paper16-libre.rtf 1.rtf

8/10/2019 paper16-libre.rtf 1.rtf

1/19

RIJBFA Volume1,Issue4(April2012) ISSN: 2277100X

AJournaloRa!i"In#erna#ional$!u%a#ionalan!

Resear%&

'onsor#ium

RIJBFA

RA(IX

IN)$RNA)I*NA+J*RNA+*FBAN-IN.,

FINAN'$

AN(

A''*N)IN.

$'ISI*N

/A-IN.

AN

$

R*+$

*F/ANA.$/$NA''*NIN.FN'I*NA

R$VI$*F$/IRI'A++I$RAR$

Fi#sum

-i!ane

(Phd.

Research

scholar),

Lecturer

in

Accounting

andFinance

CollegeofBusinessandEconomics

Mekelle

ni!ersit"

Mekelle,

Ethio#ia

Abstract

Thisstudyexaminesdecisionmakingandtheroleofmanagement

accounting

function

in

a

business

organization.

Using

the

review

of

literature,

I

identifymanagement

accountantsperformawidevarietyoftasks.Onlyapartofmanagement

accounting

activity isdirectedatperformance improvement.Someof theactivities

they

perform

are

related

to

the

statutory

reporting

reuirements

of

theorganization.Someofthese

are related to the operational reuirements of the finance

function

itself

such

as

processing

transactions

receiving

money


2/19

and paying bills. !iterature foresees newmanagement accounting

techniues and changes in organizational and business

environments

ha

i

g

a

huge

i

pact

o

a

age

e

t

accou

ta

ts#

roles,

yet

e

pirical

evidence

on

fundamental

shifts

in

these

roles

remains

relatively

scarce.

JournalofRadixInternationalEducationalandResearchConsortium

www.rierc.org


3/19


-$31*R(S

$ecision

making,

management

accountant,

management

accounting

IN)R*(')I*N

Accounting can %e defined as &the #rocess of identif"ing,measuring

and

communicating

economic

information

to

#ermit

informed

'udgments

and

decisions

%"

usersoftheinformation&(oggetandEdards,*+-).heinformation

in

accounting

s"stems

relates

mainl"

to

financial

data

a%out

%usiness

transactions, hich is

#resented

in

monetar"

terms.

/n

addition

to

#resenting

financial

information a%out #ast transactions, the accounting s"stem

ena%les to generate forecasts and #redictions as an aid to

decision

making.

Accountingissometimes efe edtoasthe la guageof usi ess ./to0e

s

a

ediu

through

hich

the

marketing,

#roduction,

human

resources

and

other im#acts of a decision ma" %e reflected in monetar" terms.

his

indicates

the

a"

in

hich

most

com#anies

use

accounting

and

finance

as

an

integrati!e

function

to

sho

the

com%ined

conse1uences

of

a

#ro#osed

course

of

action

on

the

firm2s

financial

situation.

he

American

Accounting

Association

formulated

the

definition

of

Accounting as the #rocess of identif"ing, measuring, and

communicating

economic

information

to

#ermit

informed

'udgments

and

decisions

%"

users

of

the

information.

Accounting

is

a

language

that

communicates

economic

information

to

#eo#le

ho

ha!e

an

interest

in

an

organi3ation4

managers,

shareholders,


4/19

#otential in!estors, creditors, go!ernment and the em#lo"ees.he

accounting

literature

identifies

1uite

a

num%er

of

s#eciali3ed

fields

of

accounting.

Among

them,

financial

accounting

is

the

original

field ofaccounting. /ts main #ur#ose is to record transaction details

in

monetar"

terms

and


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5/19


#re#are

financial

statements

and

re#orts

in

accordance

ith

5AAP.

heother#artof

accounting,

Management

accounting

#ro!ides

necessar"information

to

assist

management

in

decisions

making

and

management

control.

Management

accounting

#ro!ides

necessar"

information

to

assist

management in

decisions

making

and

management

control.

he

Chartered

/nstitute

of Management

Accountants

(677*)

descri%es

Management

Accounting

as8

4

the

a##lication

of

#rofessional

information

in

such

a

a"

as

to

assist

the

management

inthe formationof #olicies and in the #lanning and control of the

o#erations of the undertaking. Management accounting has %een

considered as an integral #art of the management #rocess, and

management

accountants

ha!e

%een

!isuali3ed

as

im#ortant

strategic

#artners

in

an

organi3ation2s

management

team.

ilton

(*+++)

states

that

the

management

team

seeks

to

create

!alue

for

the organi3ation %" managing resources, acti!ities, and #eo#le to

achie!eorgani3ationalgoalse0ecti!el".othisend,managersre1uire

information

hich

is

utili3ed

in

the

decision

making

#rocess

and

in

controlling

o#erations.

