From Backyard Business to Public Company

Transcription

1 From Backyard Business to Public Company The Changing Role of the Management Accountant IMA Michigan Fall Conference October 29, 2008 John Pollara CMA, IMA Chair Emeritus 1

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13 Definitions What does a Management Accountant Do? What knowledge and skills do Management Accountants need to possess? What is the Certified Management Accountant designation. 13

14 What does a Management Accountant Do? Management Accountants are professionals who serve as strategic business partners. They drive business performance inside organizations. They are trusted advisors. They offer expertise and analysis necessary for sound business decisions, planning, and support. 14

15 What does a Management Accountant Do? Management accountants monitor, interpret, and communicate operating results They evaluate performance, control operations, and make decisions about the strategic direction of the organization. They understand the business formula for delivering value to the customer or stakeholder. 15

16 Management Accountants: Advocates for Management Inside Design Implement Manage Report/ Analyze Audit The Management Accountant Public Accounting Technical Accounting Depth AND Business Operations Breadth 16

17 What knowledge and skills do Management Accountants Need to Possess? Knowledge and Skills (ranked by importance) Strategic Planning (87%) Investment Decisions (64%) Organization Mgmt (83%) Business Economics (63%) Decision Analysis (78%) External Reporting (63%) Statement Analysis (75%) Strategic Marketing (58%) Budget Preparation (75%) Global Business (57%) Information Mgmt (74%) Quant. Methods (56%) Cost Management (71%) Corporate Finance (53%) Internal Controls (70%) Operational Paradigms (51%) Business Process (66%) Source- IMA Job Analysis 17

18 What is the Certified Management Accountant Designation? The CMA designation is an advanced, globally recognized credential that supports management accounting and finance professionals. It is designed to foster the professional development of those who hold it and to help them play an integral role in the strategic decision-making process. The CMA upholds the highest level of professional and ethical standards. The CMA has an extensive and advanced-level of knowledge in accounting, finance and important related fields. The CMA has as the ability to integrate accounting and financial information into the business decision process. 18

19 Departments in a Large Enterprise Strategic Planning Dept. Information Management Dept. Financial Statement Analysis Dept. Large Enterprise External Reporting Dept. Budgeting Dept. Internal Audit Dept. 19

20 Small Enterprise Management Accountant s Job Duties Management Accountant Information Management Financial Statement Analysis External Reporting Internal Audit Budgeting Strategic Planning 20

21 Important Management Accounting Activities at Zieman Strategic Planning Internal Controls/Enterprise Risk Management External Reporting Business Processes Budget Preparation Decision Analysis 21

22 Strategic Planning Strategic Planning is the most important activity of any business enterprise. It defines the Vision and Mission of the enterprise It defines how a firm competes Sets forth the general direction and plans to achieve the goals of the organization It matches the core competencies of the enterprise with industry opportunities and threats. The management accountant is uniquely qualified to either lead the Strategic Planning initiative or participate as a key member of the strategic planning team. 22

23 Key Elements of Strategic Planning Process Environmental Analysis Evaluation of Major Interest: External environment--- opportunities and Threats Internal environment--- Strengths and weaknesses Monitor Performance Master Strategies Development of Long-range Plans: Vision Mission Strategies Goals Objectives Tactical Plans Development of short-range plans Operation Plans Budgets Implementation 23

24 Zieman Prior to Creating a New Strategic Plan Old Vision and Mission Statement developed about No strategies, goals, or objectives in place to accomplish Vision/Mission No operational plans or budgets in place No process to review or revise the Vision/Mission or to develop a revised strategic plan. 24

25 Changing the Vision and Creating a New Strategic Plan Zieman s Old Vision: To be the Largest producer of manufacturing housing and travel trailer chassis in the Western United States. Concentrated resources on only two market segments Concentrated only on customers in the Western United States Zieman s New Vision: To be the largest producer of non motorized transportation equipment in the United States Expertise and Resources now available to a much expanded market Customer base substantially increased based on products and geography. 25

26 Results of Creating New Strategic Plan Added New Higher Margin Products Equipment Trailers, Boat Trailers, Recreational Trailers, and Specialty Trailers to product line. Opened 4 additional plants and increased volume at existing plants Increased sales by $20 million dollars Increased profitability by 200% due to higher margin products Made the company more attractive for possible acquisition 26

27 Enterprise Risk Management and Internal Controls What is Enterprise Risk Management: Enterprise risk management is a process established by the top management of an organization ERM is applied across the entire enterprise ERM is designed to identify potential events that may affect the entity, and manage risk to be within the risk appetite of the enterprise. 27

