Issue Management Accounting

IssueManagement Accounting

StudentNames

Question1

Lean Manufacturing

It is worth noting that, leanmanufacturing involves effective and combined efforts to eliminate orreduce any unnecessary outflow or expenses that consume resourceswithout any additional value in design, manufacturing, distribution,and customer service processes.

Lean manufacturing is amanagement philosophy derived mostly from the Toyota ProductionSystem (TPS). TPS is renowned for its focus on reduction of theoriginal Toyota seven wastes to improve overall customer value, butthere are varying perspectives on how this is best achieved.

Main differences between leanand traditional production

Lean production

Traditional production

Fast, flow oriented, responsive, decentralised, and customer oriented

Traditional manufacturing is slow, hierarchical, bureaucratic, centralised, and production oriented.

If lean manufacturing doesn’t work it is often attributed to mistaken implementation.

Production driven by sales forecast (Push).

Problems are viewed as opportunities for improvement often through root cause analysis.

Problems are viewed as just that, problems.

Production is driven by customer demand items are only produced when an order is placed (Pull – one of the 5 lean principles).

Production driven by sales forecast (Push).

Improve system by 1) Eliminating waste and 2) Improving current processes.

Improve system (disregarding all of the types of waste in the process).

WIP is a sign that a process needs to improved and is considered a type of waste that should be reduced or eliminated (the same is true for inventory).

Work in process (WIP) is viewed as a normal part of operations.

Always look for ways to improve processes

If a process is working (if it ain`t broke) don`t fix it.

Everyone performs the same task the exact same way until a better way is discovered then everyone performs the task the new and improved way.

Standardized work (people performing the same task the same way) only exists in documents like SOPs, rarely in reality.

Views the organization as a series of interrelated processes that can and should be improved.

Systems thinking (views the organization as a whole), often ignoring or unable to see the enormous opportunities for improvement.&nbsp

Question2

Common problems in qualitativemanagement accounting studies

Qualitativemanagement accounting studies give too much information and theanalysis may lack depth because analytical categories and codingdecisions are unclear. Data producedfrom the analysis may bedifficult to quantify using mathematical and statistical techniques,hence generalisation may be difficult. Weak theoretical framework isdeduced from the studies carried out. Theory development may lead tocriticism due to use of unfamiliar terminology without providingadequate definition. Some social theories were derived long ago hencemay not work well in today’s management accounting studies.

Consultancyview of the researcher may not fit well within the research frameworkfor management accounting. New constructs and variables may not havebeen tested before in number of other studies to draw generalisationbecause of lack of modern materials to carry out research. ResearchAnalysis tool to investigate qualitative data may cause problem dueto use of wrong method, or it was implemented sub optimally. The useof low sample size or a low data pool may cause problems because eachstep of the sampling, data collection and analysis is not describedin sufficient detail

Question3

National culture

The set ofcustoms, behaviours, values and traditions that exist within thepopulation have an impact on the sovereign nation. Hofstede arguesthat the core of culture is values, with values being ‘a broadtendency to prefer certain states of affairs over others’.

Some cautions and criticism ofHofstede’s culture/dimensions

Equatingculture with nation states ignores the multi-cultural composition ofcountries that have different ethnic regional groups. Anotherlimitation is the tendency to group countries together as culturallyhomogeneous (i.e. uniform in composition). Within culture there aredifferences amongst people. Hofstede’s study looked at middle levelmanagers in city locations in one industry and firm and described onecategory of working class people.

Anotherlimitation is that Hofstede’s measure was derived in the late 1960sand early 1970s and is therefore out of date. World is changing andso are people and culture.

Hofstede’sstudy does not capture all the rich contextual understanding aboutculture which is very complex to explain. Rather his approach is toosimplistic.

Question4

Factors leading to thechanging roles of management accountants

The generationof large amounts of information within, outside and across theorganisational development and transformation of business models(e.g. go local to go global model) has increased globalisation andcapture of overseas markets, competition, and customer retention.Additionally, ttechnologyand the micro computing platform, emergence of internet, world wideweb, emails, video conferencing, transfer and download of data anddatabases. Complex manufacturing systems, production a cycle,outsourcing requires advance expertise in making ‘good’decisions.

