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STRATEGIC MANAGEMENT ACCOUNTANTS Dynamic Business Partners

STRATEGIC MANAGEMENT ACCOUNTANTS Dynamic Business Partners. Peter Drucker made the following comments:. “Accounting has become the most intellectually challenging area in the field of management, and the most turbulent one.”

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STRATEGIC MANAGEMENT ACCOUNTANTS Dynamic Business Partners

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  1. STRATEGIC MANAGEMENT ACCOUNTANTSDynamic Business Partners

  2. Peter Drucker made the following comments: “Accounting has become the most intellectually challenging area in the field of management, and the most turbulent one.” Accounting is the primary discipline attempting to answer questions … “few executives yet know how to ask: What information do I need to do my job? When do I need it? And from whom should I be getting it?” Drucker, Peter E., “Be Data Literate—Know What to Know,” The Wall Street Journal, December 1, 1992, p. A16.

  3. MANAGEMENT DECISIONS Should I make this product? Is there a better way to provide this Service? How can I improve market share? What will this change cost me?

  4. Management Internal focus Decision driven Emphasis on future Detailed Segment evaluation Subjective (if relevant) Financial External focus G.A.A.P. driven Historical orientation Aggregate Entity-wide evaluation Objective MANAGEMENT vs. FINANCIAL ACCOUNTING

  5. Strategic Cost Management Strategic position analysis--an organization’s basic way of competing to sell products or services. Value chain analysis--the study of value-producing activities, stretching from basic raw materials to the final consumer of a product or service. Cost driver analysis--the study of factors that cause or influence costs.

  6. STRATEGIC MANAGEMENT ACCOUNTING “Accounting exists within an business primarily to facilitate the development and implementation of business strategy... Three important generalizations emerge from this way of viewing management accounting: • Accounting is not an end in itself, but only a means to help achieve business success • Specific accounting techniques or systems must be considered in terms of the role they are intended to play • In evaluating the overall accounting system... the key question is whether the overall fit with strategy is appropriate.” Shank, John K. and Vijay Govindarajan, Strategic Cost Management, The Free Press, Macmillan, Inc., 1993, pp. 6-7.

  7. EMERGING THEMES OF BUSINESS AND MANAGEMENT Highly Competitive Environment Advanced Technologies Continuous Change Process Orientation De-regulation

  8. Price/cost Quality Diversity Service Competition Competition takes place on these dimensions. Time

  9. Missions, Goals, and Strategies Mission - the basic purpose toward which activities are directed.

  10. Missions, Goals, and Strategies Goal - a definable measurable target or objective based on the organization’s mission.

  11. Missions, Goals, and Strategies Strategy - a course of action that will assist in achieving one or more goals.

  12. Porter’s Strategic Positions • Cost leadership • Product or service differentiation • Focus on market niche

  13. Establishment of goals Revision of plans Developing means to achieve goals Review of results MANAGEMENT DECISION - MAKINGCYCLE Planning Control Organizing Action

  14. An Activity (A Unit of Work) Waiter or Waitress Activity • Seat customer and offer menu • Take customer order • Bring order to kitchen • Bring food to customer • Replenish beverages • Determine and bring bill to customer • Collect money and give change • Clear table

  15. Structural Cost Drivers Structural cost drivers are fundamental choices about the size and scope of operations and technology employed in delivering products or services to customers.

  16. Structural Cost Drivers For a chain of discount stores-- Determine the kind of technology employed in the store Determine the type of construction Determine the location Determine the size of the stores

  17. Organizational Cost Drivers Organizational cost drivers are choices concerning the organization of activities and choices concerning the involvement of persons inside and outside the organization in decision making.

  18. Organizational Cost Drivers • Deciding to work closely with a limited number of suppliers. • Providing employees with cost information and authorizing them to make decisions. • Deciding to reorganize the existing equipment in the plant so that sequential operations are closer.

  19. Organizational Cost Drivers • Designing components of a product so they can only fit together in the correct manner. • Deciding to manufacture a low volume product on low-speed, general-purpose equipment rather than high-speed, special-purpose equipment.

  20. Activity Cost Drivers Activity cost drivers are specific units of work (activities) performed to serve customer needs that consume costly resources.

  21. Served by activities Activities Costs Activities consume resources Resources cost money Resources Activity Cost Drivers Customers

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