Management

accounting

thus

ser!emanagement

in

#ro!iding

the

needed

data

and

information,

including

ad!ice

and

recommendations.

Although

there

is

no

o o l a e#ted defi itio of a age e ta ou ta t , fo the

#u

#oses

of

this

stud",

/

use

the

term

to

refer

to

all

#eo#le

ho

re#ort

directl"

or

indirectl"

to

the

finance

function

of

an

enter#rise.

*BJ$')IV$*F)0$S)(3

hemaino%'ecti!eofthe#resentstud"istoidentif"thet"#esofmanagerialdecisions


6/19

andtheroleofmanagementaccountantindecision4making#rocessina

%usiness

organi3ation.

Journal

of

Radix

International

Educational

and

Research

Consortium

www.rierc.org


7/19


R$S$AR'0

/$)0*(*+*.3

hesourceforthedataisentirel"fromsecondar"sources i.e.,from%ooks,

#u%lished

and

un#u%lished

'ournals,

related

e%sites

in

the

internet,

and

other

documentsthat

arerelatedtotheto#icunderstud".

+I)$RA)R$

R$VI$1

($'ISI*N/A-IN.

$ecision making is a fundamental #art of management. Beforediscussing

hat

decision4making

is,

let

us

discuss

hat

decision

is,

%ecause

decision4making is a

#o essofde idi g.Colli s defi esde isio asthea tof aki gu#

o

e

s

i

d

%"collecting,sharingandgatheringsignificantideasfromdi0erentsources.

Moreo!er,

Lo

g

a

defi

es

that

de

isio

as

a

hoi

e

o

'udg

e

t

that

ou

ake

afte

a

#e iodofdis ussio o thought .Lo g a sdefi itio is e lea ut

itgi es ise to a 1uestion on the definition of deciding or decision4

making.

/n

the

end

decision4making

is

to

make

a

choice

or

'udgment a%out something, es#eciall" after a #eriod of notknoing

hat

to

do

or

in

a"

that

ends

in

disagreement

(Alam,

677).

Moreo!er,

Fullan

(*+6)

asserts

that

decision4making

is

the

#rocess

of

identif"ing

and

choosingalternati!ecoursesofactioninamannera##ro#riatetothedemand

of

the

situation.

he

act

of

choosing

im#lies

that

alternati!e

courses

of


8/19

action must %e

eighed

and

eeded

%"

sharing.

Fremount,

et,

al,.

*+-7

defined

decision4makingas

the o s iousandhuman#rocess,in!ol!ing%oth indi!idualandsocial

#henomenon

%ased

u#on

factual

and

!alue

#remises,

hich

concludes

ith

a

choice of one%eha!ioralacti!it"fromamongoneormore

alternati!es

ith

the

intention

of

mo!ing


www.rierc.org


9/19


toard

some

desired

state

of

a0ai

s

.

/t

e#

ese

ts

a

ou

se

of

eha io o a tio

a%out

hat

must

or

must

not

%e

done

(er%ert,

*+97).

$ecisionmaking

is

the

selecting

of

action

from

among

alternati!es

to

achie!e

a

s#ecific

o%'ecti!e

or

sol!e

s#ecific

#ro%lem

($onald,

*+9:).

he

art

of

decision4making #ro!ide us a !ariet" of a##roaches, methods and

techni1ues hel#ful and useful for making high 1ualit" ofdecision. A

decision

maker,

as

an

indi!idual,

or

as

a

mem%er

of

formal

organi3ation

ith

his

on

#hiloso#h"

and

#erce#tion

of

the

organi3ation, selects for o#timi3ing !alues ithin the constraints

im#osed

%"

the

organi3ation

(;arshne",

*++-).

$ecision4making

and

its

role

in

organi3ations

can

%e

!ieed

in

a

num%er of a"s.


10/19

making.

Rightdecisionsgi!edirectionforarightcourseofaction.$aft(*+:)stated

that

hen

an

organi3ation

is

designed

to

#ro!ide

correct

information

to

managers, decision

#rocesses ork etremel" ell and tasks ill %e accom#lished.oe!er,

hen

Journal

of

Radix

International

Educational

and

Research

Consortium

www.rierc.org


11/19


information is #oorl" designed, #ro%lem4sol!ing and decision#rocesses

ill

%e

ineffecti!e

and

managers

ma"

not

understand

h".

