Types of Management Accounting Reports

Transcription

1 Types of Management Accounting Reports For different types of decisions Kip Krumwiede, PhD, CMA, CSCA, CPA Director of Research

2 About IMA IMA (Institute of Management Accountants) is the worldwide association of accountants and financial professionals in business. Founded in 1919, we are one of the largest and most respected associations focused exclusively on advancing the management accounting profession. We are committed to: Empowering our 100,000+ members Supporting our 300 professional chapters Nurturing our 150 student chapters Providing continuing education opportunities to our 27,000 active CMAs Growing our footprint globally with a presence in 140 countries

3 Agenda I. Introduction II. Five-step process for developing appropriate management accounting (MA) reports III. Examples of management accounting reports IV.Summary 3

4 I. Introduction Variation in companies, strategies, context, industries means: o Variation in management accounting reporting needs o No specific universal set of MA reporting formats Different reports for different decision needs! 4

5 II. Five-step process for developing appropriate MA reports Step 1: Evaluate current reporting effectiveness in meeting decision needs Step 2: Analyze your organization s strategy and business environment and evolving decision needs Step 3: Consider pertinent managerial accounting concepts Step 4: Design the appropriate type of reporting for your organization Step 5: Implement the reporting system across the organization

6 The five-step process illustrated Step 1: Evaluate current reporting effectiveness in meeting decision needs Step 2: Analyze your organization s strategy and business environment and evolving decision needs Step 4: Design the appropriate type of reporting for your organization Step 5: Implement the reporting system across the organization Step 3: Consider pertinent managerial accounting concepts 6

7 Step 1: Evaluate current reporting effectiveness in meeting decision needs

8 Some general questions to ask Do managers spend an inordinate amount of time debating the accuracy of MA reports? Is the primary purpose of MA reports in your organization to support the reporting of financial results to owners, lenders, and other outside parties? Does the reporting recognize that some customers, or customer groups, are high-maintenance while others are low maintenance? Have labor-intensive services or operations been replaced with technology-intensive activities since your organization s cost model was last updated? 8

9 Examples of more specific questions to ask Does MA reporting reflect the complexity needed by your organization? Is it actively used for decision making by managers throughout your firm other than in finance and accounting? What specific decision support benefits does it provide? How does it support other tools and the competitive strategy? What would happen if you didn t produce this report? Is report creating bad behaviors in operating managers? 9

10 Step 2: Analyze your organization s strategy and business environment and evolving decision needs

11 Analyze your organization s strategy Identify your strategic priorities o Which of your products or services are the most distinctive? o Which are the most profitable? o Which of your customers are the most satisfied? o Which customers, channels, or purchase occasions are the most profitable? o Which activities in your value chain are the most unique, least imitable, and effective? Identify specific strategic objectives that will help achieve the key success factors. Examples include: o Delight customers with value provided o Keep costs low compared to competition o Achieve highest quality and zero defects 11

12 Factors to consider regarding business environment and evolving decision needs Revenue/Complexity. Gross Profit Percentage. Industry Type. Number of Employees. Length of Product or Service Life Cycle. Number of Primary Saleable Products or Services Culture 12

13 Examples of most important decision needs Which customers are profitable and how can we keep them? Which customers are not profitable and how can we convert them to be profitable (or pass them on to a competitor)? Which products or services should we push? Which ones should be priced differently? Which market territories and business segments are the most profitable? Which ones are most worthy of more investment? Is our marketing campaign having an impact? Are we reaching our target customers? Is our strategy working? If not, what aspects need adjustment? Should we outsource this activity? 13

14 Step 3: Consider pertinent managerial accounting concepts

15 Examples of concepts to consider Managerial objective: The goal is to have a management accounting system that provides information needed to achieve management s strategic objectives. Causality: deals with capturing and understanding enterprise operational quantitative cause-and-effect relationships and their monetary impact. Responsibility: Managers should be evaluated on outcomes they have responsibility over. Relevant information: when evaluating which option to choose, the information reported should be only that which differs between the alternatives (i.e., no sunk or common costs) Objectivity: reporting should be free of any biases Materiality: reporting should allow for simplification without compromising managers decision-making needs. 15