For example, accountingscandals at Enron, WorldCom, Arthur Anderson, Pamalat. Managementaccountant roles have been underpinned to see such scandals do nothappen in future. Effective enforcement of legal legislation such asSarbanes Oxley act in USA.The newregulation requires rigorous documenting and continuous evaluationsof control effectiveness and reporting standards. Corporate trendssuch as Mergers, acquisitions, takeovers that are accelerating therole that management accountant play. New and emerging roles, such asworking towards restructuring organisations, organisational changemanagement, lean manufacturing and lean accounting. Hybridaccountants i.e. changing roles leading to, consultancies as businessanalysts, interpreting complex information, Face to facecommunication with people. New Skills i.e Broader roles requiresbroader skills, Hard skills include mastery over IT and a broadbusiness understanding, understanding the role of systems and people,data, and decision making, Soft skills such as good communicationskills, team work, leadership, interpersonal skills, consulting,advising, ethical and professional skills.

Question5

Main components of strategicmanagement accounting

Strategicmanagement accounting involves competitor information, knowledge of acompetitor, knowledge of competitor products/services, Knowledge ofcompetitors’ strengths and weaknesses as well as strategic positionand management accounting emphasis. Porters (1980, 1985) outlines twomain ways in which managers can position their firms to gain astrategic advantage over their competitors: firms need to eitherdifferentiate their product(s) or be cost leaders.

The valuechain is ‘the linked set of value-creating activities all the wayfrom basic raw material sources for component suppliers through tothe ultimate end-use product delivered into the final consumers’hands’.differentorganizations develop the need to differentiate their productsfrom what their competitors’ are offering. Companies alsodiscovered that adding value also creates new dimensions to existingproducts which otherwise would have gone old and obsolete (e.g.Mobile phones these days do more than one thing, sms text, camera,emails, song downloads etc)

New values andservices also create newer markets hence additional revenue andcustomer loyalty. Newer values also creates higher demand for anexisting product thus bundling all together (e.g. Telstra not onlyprovides home telephone, rather range of other services, such asanswering service, message bank, high speed internet, mobile andportal service etc).Organizationshave discovered the cost driver analysis which helps companies increating reasonable profit margin, hence recovering cost.Matchingcompetitors price (e.g. Pizza hut matches competitors couponsBunings beats it by 10%). Improved and upto date technology helpsorganisation to leverage the best price to the consumer (i.e. Monitorprice movement over the internet). Competitive advantage analysistechnique helps companies in improving product/s to create newmarkets, moving production overseas to lower cost and drive downprices to beat competitors. Organizations are also able to adoptmodels of mass production (lower cost) and mass consumption (lowerprice). i.e. the more you buy, lower the price and vice versa.

Anothertechnique that organizations have developed for their strategicmanagement operations is by developing market-oriented information.The technique assists on tapping and gaining customer loyalty andfocus. It also assists in knowing the customer and the markets wellbecause they are able to identify different needs. Organizations areable to reduce expenses of producing many products which do notfavour their customers to only producing what the customer wants

State some criticisms ofStrategic Management Accounting.

Most strategicmanagement accounting techniques used by organizations arecomplicated planning processes. There is always an assumption that inlong term strategic plans things can go wrong, or otheruncontrollable variables can be out of control hence most of thecompanies go for short term decisions which involves wastage of timein drafting the strategies most of the times. People argue that itoffers too much dependency on detailed and accurate information whichreduces the organization chances of acquiring relevant information inthe market SMA reduces or completely denies business’ control overthe outside environment that can have a direct impact on day to dayoperations. It is also argued that with SMA, Competitors, markets,and prices are hard to predict

Question6

Strategic Investment Decisions

Strategic investment decisionmaking involves the process of identifying, evaluating, and selectingamong projects that are likely to have a significant impact on theorganizational competitive advantage. More specifically, the decisionwill influence what the organization does (i.e., the set of productand service attributes that defines its offerings), where it does it(i.e., the structural characteristics that determine the scope andgeographical dispersion of its operations), and/or how it does it(i.e., the set of operating processes and work practices it uses).

