[1]Sabina Ostrowska
Damian Delekta
Dynamic
management in managerial accounting
Business environment can be
characterized by permanent and quick changes. These changes are cause by
increased global competition, increased intensity of changes in technology and
better communication networks using Internet. The activities, which influenced
the performance of corporations in current year, do not necessarily guarantee
the success in the following year. Critical role of managerial accounting
consist in continuous assessment of the firms performance aimed at seeking
steady improvement- development potential. Standard metrics of performance
measurement, witch has been used in contemporary management, does not reflect
any more the way of new entrepreneurship approaches. The most frequent question
that address the evolution of company's performance are the following:
Ÿ
how well is the main company process
organized?
Ÿ
how well is the innovation process
managed and how is the position of the company set the trend? Or is it falling
behind?
Ÿ
how well is the company's financial
performance? Can it stand to the benchmarked values?. Is the shareholders value
increasing?
Ÿ
how well does it stand in the eyes of
its customer? Does it satisfy the customer's needs?.
The
traditional measures for measuring corporation performance do not cover the
variety of above- mentioned questions. The professionals have reacted with the
development and proposal of new models such as Balanced Scorecard, /Oriented by
Robert Kaplan and David Norton/ [1], [2].
Can the managerial accounting
contribute to the value added process?
Managerial
accounting includes the organization of accounting process In the company and
the implementation of produced accounting information for inprovement of
produced accounting information for improvement of decision – makiing process.
Managerial accounting does not represent a firm set of regulations.
The organizatons
doffer in their goals are composed of different entities and parts so they
cannot make use of the universal system of methods and rules for performing
managerial accounting. Managerial accounting has to be adapted for the needs of
optimal decisions. But organizations are dynamic entities they develop in the time. Changing
bussines environment, global competition, and the personality of
the leading manager causes the different intensity of the change, CEO’s
bring different leadership style, stress different values and prefer specific
approaches. Two most invasive changes inflencing daily live of organizations are:
New information technologies,
Global competition- forcing companies to relentless
lowering of costs.
Managerial
accounting has to provide relevant information for both of them. It has to cope
with processes and not with set of the rules. New information technologies have
brought incredible amount of information for decision making process. Net
creates efficinencies throught the economy, intensifying rivalry between
competitors and lowering barriers to market entry. It can arm consumers and
suppliers with greater power because of their increased access to freedom of
choice. Net dramatically reduces search, condinational contracting, and other
transaction costs beteen firms. Throught Internet can companies communicate in
real time with the whole network included in business model. General Electric
has formed over 100 cooperative partnerships in wide range of areas. IBM has
joined in over 400 strategic alliances. Siebel Systems Inc. one of the fostest
growing software companies in America, has established a vast and unique
network of customer, supplier, and employee relationship to deliver its
products and services [3].
Using these vast information bases
permints managers to work with relevant and more precise information and to
take better decisions. If for example we get the accurate sales predictions we
can better determine the volume of production. But investment in the new
technology will in the contrary influence the cost of the company. To compete
means changign the company philosophy – orientation on creating value for the
consumers. This means that companies must operate at lower cost and/or command
a premium price, edither throught operational effectiveness or by creating
unique value for customers. To increase operational effectiveness would require
the idenctification of the processes, witch are critical for satisfying the
consumers. These processes create value added chain, which could be described
as follows :
źródło : opracowanie własne na podstawie
Whichever
processes are not included in the chain be considered as the processes which do
not create added value for customers, shareholders and community. The
elimination of these processes lower the costs and allows selling products by
lowering prices. So we have arrived to the role of managerial accounting. The
core contribution of managerial accounting consists in permanent accounting.
The core contribution of manegiral accounting consists in parmanent analysis of
cost- benefit relationship. Managers have brought managerial analysis of
cost/revebbue relationship from theirs daily live. Take an example of making
the decision about which transportion means shall we take in order to come to
the office. Shall we take the private car, bike or public transport ? If
we decide to drive bike-we follow the general recommendion to practice more
physical traning, which contribute to good health and is cheaper, but we need
more time to get to the office. In the contrary, if we take the car, it would
be more comfortable, quicker and more expensive. Naturally the situation
encompasses some risks. Probability of some accident causing delays, traffic
jam, and some other factors could influence and lower to inftify, measure, and
compare the expected benefits and cost of each alternative and choose the
alternative with the greatest net benefits /toral benefits, less total cost/.
Similar procedures are being used in managerial accounting. But in many
situations to identify relevent costs and relevant benefits /revenues/ won’t be
an easy task. One method of avoiding the measurement of all the benefits and
costs is to compare only those costs and benefits that are different among the
alternative decisions. The difference in costs is known as the differential
cost. The expected profit of an activity is a form of a cost/benefit anlysis.