16 Step 4: Design the appropriate type of reporting for your organization

17 Types of decision domains Domain Focus Examples Process How work is done. Where is the bottleneck in our operation? Product Customer or market Products or services offered by an organization to its customers. Specific part, or segment, of the firm s customers or markets. What s the appropriate cost of making a pair of blue jeans for assessing profitability? Should we start (or stop) doing business in another country? Supply chain A firm s relationships with its suppliers and trading partners. How do we establish a cost-sharing initiative with a key supplier? Entity The entire organization. Doing the annual budget for the company. 17

18 Example: Cost modeling and reporting Developing an appropriate costing model and cost reporting system should normally include the following steps: 1. Identify the resources the organization retains for its use. 2. Identify the managerial objectives the resources support. 3. Develop an understanding of the cause-and-effect relationships between managerial objectives. 4. Design a cost model that reflects the resources, the managerial objectives, and their causal relationships. 5. Provide a description of the model to include its scope, intended uses, required inputs, outputs, and underlying assumptions and limitations. 18

19 Step 5: Implement the reporting system across the organization

20 Tips for implementing changes in MA reporting a. Manage the introduction of a new reporting approach Applying project management techniques to a MA reporting project is critical. Segment project into smaller phased deliverables that can be assessed and approved by senior management on a regular basis. Consider starting small. Work on just one to three significant areas where reporting can be improved. b. Technology and software issues It is extremely important that the initial step in a managerial costing project should not be the selection of software Nor should the software s capability dictate the reporting design. Identify the reporting needs first, then find the technology/software needed to meet those needs. 20

21 More tips for implementing MA reporting changes c. Data management issues Source data quality is often an issue in managerial reporting implementations. report information should accurately reflect operational activities and their monetary value Thus, it is imperative that the accounting staff understand the business and speak the same language as the rest of the organization. d. Leadership and change management Key to the success of any reporting initiative is recognizing that a managerial costing implementation is more behavioral than technical. A great amount of the change effort may involve overcoming resistance--making people feel comfortable and confident about the changing report information and the practices to produce the information. Identifying a champion in upper management is a critical step for most new initiatives. 21

22 III. Examples of management accounting reports

23 Large Health Maintenance Organization: Community Health Plan Community Health Plan (CHP) was large multi-state health maintenance organization (HMO) located in upstate New York, Vermont and Massachusetts. CHP began offering a new product, managed care option contracts (MCOs). Under these contracts CHP agreed to provide administrative and medical management services in support of an employer s health care plan. The services varied depending upon the employer s needs, and included such services as utilization review, claims processing, and coordination of benefits. Prices derives from cost analysis were not in line with market rates. The CFO wondered, Is something wrong with our cost reporting system? 23

24 CHP developed a balanced scorecard to identify its strategic priorities and decision needs. 24

25 Haier Group and The Internet of Things Connecting any device with an on and off switch to the Internet Example: Haier s Smart Fridge 25

26 Traditional P&L versus Haier s Win-Win Value Added Statement

27 Haier s Win-Win Value Added Statement 27

28 Haier s Win-Win Value Added Statement (continued) 28

29 Data Visualization Communicating results is key Telling a compelling story Conveying information to stakeholders Graphics reveal the data Should be clear and without distortion Should encourage the user to explore the data from multiple perspectives 29

30 Summary Different reports for different decision needs Software should not dictate MA reporting system Consider the Five-step process for developing appropriate MA reporting systems Step 1: Evaluate current reporting effectiveness in meeting decision needs Step 2: Analyze your organization s strategy and business environment and evolving decision needs Step 3: Consider pertinent managerial accounting concepts Step 4: Design the appropriate type of reporting for your organization Step 5: Implement the reporting system across the organization 30

31 Thank you! Kip Krumwiede IMA Director of Research +1 (201)

32 10 Paragon Drive, Suite 1 Montvale, New Jersey U.S.A. (800) (201)