Characteristics that areassociated with strategic investment decisions

The majorcharacteristics associated with strategic Investment Decisionsincludes that they are Non-programmed and unusual, they areSubstantial (there is enough resource commitment), they are known tobe competitively oriented, Uncertain (in terms of cost structure andbenefits) and Subjective (i.e. influenced by values and expectations)

SECTION2

Question1

Importantclaims against accounting that have been summarized by ManagementAccounting Scholars.

ForManagement Accounting Functions, the use of Enterprise ResourcePlanning provide solutions that only requires functionalitiesconfiguration for instance selecting from a provided functions in amenu by ticking a box selecting, for example, the method to be usedfor stock valuation. ERP (Enterprise Resource Planning) systemsintegrate data between areas such as accounting, production, andsales, making it up to date and available to all in real time. TheEnterprise Resource Planning system packages promises a platform formanaging the whole business, not merely certain parts of it butholistically. The systems see the relationship between informationsystems and management control through a ‘business informationmodel’, which is used to extract reports.

Question2

Explainthe importance of top Management support that is required toimplement Technology.

The topmanagement teams in any business are the critical decision makersthat are tasked with the role of making important decision of dailybusiness operations that may include the design and implementation ofvarious systems e.g. IT systems. The top management team should beequipped with the solid knowledge of technology systems available toand deployed by the business. That means the management team is tooversee all the implementations of the technology systems and offerthe required support. As a result, the management team is skilledwith appraising the benefits, costs and contextual issues ofdifferent customer supply networks and supply chains and reportappropriately. This is attributed to by their understanding of thetechnology and their ability to cope even without the conventionalformal management control systems.

Question3

How doesqualitative research help to develop a theoretical body of knowledgein management accounting?

QualitativeResearch method is applied in management accounting to providedetailed or rather an advanced and rich insight into a problem thusrelevant information and knowledge that form the theoretical backdropof a management accounting concept are finely developed. Thequalitative research method goes beyond numbers and empiricalanalysis in pining the problem hence it becomes easier to collectrelevant information from various sources thus forming a richtheoretical understanding in management accounting. It is worthnoting that, qualitative research uses multiple sources of evidencesuch as interviews, documents and other texts as well as forms ofparticipant observation in understanding the problem. The useof these convenient tools of information/ evidence gathering ensuresthere is enough understanding/knowledge in forming and developing anadvanced theoretical body.

Question4

Important factors thatstimulate Change in Management Accounting Techniques

Change inmanagement accounting techniques is stimulated by a change indevelopmental and transformational business models, for instance, abusiness would change its operation model from a local model to aglobal model. A business may also increase globalisation and captureof overseas markets, competition, and customer retention.Achange in management accounting can also be stimulated by creating atechnology and micro computing platform achievable through theemergence of internet, use of World Wide Web platforms, emails, videoconferencing, transfer and download of data and databases. Others mayinclude making good use of software for business intelligence.Developingcomplex manufacturing systems, production cycles, and outsourcingrequiring advance expertise in making ‘good’ decisions alsoenhances change in Management Accounting techniques.

The emergenceof accounting scandals such as Enron, Worldcom, Arthur Anderson,Pamalat has led to having Management Accountant roles underpinned tosee such scandals do not happen in future. This has been implementedtogether with effective enforcement of legal legislation such asSarbanes Oxley act in USA

Question5

Theadoption of Social controls in inter-organizational relationships

This relatesto values, norms and culture that influence the behaviour of thepeople in the companies. Social controls cannot be explicitlydesigned, but can be influenced through the choice of partner,through activities such as meetings and ceremonies, and by conductingnegotiations.Dyadicrelationships between Management and employees may influence thelevels of production in a business. Moreover, good relationshipbetween the two leads to a better performance whereas a cold oneleads to exactly opposite. As well, social controls can be designedto define this relationship.Betterutilization of the available resources in a business highly dependson people’s culture and the adoption of social controls influencesthe use and utilization of these resources

SECTION 3

Question1

Thecentral issues for operations management

Operationsmanagement regulates day to day business operations by clearlystating what is to be produced, how it should be produced, thequantities of produce etc. This leads to the minimization ofproduction cost and loss acquired through unmanaged operations, Forinstance, Chinese Manufacturing sector has attained success throughthe adoption of Operations management techniques. OperationsManagement seeks to define the quality of products by applying amethod known as total quality managementtechnique that states how much is to bemeasured and if the measurement number provides the right picture ofquality.