Revenues represent the benefits and expenses represent the costs. Relevant and
relevant revenues are those expected future costs and expected future revenues that
fer among alternative courses of action being considered. The profit in in
reports to external users of accounting, however, use historical costs and
accrual accounting methods to measure revenue and expenses- These measures may
not be appropriate for making decisions in permanently changing global
environment. There are bascically problems of two arts :
Problems in identifying and measuring benefits
Problems in identifying and measuring costs
The benefits of making a particular
decision depend on the goals of the organization. The achievement of some goals
in not easily identified and measured especially those connected with difficult
quantifiable characteristics as for examply customer satisfacion. Traditionally
have been the benefits measured of cash inflows. The change in paradigm in
measuring the company’s performance shows the graph :
Table 1 Time element
|
1920 |
1970 |
1980 |
1990
and dann |
|
Dupont Pyramid ROI [Return on Investment] |
EPS [Earnings per Share] |
M/B [Market to Book Value per Share] ROE [Return on Equity] RONA [Return on Net Assets] CF [Cash Flow] |
EVA [Economic Value Added] Gross Margin MVA [Market Value Added] BSC [Balanced Scordcard] CFROI TSR [Total Revenue for the Owners] |
Ampuero M., Goranson J., Scott J., Solving the Measurement Puzzle- How EVA
and BSC, Fit Together, 2001.
But the cash inflow from a decision is not always known and most be often
estimated. For exemple, the benefit of introducing a new product would be
measured based on marketing estimates of future sales. Because these cash
inflowers occur in the future, there will be some uncertainty in measurement.
Also, cash flows from different time periods should be adjusted for the time
value of the money before they are accumulated. Not all the benefits of a
decision have immediate monetary implications. Benefits such learning and
traning, improved working environment, greater worker satisction and evalution
in the eyes of customers are difficult to identify and measure in terms of
money. These benefits have monetary consequences in later years.
Problems in identyfying and measuring
costs
Cost represents the use of organizational resources. Costs are easy to
identify and measure when cash is the resource begin used. But, measuring the
cost of using noncash resources is also a problem. For example, what is the
cost of using noncash resources is also a problem. For exemple, what is the
cost of using row materials in inventory ?. The possible answers include
purchase price, the current market price, or the future replacemet costs. Using
the resources of a company, whether the resource in cash, inventory, buildings
and employees time, leads to forgone opportunities. If cost is used to buy a
machine, it can’t by used to hire a new employee. If cost is used to buy a
machine, it can’t be used for assembly line or sold to another party. The size
of the forgone opportunity of using recources is the opportunity cost. The
concept of opportunity cost is consistent with cost/benefit analysis.
Opportunity costs provide a means of measuring the cost of a particular
decision. The cost of each alternative decision should be identified and
measured in terms of forgone opportunity of using resources is the opportunity
cost. The concept of opportunity cost is consistent with cost/benefit analysis.
Opportunity cost provide a means of measuring the cost of a particular
decision. The cost of each alternative decision should be identyfied and
measured in terms of forgone opportunity in using the recources for other
purposes. The identyfication and measurement of opportunity costs may appear
cumbersome and difficult, but they are aaropriate costs for evaluating
organizations performance. Another problem creates sunk costs. Sunk costs are
costs that have already been incurred and can not be changed no matter what
action is taken. Because they have already been incurred and are, therefore,
the same for all possible alternative decisions in the present and in the
future, and we consider them as irrelevant. But the process of seeking the best
alternative how to allocate company resources should cover the whole value
chain, which is shown above. Managerial accounting should provide decision
support in each of these business functions. Customers are pivotal to the
success of on organization. The challenge facing managers is to continue
investing sufficient resources in customer satisfaction. Customer are demandind
ever-improving level of performance regarding : cost, innovation, quality
and time. These searches for higher level of performance have been called continuous
improvement. Companies that are just maintaining the status quo on the value
chain are like a runner who is standing still in an Olympics race. Last year’s
records are sure to be broken this year. Athletes who don’t improve continually
are not likely to remain long in the winner’s circle. The same is true for
companies. The japanese used the term kaizen for continuous improvement. Kaizen
covers all aspects of organization activities : Total Productive
Maintenance, Labor/ Management C ooperation, Automation, Quality Circles,
Just in Time, Teamwork, and Customer Focus. One of the best ways to identify
problems that represent opportunities for improvement is to use a checklist
that focuses attention of employees on those that are most likely in need of
improvement. In Japanese companies in Poland you can see the posters bearing
the words- seiri, seition, seikets and shitsuke. The Five- Step Plan is being
used by implementing kaizen:.
Step 1 : Sraiten up.
This step involoves separating the necessary and unneccessary and getting of
the unnecessary.
Step 2 : Put
things in order. This step involves to organize workplace in such a way that
employees can always find when they need to do the job without wasting time.
Step 3 : Clean
up. Means to keep the workplace clean for the efficient processing.
Step 4 : Personal
cleanliness. This step involes employees begin neat to present an appearance
that promotes professionalism in performing work tasks.
Step 5 :
Discipline. This step involves careful
adherence to standardized work procedures.
