Strategic Development of Management Accountant’s Role

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Strategic Development on Management Accountant’s Role:

The Impact on Costing and Budgeting


The company’s actual situation has alerted the need for change and innovation in the management technics employed. Therefore, to help inform future strategic decisions, a process of research and development has been initiated in order to review current practices and assess new techniques. This report addresses how the management accounting (MA) role has changed within strategic decision making context as well as how the use of contemporary approaches to costing and budgeting can practically impact companies performance taking into account strategic management.

The changing role of MA within the context of strategic decision making

The management accountants (MA’s) role has been going through changes, comprising a decline in the ‘scorekeeping’ role and, a corresponding increase in ‘business-consultancy’ roles (Hopper and Scapens et al., 2007). It shows a change from a role as passive producers of financial information, to a more proactive role including active participation in decision making and a focus on a broader set of information than just solely financial. Therefore, the MA’s role is changing from an administrative level to the strategic one, i.e. from “bean counters” to “business partners” (Paulsson, 2012). Other academics support the changing role of MA, such as Burns and Baldvinsdottir (2007) who mention globalization, shifts in technology, accounting scandals, and corporate trends; while Pierce and O’Dea (2003) provide a list of factors that include, the degree of decentralization of the accounting function, development of reporting systems, corporate culture, and introduction of new MA tools. However, it is argued that MA’s role had expanded rather than changed (Burns and Baldvinsdottir, 2005). In fact, it is important to remember the core values of traditional accounting have never really disappeared (Baldvinsdottir et al., 2009).

The increase in competition and the emergence of more customer focused markets have also driven a change in MA role (Cooper and Dart, 2009). As a result, a downturn in sales and an increase in costs could be partially due to not adapting to those changes fast enough. A decision based on traditional skills would not aid managers in making better strategic decisions and consequently not competing with competitors who seem to have developed their role. The fact that traditional MA skills have merged with new ones will add the businesses strategic success in the fast moving business era (Jarvenpaa, 2007). The availability of user friendly and analytical software has freed up space for the MA’s to perform more sophisticated tasks such as strategic decision making and develop the necessary ‘hard skills’ needed, which means becoming an analyst and business partner compared to a simple number cruncher (Paulsson, 2012). With MA heading towards a ‘business partner’ type role (Vaivio, 2006), it has become common for management accountants to be involved in areas such as strategic decision making (Sunarni, 2013). Similarly, it is thought that by evolving the traditional role of simply providing internal information to merging this with external information, management accountants can assist managers more effectively when making a strategic decision for the company (Kidane, 2012).

Once a strategic decision has been made, a specific management tool can be used to aid in making the tactical decision. In order to enhance the future economic value of the company (Kaplan and Norton, 1996) the balanced scorecard (BSC) approach should be used, as it measures performance through strategic objectives, which then drives improvement in products and market development (Kaplan and Norton, 1993). It also will allow the company to use particular strategy to guide decisions at all levels through communication, and it can be used to achieve individual and company targets (Kaplan and Norton, 1996).

The practical impact of contemporary approaches to costing and budgeting

As a response to the challenges over environmental and internal process changes within MA role, new techniques and concepts have been adopted. Those have helped MA’s to produce more detailed and accurate methods, so that misleading signals associated with traditional methods were avoided (Cooper and Dart, 2009). However, a problem associated with the introduction of new approaches is that they are significantly more costly to implement and operate compared to traditional approaches as staff using them will need advanced training and new software will be required; thus, being avoided by small organisations (Hansen et al., 2009). Although there are high costs associated with these approaches many firms have adopted these new approaches, suggesting that the benefits overweigh the operating costs(Hansen et al., 2009).

An example of a contemporary budgeting approach would be Zero-based budgeting (ZBB), which was introduced to overcome limitations of incremental budgeting (Drury, 2012). ZBB allows companies to prioritize and select programs and levels of effort which best meet its objectives; resulting in an intensive management involvement in the budgeting process, forcing them to explore alternatives in budgetary decisions making (Dean and Cowen, 1979). In fact, ZBB can promote efficiency as managers need to justify their projects, encouraging them to seek for the most efficient as well as cost-effective solutions (Rasmussen, 2003). It is also found to limit the growth of expenses in the company, unlike those who use traditional approaches, and to elicit the participation of more line managers in the budget process (Dean and Cowen, 1979).

Likewise, the company would benefit by adopting throughput accounting as it is a measure of performance (Gregory et al., 1995) and is a time-based costing technique which applies the theory of constraints (Drury, 2012). It would maximise the company’s goals as the technique focuses on the companies constraints (Dean and Sharfman, 1996) by boosting profits sustainably and meeting the company’s strategic objectives (Gregory et al., 1995). It encourages decision making to be communicated on an organisational basis promoting a positive change within the organisations culture. Although the company, by using this technique, can achieve short term profit maximisation (Dean and Sharfman, 1996) with a ‘short term decision horizon’, it would not benefit in the long term because long term profits are not sustained (Robinson, 1990).