OperationsManagement demands the application or the use of the Just in Timeproduction approach that is widely adopted by larger organisations,such as Nike which tends to be expensive. The approach also requireshigh investment and its returns are only in long term.

Question2

Thedevelopment of IT for management accounting purposes

The use ofaccounting data within and outside the firm is accelerated by IT. ITcan distribute vast amount of management accounting data to a diverseuser group, which means it can be faster, more effective, andsecured. ERPsystems are replacing ledger systems and standalone applications withintegrated databases.An ERPsystem integrates data between areas such as accounting, production,and sales, making it up to date and available to all in real time.ERPpromises a platform for managing the whole business, not merelycertain parts of it.ERPsystems see the relationship between information systems andmanagement control through a ‘business information model’, whichis used to extract reports.

Question3

Threesides of accountability that leads to integrated governance.

Goodgovernance- It ensures effective ways of obtaining and using publicpower and resources in the pursuit of widely-accepted social goals,ensuring effective accountability to stakeholders. PerformanceManagers are accountable to the stakeholders for the performance ofthe business, for instance, Financial Managers/ Head of Finance areaccountable for the business financial performance hence stakeholdersmay demand, from time to time, periodical financial reports from themetc. Knowledge is the ability to create value affects and is affectedby organisational culture. E.g. Organisational goals and strategies-Short term organizational goals are achievable in a short period oftime, when these goals are achieved, the organizational value grows.The ability of an organizational to set goals and achieve them at thestipulated time is successful culture that promotes compliance andperformance thusadded value.

Question4

Valuechain analysis and why it is important for modern organizations.

The valuechain is ‘the linked set of value-creating activities all the wayfrom basic raw material sources for component suppliers through tothe ultimate end-use product delivered into the final consumers’hands’. Increasing value creates new innovations to existingproducts which would have already become obsolete in the market (e.g.Mobile phones these days do more than one thing, sms text, camera,emails, song downloads etc). New values and services also createnewer markets hence additional revenue and customer loyalty. Newervalues also creates higher demand for an existing product thusbundling all together (e.g. Telstra not only provides home telephone,rather range of other services, such as answering service, messagebank, high speed internet, mobile and portal service etc)

Question5

Theimportant factors for inter-organizational relationships

Products

From the product point of viewtwo aspects have to be analyzed: profit margin and functionality. Asto the first aspect, either gross margin or contribution margin, ICMis more favorable for products presenting lower margins, whencomparing to the target margin. By expanding the cost managementprocess beyond the limits of the organization, the range ofpossibilities for cost optimization also expands, thus improving themargin toward the target.

Components

It is necessary to identify thecomponents whose suppliers are recommendable for applying ICM. Thelimited levels of technological advancements determines if it isstrategic, and whether the organization will conform to itconfidentiality measures or not. The research and development can becandidates for using partners and a good solution for technologicaladvances if the organization makes more advances.

Relationship levels

An analysis of stakeholders’relationship and the different classification of suppliers (common,auxiliary, main or family) in an organization are the next phase ofICM process.

To successfully comply with theICM, a favorable relationship among different companies is arequirement. This includes interdependence, stability, cooperation,mutual benefits and trust. The more intense the relationship level,the more stakeholders prefer the use of the ICM.

Value chain categories

This classification is determinedby the number of companies holding power in the value chain and thegoal is to identify which of them is/are favorable to the use of theICM. In a particular nation chain type, there is only one companywhich dominates and commands it has great mandate and thetransactions occur in constructive conditions for this company, whichsets the governing rules. Shared values, protocols and controlmechanisms are implemented.