As the companies grow in the size, the number of stakeholders increase. Companies have to cater to the interests of its stakeholders such as local communities, vendors, employees, legislators so on and so forth. Performance prism is an ideal tool to analyse.
Performance Prism is one of the development in management accounting put forth by Cranfield University. The theory is performance of an organisation depends on how effectively it meets the needs and requirements of all its stakeholders.
Approach: Starting with Stakeholders, not with Strategy. Five key questions for measurement design:
Stakeholder Satisfaction – who are the key stakeholders and what do they want and need?
Strategies – what strategies do we have to put in place to satisfy the wants and needs of these key stakeholders?
Processes – what critical processes do we require if we are to execute these strategies?
Capabilities – what capabilities do we need to operate and enhance these processes?
Stakeholder Contribution – what contributions do we require from our stakeholders if we are to maintain and develop these capabilities?
Once the answers to the above questions have been dealt, Performance Prism can use the results to identify performance measures which will enable the company to monitor the success of processes in place.
Profile: A technocrat with 17 years of proven success in ERP Implementation, Business Analysis, Consultancy Assignments in Strategic Cost Management, Profitability Analytics, Performance Management and Business Process Management in conjunction with the enterprise wide BI solutions.
Specialist in Training and Implementing Activity Based Management concept in Manufacturing, Telecom, Banking, Insurance and Retail verticals. Over 17 years on overall experience including 7 years in the current area.
Providing support to the KPO organizations to conceptualize outsourcing services in Activity Based Management. Providing training to build capacity of the team and running the services.
Rajendra Patil is conducting sessions on Activity Based Costing/Management concepts and a product demo tour. This session takes around two hours.
Readers of the Management Accountant Blog can contact him directly and take an opportunity to discuss on experience on Activity Based Management benefits.
How you can make most out it
Speak to Senior Management in your company and arrange for meeting with for Rajendra Patil to demo. The participants should be a mix accounting background and business. As management accountants you can influence implementation of ABM.
Arrange for 2 hour slot in the seminars you are attending for Rajen to speak in the forum. Participants of the seminar will be benefited by interaction.
Network with Management Accountants in your area and arrange for venue where Rajen can discuss on ABM.
NEW DELHI, 18 NOV 2008. The Institute of Cost and Works Accountants of India in its drive to promote and propagate the profession of cost and management accountancy has now taken the initiative to promote an Institute of Cost and Management Accountants in Oman.
To give effect to this effort, the ICWAI has entered into a Memorandum of Understanding with the Omar Zawawi Establishment LLC (OMZEST), one of the premier groups in the Sultanate, on last Saturday in the presence of Shri Jitesh Khosla, Joint Secretary, Ministry of Corporate Affairs, Govt. of India, Shri B. B. Goyal, Adviser (Cost), Ministry of Corporate Affairs, Shri Indrajith Fernando, Adviser - South Asian Federation of Accountants (SAFA) and other dignitaries, which has set the scope of relationship between the two bodies.
According to Mr. Kunal Banerjee, President, ICWAI, the Global Summit of Management Accountants held in January 2008 in Delhi gave a fillip to the efforts of ICWAI to go beyond the country and make its presence felt as a driving force of management accounting profession in the global arena. As a continuum of this process, it is co-promoting a new management accounting body in Gulf in the Sultanate of Oman. The progressive policies of the Sultanate of Oman are creating conducive conditions for a steady economic development and as the commercial activities expand the Omanese economy will be in need of highly skilled management accountants to support the needs of strategy, management and accounting.
In terms of this MOU, ICWAI will be technically guiding Oman in developing the syllabus relevant for the Omanese economy and help them in conducting the examinations periodically. The pass certificates will be awarded by IMA Oman.
According to Mr. Kunal Banerjee, in the first phase, technician level courses will be introduced to be followed by Business Accounting certification and later on the management accounting qualification. The course will also include training modules with the Omanese business units for the students.
OMZEST is an Omani company having diverse commercial interests including promoting higher education in Oman and ICWAI is a premier Cost and Management Accountancy Institute, which is a member of the International Federation of Accountants (IFAC), The Confederation of Asian and Pacific Accountants (CAPA) and The South Asian Federation of Accountants (SAFA), wish to establish an Institute of Management Accountants in Oman (IMAO).
To advice IMAO to award certificates ICWAI shall play the role of Technical Collaborator/ professional service provider/ consultant to academics programme for designing the course syllabus. IMAO will award the certificate on which it will be mentioned that this programme is designed and examinations are conducted by ICWAI. In designing the course syllabus by ICWAI, the suggestions offered by IMAO will be taken into consideration, wherever necessary. ICWAI shall provide the entire course material; rules and regulations regarding the course; detailed curriculum; course design, all learning material including original computer software and relevant legislations pertaining to ICWAI on a regular basis.
ICWAI shall formulate Course Curriculum in line with Oman’s Industrial requirement of Cost and Management Accounting profession facilitating conduct to be named as “Certified Accounting Technician” (CAT) course.
A couple of months back, Management Accountant Blog posted a guest post by CMA V R Kedia on “Emerging Role of Management Accountants in New Economy”. The role as described by CMA Kedia expected the management accounting practitioner should have attributes of a learning professional, a change agent and be hands on latest technology.
Management Accounting techniques has undergone a lot of development from preparing Cost-Volume-Profit Analysis to latest techniques like EVA, Activity Based Management, Target Costing, Kaisen and many more. The expectation from management accountant has been changing consistently with the advancement of technology and new challenges faced to analyse business for its competitiveness.