An indi!idual or multi#le #artici#ants that are in!ol!ed in decision4

making

can

%e

called

decision

makers.

/ndi!idual

decisions

can

%e

made

%"

a

com#uter

or

a

single

#erson

meanhile

the

multi

#artici#ant decision makers can %e di!ided into unilateral and

negotiated decisions. /n the first one, hich is also called team

decisions,

one

of

the

#artici#ants

has

the

#oer

to

decide.

he

others

although,

can

highl"

influence

ho

the

decision

ill

look

like. /n negotiated decisions the #artici#ants share theauthorit"of

making

a

decision.

his

t"#e

distinguishes

%eteen

grou#

decisions

herethe#artici#antsha!enearl"e1ualauthoritiesanddiscusstheir

different!ie#oints in!ariousmeetingandorgani3ationdecisions./n

the

latter

one

the

authorit"

of

making

a

decision

is

une1uall"

shared

according

to

the

organi3ations

hierarch"

and

the

coordination%eteenthedecision#artici#antsishighl"structured.

'lassii%a#ion

o

!e%isions

From

the

descri#ti!e

model

of

the

%asic

features

and

assum#tions

of

themanagement

accounting#ers#ecti!eof%usiness,itiseas"torecogni3ethatdecision4making

is

the

focal

#oint

of

management

accounting.

he

conce#t

of

decision4making isacom#le

su%'ect ith a !ast amount of management literature %ehind it.

o

%usinessmen

make

decisions

has

%een

intensi!el"

studied.

/n

management

accounting,

it

is

useful

to

classif"

decisions

as8

*.trategicandtactical


12/19

6.

hort4run

and

long4run

Journal

of

Radix

International

Educational

and

Research

Consortium

www.rierc.org


13/19


S#ra#e4i%

an!

)a%#i%al

(e%isions

/nmanagementaccounting,theo%'ecti!e isnotnecessaril"tomakethe

%est

decision

%ut

to

make

a

good

decision.

Because

of

com#le

interacting

relationshi#s, it is!er"

difficult,

e!en

if

#ossi%le,

to

determine

the

%est

decision.

Management

decision4making

is

highl"

su%'ecti!e.

hether a decision is good or acce#ta%le de#ends on the goalsand

o%'ecti!es

of

management.

Conse1uentl",

a

#rere1uisite

to

decision4making

is

that managementhas set the o ga i3atio s goals a d o 'e ti es.

Fo e a #le, a age e t ust

de

ide

st

ategi

o

'e

ti

es

su

h

as

the

o

#a

s

#

odu

t

li

e,

#

i

i

g

st

ateg

,

ualit

of

#roduct,

illingness

to

assume

risk,

and

#rofit

o%'ecti!e.

/n setting goals and o%'ecti!es, it is useful to distinguish %eteen

strategic

and

tactical

decisions.

trategic

decisions

are

%road4

%ased, 1ualitati!e t"#e of decisions hich include or reflect goals

and o%'ecti!es. trategic decisions are non 1uantitati!e innature.

trategic

decisions

are

%ased

on

the

su%'ecti!e

thinking

of

management

concerning

goals

and

o%'ecti!es.

A

strategic

decision

is one hich is made during a current time %ut hose #rimar"

e0ect

ill

%e

felt

during

some

future

time.

trategic

decisions

a0ect

organi3ational

structure

and

o%'ecti!es.

trategic

decision

cannot

%e

delegatedloerthana#articularle!el(March,*+).

actical

decisions

are

tactical

in

nature

and

called

routine

decision.

he"areim#ortant

re#etiti!e need little thoughts ith fe alternati!es. he decision


14/19

are taken u# %" middle and first line managers and do not

in!ol!e an" higher risk or uncertaint".actical decisions su##ort

and

com#liment

organi3ational

strateg".

he

tactical

decision

ma"

%e

delegated

to

loer

le!els

in

the

organi3ation.

Moreo!er,

hat

might


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15/19


%e

strategies

decision

for

one

organi3ation

ma"

%e

tactical

decision for anotherD

(Prasad,

*++-)

actical

decisions

are

1uantitati!e

eecuta%le

decisions

hich

result

directl"fromthe

strategic

decisions.

he

distinction

%eteen

strategic

and

tactical

is im#ortant inmanagement accounting %ecause the techni1ues of

management

accounting

#ertain

#rimaril"

to

tactical

decisions.

