing plant. Line and Staff Relationships LO 3

13. The Controller A member of the top management team responsible for: • Providing timely and relevant data to support planning and control activities. • Preparing financial statements for external users. LO 3

14. The Professional Management Accountant • Three types of professional accountants work as management accountants in Canada: • CGA • CA • CMA LO 3

15. Certified Management Accountant A management accountantwho has the necessary qualifications and who passes a rigorous professional exam earns the right to be known as a Certified Management Accountant (CMA). LO 3

16. Professional Ethics forManagement Accountants CMA Ontario provides clear guidance concerning what professional ethical standards to follow, including:  Accountants must maintain a level of competence appropriate to their designation.  Confidentiality is essential because of the importance of the information they analyze.  Integrity is maintained by avoiding conflicts of interest with their employers or clients, by communicating the limits of professional competence, and by not accepting favours that would compromise their judgment.  Objectivity must be present in communications, so that recipients can receive both favourable and unfavourable information. LO 4

17. CMA Guidelines for Ethical Behavior Recognize and communicate professional limitations that preclude responsible judgment. Follow applicablelaws, regulationsand standards. Maintain professional competence. Competence Provide accurate, clear, concise, and timely decision support information. LO 4

18. CMA Guidelines for Ethical Behavior Do not disclose confidential information unless legally obligated to do so. Do not use confidential information for unethical or illegaladvantage. Confidentiality Ensure that subordinates do not disclose confidential information. LO 4

19. CMA Guidelines for Ethical Behavior Mitigate conflicts of interest and advise others of potential conflicts. Refrain from conduct that would prejudice carrying out duties ethically. Integrity Abstain from activities that might discredit the profession. LO 4

20. CMA Guidelines for Ethical Behavior Communicate information fairly and objectively. Disclose delays or deficiencies in information timeliness, processing, or internal controls. Credibility Disclose all relevant information that could influence a user’s understanding of reports and recommendations. LO 4

21. Without ethical standards in business, theeconomy, and all of us who depend on it forjobs, goods, and services, would suffer Abandoning ethical standards in business would lead to a lower quality of life with lessdesirable goods and services at higher prices Why Have Ethical Standards? Ethical standards in business are essential for asmooth functioning advanced market economy LO 4

22. Board ofDirectors Incentives andmonitoring for TopManagement To pursueobjectives of Shareholders Corporate Governance The system bywhich a company is directedand controlled. LO 4

23. Employees Customers Creditors Suppliers And the communities inwhich the company operates. Corporate Governance An effective corporate governance system should also protect the interests of thecompany’s other stakeholders. LO 4

24. Corporate Social Responsibility Corporate social responsibility (CSR) is a concept whereby organizations consider the needs of all stakeholders when making decisions. Customers Employees Suppliers Communities Shareholders Environmental & Human RightsAdvocates CSR extends beyond legal complianceto include voluntary actions that satisfy stakeholder expectations. LO 4

25. Process Management Business functions making up the value chain Product Customer R&D Design Manufacturing Marketing Distribution Service A businessprocess is a series ofsteps that are followed in order tocarry out some task ina business. LO 5

26. Process Management There are four approaches toimproving business processes . . . • Six Sigma • Enterprise Systems • LeanProduction • RiskManagement LO 5

27. Forecast Sales Order components Store Inventory Make Sales from Finished Goods Inventory Produce goods in Anticipation of Sales StoreInventory Traditional “Push” Manufacturing Company LO 5

28. Materials waitingto be processed. Completed products awaiting sale. Partially completed products requiring more work before they are ready for sale. Traditional “Push” Manufacturing Company Traditional “push”manufacturing Largeinventories Rawmaterials Work inprocess Finishedgoods LO 5

29. Exhibit 1-6 Lean Production  Identify valuein specificproducts/services.  Identify thebusiness processthat delivers value. The lean thinkingmodel is a fivestep approach.  Organize workarrangements around the flow of thebusiness process.  Continuously pursueperfection in thebusiness process.  Create a pullsystem that respondsto customer orders. LO 5

30. Lean Production Customer places an order Create Production Order Generate component requirements Goods delivered when needed Production begins as parts arrive Components are ordered The five step process results in a “pull” manufacturing system that reduces inventories, decreases defects, reduces wasted effort, and shortens customer response times. Lean Production is often called Just-In-Time (JIT) production. LO 5

31. Lean Production Lean thinking may be used to improve business processes that link companies together.  The term supply chain management refers to the coordination of business processes across companies to better serve end consumers. LO 5

32. Six Sigma A process improvement method relying on customer feedback and fact-based data gathering and analysis techniques to drive process improvement. Refers to a process that generates no morethan 3.4 defects per million opportunities. Sometimes associatedwith the term zero defects. LO 5

33. Exhibit 1-9 Six Sigma LO 5

34. All data are recorded onlyonce in the company’scentralized database. The unique data elementscontained within a databasecan be linked together. Enterprise Systems A single software system thatintegrates data across an organization, thereby enabling all employees to have simultaneous access to acommon set of data. LO 5

35. Enterprise Risk Management Should I try to avoid the risk, accept the risk, or reduce the risk? A process usedby a company toproactively identifyand manage risk. Once a company identifies its risks, perhaps themost common risk management tactic is to reduce risks by implementing specific controls. LO 5

36. Enterprise Risk Management LO 5

37. Measurement Skills A good manager compliments an understanding of strategy, risks, and business processes with data-driven analysis. The key to effective analysis is to understand that the question you are addressing defines what you measure and how you analyze the data. LO 5

38. Measurement Skills Planning The primary purpose of this course is to teach measurement skills that managers use to support planning, directing and motivating, and controlling activities. Directing and Motivating Controlling LO 5

39. End of Chapter 1