Activity based costing (ABC) was developed in order to combat the limitations that the traditional technique of absorption costing carried. This new technique will aid the company in improving strategic decision process by producing detailed and accurate information as it uses a greater number of cost centres and different types of cost drivers; ensuring that misleading signals associated with traditional costing methods are avoided (Drury, 2012).Impacting the firm’s profitability as it eliminates costs and losses linked to unprofitable products, services and customers that fail to enhance the worthiness of the firm(Drury, 2012).According to Kennedy and Afflek-Graves (2001), it provides a good basis for future cash flow projections, which in turn help firms to choose investments in value-added activities and increase shareholders value.

According to Chea (2011), ABC recognises the relationships each driver has with a product or activity; thus, improving product cost accuracy. This gives the management of an organisation a clear picture on opportunities to reduce costs (Kaplan and Norton, 2001). ABC has been shown to improve firms’ performance in market and accountancy related measures as it gives managers a better understanding of cost/resource management (Lambert and Sponen, 2011). A study conducted on UK firms found that the firms using ABC had shown to outperform matched non-ABC firms by 27% and that ABC adds value to firms through better cost controls and asset utilisation(Kennedy and Afflek-Graves, 2001). It provides the company with vital information about which services make demands on which responsibility centres and functional departments, helping to identify which services add value to the company(Jabbour, 2009). However, it has been reported that ABC still does contain major subjective allocations which restricts the accuracy of it cost information (Cooper and Kaplan, 1992). Kennedy and Afflek-Graves stated that “the goal of ABC is to increase profits, not to obtain more accurate costs” (2001).

The development of ABB has shown to be an improvement from traditional methods by setting more realistic budgets and also, improved identification of resource needs. It has also helped to increase the emphasis and accuracy of budget outputs(Huynh et al., 2003). ABB has shown to be more effective in managing costs as it presents a framework which allows a company to figure out the amount of resources that are required to achieve the budgeted level of activity (Huynh et al., 2013). This allows them to make appropriate adjustments during the budget setting phase(Drury, 2012).This will help the company decide what activities should be undertaken in order to meet budgeted production and sales volume. ABB provides vital information in greater detail which will help guide management accountants make right decisions on how much resources should be allocated to each activity, i.e. a more precise way to project future costs (Atkinson et al., 2008). Once this method has been adopted the company will be able to translate its vision into strategy with determinable targets in order to create value, which includes expenses, profit margins and productivity increase, as well as cost of capital reductions (Huynh et al., 2013). Therefore, it can be used for companies’ efficiency and effectiveness evaluation. However, it only accentuate cost management’ control and planning purpose (Blocher et al., 2005).

When a company uses ABC and ABB simultaneously it usually develops an activity based operational method i.e. activity based management (ABM), which results on an homogeneous working environment; thus, facilitating communication and serving as an effective model for strategic decision-making (Huynh et al., 2013). By implementing ABM the company is using a strategic cost management system looking at cost and process dimensions for cost reduction (Blocher et al., 2005). The usage of ABM increases company’s profitability and competitiveness as well as improves operational control because it distinguish value-added from non-value added costs by analysing managers’ undertaken actions on an activity based base (Huynh et al., 2013).


Having exposed MA’s to new areas, specifically in the area of business management, is making their role more proactive when it comes to decision making. Therefore, words like business and partner are key as managers and MA’s are becoming bonded together to make a stronger team and enhance strategic decision making. Strategic management is an important area which should be developed within this manufacturing company; thus, BSC should be implemented as it would give the company a strategic learning capacity, through collecting feedback and testing the company’s strategy before making decisions.

It is clear that the introduction of contemporary approaches to costing and budgeting have significantly impacted organizations operations, especially on the role of MA’s within context of strategic decision making. If the company end up by using ABC system for product’ costing, it should also construct an activity based budgeting and management for efficiency purpose, as a strategic decision. Therefore, the adoption of an activity based management line would give managers a clear view of the companies’ results leading managers to run control and make strategic decisions.


This whole group work was a challenge. Everything started when we are not in our original assigned groups and we end up together after a strategic move by tutors to allocate students by attendance. We started working under pressure; we were two weeks behind other groups and have not worked together previously made it even more difficult as we did not know how to act with each other. When starting we agreed to work in every point progressively together, which was definitely not a sensible decision as we were already late. All that issues were arising because we wanted to b democratic and let everyone have equal authority in the group, which was leading to inefficiency in organizational level, task assignment level and deadline compliance level. We eventually noticed that, resulting on one of the member self-entitled herself as the leader and started assigning tasks and creating deadlines. We managed to finish the work but it would be better if we had worked determined position from the started. We have learned that leadership is a key point for teamwork.


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