Management

accounting

does

not

t"#icall"

#ro!ide

techni1ues

for

assistinginmakingstrategicdecisions.

nce

a

strategic

decision

has

%een

made,

then

a

s#ecific

management

tool

can

%eusedtoaid inmakingthe tacticaldecision.Foream#le, ifthestrategic

decision

has

%een

made

to

a!oid

stock

outs,

then

a

safet"

stock

model

ma"

%e

usedtodeterminethedesiredle!elofin!entor".

he

classification

of

decisions

as

strategic

and

tactical

logicall"

results

in

thinking

a%out

decisionsas1ualitati!eand1uantitati!e./nmanagementaccounting,the

a##roach

to

decision4making

is

%asicall"

1uantitati!e.

Management

accounting

deals ith those

decisionsthatre1uire1uantitati!edata./natechnicalsense,

management

accounting

consists of mathematical techni1ues or decision models that assist

management inmaking1uantitati!et"#edecisions.


16/19

S&or#5runVersus+on45run(e%ision5ma6in4

As stateda%o!e, decisions can %e grou#ed into short4 and long4termdecisions.

/t

is

necessar" to consider decisions from %oth #ers#ecti!es. $rur"(6777)

defined

the

short4term

is

usuall"

as

%eing

one

"ear

or

e!en

less.

/n

short4termdecisions the


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17/19


im#ortanceof the time!alueofmone" is lo.hese decisionsaremainl"

%ased

on

toda

s

data.

Fho

t4term

decisions

can

usuall"

%e

changed

easil"

as

o##osed

to

long

term

ones.

#erating

acti!ities

encom#ass

hat

managers

must

do to run the%usiness on a da"4to4da" %asis. #erating decisions

for manufacturing com#anies include hether to acce#t s#ecial

orders,

ho

man"

#arts

or

other

ra

materials

to

%u"

(

or

hether

to

make

the

#arts

internall"),

hether

to

sell

a

#roduct

or

#rocess

itfurther, hether to schedule o!ertime, hich #roducts to #roduce,

and

hat

#rice

to

charge.

ther

o#erating

decisions

a0ecting

all

organi3ations

include

assigning

tasks

to

indi!idual

em#lo"ees,

hether to ad!ertise, and hether to hire full4time em#lo"eesorto

outsource.

Long4term decisions ha!e e0ects on longer #eriods of time.Conse1uentl",

such

de

isio

s

de

a

d

a

fi

s

esou

es

fo

a

lo

ge

e#isode

of

ti

e.Fu

hde isio s a

influencefuturedecisionsandcanha!ean im#acton long4term#otentials.

trategic

#lanning addresses long4term 1uestions of ho an organi3ation#ositions

and

distinguishes

itself

from

com#etitors.

Long4term

decisions

a%out

here to locate#lants and other facilities, hether to in!est in

ne state4of4the4art #roduction e1ui#ment, and hether to

introduce

ne

#roducts

or

ser!ices

and

enter

ne

markets

are

strategic

#lanning

decisions.

trategic

#lanning

also

in!ol!es

the determination of long4term #erformance and #rofita%ilit"

measures,

such

as

market

share,

sales

groth,

and

stock

#rice.


18/19

/ANA.$/$N)A''*N)AN)7SR*+$IN($'ISI*N/A-IN.

hedecisionmaking#rocesscan%elookedatasagrou#of#eo#le(decision

makers,

agents,

actors)

tr"ing

to

decide

on

the

correct

actions

to

achie!e goals using


www.rierc.org


19/19


informationa%outtheresultsof#astactions./tisclearthatmanagement

accountants

ha!e

4

as

the"2!e

ala"s

had

4

a

signiGcant

contri%ution

to

make

at

each

stage

of

the

decision4making

#rocess

(see

figure

*.*%elo).

his

is

good

nes for financial managers ho ha!e technical kno4ho,

understand the %usiness and use good communication and

influencing

skills.

he

decision4making

#rocess

can

%e

characteri3ed

%"

the

folloing

(Peter

imons,

677-):

$ecision4making isnottheendofthe#rocess. /tetends

through

to

achie!ing

resultsandisacontinuous#rocess.

Accountants

contri%ute

to

the

strategic

#lanning

and

enter#rise

go!ernance

frameork

(the

C/MA

trategic

corecard

paper16-libre.rtf 1.rtf

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