28 Evolution of Risk Management Enterprise Risk Management Strategic Credit Hazard Market Credit Hazard Operational Financial Hazard 1970s 1980s 2000s 28

29 The Enterprise Risk Management Process SET STRATEGY/ OBJECTIVES COMMUNICATE & MONITOR IDENTIFY RISKS CONTROL RISKS ASSESS RISKS TREAT RISKS Source: Adapted from The Institute of Chartered Accountants in England & Wales, 1999:47. 29

30 Zieman s Risk Mitigation After Risk Management Process Hazard Risk Assessment of Specific Product and Industry Risk with policies tailored to meet those needs Increases in underlying insurance limits with larger umbrella Financial Risk Commodities risk- Use of hedge transactions Interest Rate Risk-Interest Rate swaps Liquidity Risk- Excess borrowing capacity Credit risk- Revised credit policies to insure adequate balance between risk of credit loss vs. increased sales. 30

31 Zieman s Risk Mitigation After Risk Management Process Operational Risk Human Resources- Revised Policies and employee handbooks to insure Legal requirements were met. Business Processes- documented business processes Health and Safety -Worked with Insurance Companies to document health and safety program and insure a safe workplace Environmental risk- Removed all environment risk from manufacturing operations where possible and established policies on handling chemicals posing environmental risk. Technology risk- Assigned personnel with the task of scanning for new technology Service failure- Plans devised to insure production in the case of a plant disaster. 31

32 Zieman s Risk Mitigation After Risk Management Process Strategic Risk Changing customers needs- Established annual customer satisfaction and needs survey. Regulatory- Joined Industry associations that educate members on industry regulations and lobby for the benefit of the industry. Market conditions- Annual assessment of market conditions prior to compiling the annual budgets. Reputation and brand risk Registration of trademarks, and patents. 32

33 External Reporting The Advantage of GAAP Accounting and Certified Audits in a Small Business Banks Lower Interest rates and more favorable terms Large vendors- Higher credit limits and better terms Stockholders- Higher level of trust among owners Taxing Agencies- More confidence and less scrutiny of transactions. Potential purchasers- More reliability and trust which translate into higher values offered. 33

34 Business Processes A business process is an activity that changes the state of data and/or a product and generates some type of output. Business processes occur at all levels of an organization s activities. 34

35 Documenting and Improving Business Processes Document & Review Existing processes Revise Processes to best in class Internally identify gaps and improvements to existing Processes Benchmark existing processes against best in class 35

36 Examples of Business Processes Sales Order Entry Procurement Manufacturing Delivery Invoicing Vendor Payments Asset Management Inventory Collections Budgeting Strategic Planning Inventory Control Enterprise Risk Management 36

37 Benefit of Improving and Benchmarking Business Processes Knowledge is captured and can be transferred easily to new employees Less errors in administrative and production processes Higher Customer satisfaction Lower cost of training Improvements in time and resources allocated to activity Lower cost per unit of production Continuous improvement of processes 37

38 Budgeting The budget is a detailed plan for executing both long term and short-term goals. Budgets should prioritize and match available resources to the strategic plan of the organization A budget provides cost controls and at the same time makes sure that the day to day operations take the company where it wants to go 38

39 Budget Process Create Master Budget And Sub-budgets Obtain Feedback and Revise Plan Get Manager Buy-in Take Corrective Action Analyze Current Performance vs. Expectations Examine Variations 39

40 The Benefits of a Good Budgeting Process at Zieman Proper Resource Allocation Reasonable Long Term goals Employee Motivation and Direction Starting point for design of Incentive Compensation Performance evaluation (All levels) 40

41 Decision Analysis Decision making involves the choice between at least two alternatives. The management accountant has the knowledge and skills to aid management in choosing between alternatives by providing an evaluation of the alternatives. 41

42 Types of Decisions (Examples) Make or buy Sell or continue to process Add or drop product or service Special order pricing Setting Prices 42

43 Decision Analysis At Zieman Making decisions based on the numbers does not always result in the best decisions. Collect as much information about the problem as possible Subjective and objective information Involve everyone the decision will affect. Communicate information fairly and objectively MAKE THE DECISION 43

44 Top lessons learned being a management accountant in a small enterprise Every company no matter the size needs a good strategic plan Know your company s risk exposure and mitigate the risk Good accounting and a certified audits are cost effective for small companies. Documenting and improving business processes save money The best decisions are not always based on the numbers. Become a CMA 44

45 IMA Advancing the Profession 45