Kaizen is not
based only on the traditional WHO, WHOT, WHERE, WHEN and WHY but much more
stress is begin put on HOW ?. One of very oftn cited exemple a) is the
practice of the Citizen Watch. Citizen Watch is the world’s largest manufacturer
of watches. Componement part costs for each watch are a sizable percentage of
the unit cost of each watch. A central part of Citizen’s cost management system
is kaizen budgeting. All parts of its entire supply chain,including componament suppliers, are
required to continually seek out cost- reduction opportunites. As its Tokyo
plant, Citizens budgets steady cost reduction of 3% per year per purchased
materials. Suppliers who exceed this 3% target retain for at least one year any
cost reduction above the 3% level. Suppliers who do not attain the 3% target
receive the « assistance » of Citizen Engineers in the following
year. But there is even more impressive example on cost cutting war in the car
industry- Toyota versus Nissan [4]. For
years Toyota Motor Corp. Has steadily made use of kaizen techniques to lower
its production costs and get record highly ambitious competitive plan for
cost-cutting by 10% in 2001, dropping out its philosophy – from the slow and
steady approach to chipping at expenses to jump up decrease in the cost of
almost every type of auto part sourced from outside, by about 30%. The sweeping
undertaking was the cornerstone of a plan dubbed CCC21, or Construction of
Costs Competitiveness for 21 century. The goal of the drive was to chop cost by
$ 8 billion by the end of the fiscal year of 2005. It’s tremendous change. To
get this savings, using traditional kaizen approach would have asked for at
least one decade. How could they mange it? A key of procedure- figuring out the
lowest prices paid by carmakers for 173 commodity type components, from rear
view irrors to the bearings inside shock absorbers. Once Toyota has learned
these benchmark prices, it asks
supplieres to match them as closely as possible without sacrificing quality.
The broader message for its long time suppliers has been clear- you had better
to follow. But to be « the lowest-cost producer of the highhest quality
automobiles « you need more than
lower the costs of component parts. You have to look for improvement in supply –
chain and human factors in order to produce one care in around 24 hours.
General Motors Corp. Has taken this challenge seriously and through pain
staking retionalization of processes has come- to beat Toyota in comparable
category car product to 18-19 hrs. [5].
Some research has been undertaken on
the Faculty of Business Administration, aimed on finding some general
performance criteria wchich would include traditional money values and the new
ones, such as Balance Scorecard or European Foundation od Quality management
and the ability of the companies to create its Development Potential.
Development potential has been composed of group of factors tangible and
intangible nature, and included :
·
Company Strategy and Planning- with
Special Attention to Innovation Strategy.
·
Marketing Processes and Technology
·
Management Quality – with Regard to
Envirinmental Standards
·
Production Processed and Technology
·
Logistics – Supply-Chain
Management
·
Management of Human Resouces
Each of these
factors had been accompanied by six sub factors so the whole questionnaire
consisted of 36 opened questions, which were answered by sample companies.
General evaluation of the Divelopment Potential proceeded in three steps. In
the step one achieves the evalution of each component of the Development
Potential, in the second step the evalution of the total step the
classification into one of four groups according to the total reached value of
the Development Potential. In the following process of statistical analysis has
been proved, that companies with high level of Development Potential create
preconditions for increasing satisfaction ial create preconditions for
increasing satisfaction of all stakeholders. So these data give the clear
message to the managerial accounting – we are’n here just to notice and seek
those differences but our mission consists of finding out, why these
differences but our mission consists of finding out, why these differences
exist, and tahn supply the management with proposals of ways how, not just to
increase company’s performance and reach the benchmark values, but how to set
them up.
Abstract
The aticle Deal with dynamic approach to the managerial accounting. The
role of Dynamic management does not include Simple collection off the relevant
data but directs the attention of managers to their interpretation for
effective fulfilling of the tasks of the company. How can the managerial
accounting contribute to the value addend process?. Special attention was paid
to the modern approaches of creating Value Added Chain. Managerial Accounting
faces the problems with identifying relevant costs and relevant revenues. Even
more difficult to identify them, create the New models for evaluation of
company’ s performance such as Balanced Scorecard Or a model of European
Foundation of Quality Management. The Managerial Accounting Has to participate
In the process of continuous improvement of company’s performance a thus create
the development potential.
Literature
[1] Ampuero M., Solving the Measurement Puzzle-
How EVA and BSC Fit Together
[2] Center For Business Innovations, Cambridge,
2001
[3] Kaplan
R.S., Norton D., The Balanced Scordcard, Management Press, Prague 2002.
[4] Masaaki Imai, Kaizen : The key to Japan’s
Competitive Success, McGraw- Hill, 1986.
[5] Business Week, European Edition, April 9th,
2001, pp. 22-25.
[6] Business Week, European Edition, Feburuary
10th, 2003, page 42.
[3] www. Strategy-business.com/ideaexchangel/.
[4]
Business Week, Aprill, 9th, 2001, page 22,23
[5] BW- Feb 10th, 2003, page 42.
[6] Kaplan R.S.
Norton D., Balance Scorecard, or proposing the European model of EFQM- European
Foundation for Quality Management.
[7] Martensen A, Dahlgard
J.J., Strategy and Planning for Innovation Management- A Business Excellence
Approach, International Journal of Quality & Reliability Management, Vol.
16 No.8, 1999.