I wondered Management Accounting is a specialized field ….. is it necessary to have an accounting background ?
“According to a study commissioned by the American Institute of Certified Public Accountants (AICPA), the average cost of the finance function has dropped from 2.2 percent of revenues in 1988 to 1.4 percent of revenues in 1996. The study further projects that costs may be reduced by as much as 50 percent in the next few years and that the number of people employed in finance should drop by one-third. Those accountants trimmed from finance will likely be individuals who are unwilling or unable to switch their focus from historical-based data-gathering activities to future-oriented, decision-focused activities.”
CIMA is one of the leading Management Accounting institutes in the world. The American Institute of CPAs (AICPA) and the Chartered Institute of Management Accountants (CIMA) have agreed to collaboratively develop products and services that are in the common interest of their collective membership who work in business and industry. With its focus on management accounting and the latest developments in global business, CIMA is a natural partner for the AICPA’s Financial Management Center, which serves CPAs working in business and industry.
The first effort of the initiative is the “Developments in Management Accounting” series, which includes multiple titles concentrating on current management accounting issues and principles and strategies for implementation.
Further AICPA has partnered with CMA Canada - for the benefit of their members in business - to undergo programs focusing on selected financial management issues, MAGs provide guidance on current and evolving strategic management practices and concepts.
Legally, the finance and audit profession is regulated and protected by various legislation. The accountants who are interested in practice will go for accounting profession. The people who would like to work with the business and take up new challenges will pursue management accountancy as it opens up wide array of activities like analyzing the competitiveness of business to designing a smart management information system.
In future, courses like “Finance for non finance professionals” should be enough as a foundation courses for people pursing Management Accountancy. The course in management accountancy should cover in details about “Strategy”and more about management.
Management Accountants are known for strategic accounting rather than doing mundane things. The Canadian Management Accountants recognise themselves as “Creative Accountants”. Yes, internal accounting is like that. A product may show profit by applying overheads in the traditional way but may go into loss when applied the concepts of ABC.
Do you feel advances in Information Technology has direct influence on Management Accounting ?
In various areas of management accounting, it is ‘essential’ to collect, calculate and present the data to the users. The advancement in the field of harware and software solutions has helped management accountant in a great way.
First example would be the ERPs. The regular job of the management accountants in manufacturing industries is to calculate the cost of the inventories. This has become very simple (or fully automated). So the professional can look into the other areas.
With the development of various tools to generate cubes, we can now ’slice and dice’ the data very easily and can use the tool to generate views to find the possible reasons for the business pains. Using the Business Intelligence (BI) solutions we can now use the information of profitability in other areas of Customer Intelligence solutions like Customer Segmentation, Cross Sell-Up Sell, Campaign management, Customer Life cycle costs etc.
B V Prabhakar also shared the same view
IT , has no doubt, revolutionised the Management Accounting.
ERP , such as SAP helps Management Accountant to prepare separate Financial Statements for Tax laws under Local GAAP and also under International Standards such as IAS/IFRS/US GAAP. The time taken by Accounting Groups for Monthly Closing Process such as Bank reconciliation, Inter-company reconciliation, FOREX Payables/Receivables reinstatements and Consolidation, is considerably reduced.
Ashutosh Gupta had concerns
With the advancements of IT in day to day life of management accountants whether the role of Accountant has been secondary to IT professionals ?
Management Accountants roles has gone a drastic change over the years. The role of accountants has enhanced with these IT tools where we have to work with operations and business. Our role is understanding the requirements of the business and designing the solutions that would help them in decision making. ABM, EVA is a good examples.where you require details for analysis.
This leads to another question:
As Management Accounting is directly influenced by technology, does IT strategy of the company influence your career ?
I feel it does. Just like how a company scans you by looking at your CV of your achievements in past, you should review the history of the company on how it has progressed till now. A general drive in improvement of the system indicates that you will be able to demonstrate your role as a Management Accountant.
E.g. long time back, I had a interview call from a large MNC in Hyderabad where they needed Business Analyst. I went through the interview process where they told me they were using SAP 3.1h when the world had moved to 4.6C. On enquiry about the upgrade, they said, it was not on their agenda in the near future. I had terminate the interview process since I did not feel that I would be able to progress over there with the ancient technology.
Exchange your thoughts and share your experiences on
Whether IT strategy of the company influence you as a Management Accountant? Should you continue with a company or look for another opportunity ?
Dr D V RamanaPh.D, Professor, Accounting, Xavier Institute of Management, Bhubaneswar.
Dr. D V Ramana has converted his teaching notes into an e-book. This is opened for the students on a pilot basis to get their feedback and suggestions for improvement.
The e-book contains videos on various topics on finance. Dr D V Ramana would like inputs from you on this project. You will be glad to know that he is also working on IFRS e-book project.
I congratulate him for his efforts on Financial Accounting e-book and wish him All the best for his future projects.
PS: Dr Ramana is a subscriber of Management Accountant Blog. If you are interested to make a guest post on the projects you have undertaken or your article on specific topic that would help the readers, I would be happy to post the same on the blog. Please contact me.
Budgeting, as most corporations practice it, should be abolished. That may sound like a radical proposition, but it is merely the final (and decisive) action in a long running battle to change organizations from centralized hierarchies to devolved networks. Most of the other building blocks are in place. Firms have invested huge sums in quality programs, IT networks, process reengineering, and a range of management tools including EVA, balanced scorecards, and activity accounting. But they are unable to establish the new order because the budget, and the command and control culture it supports, remains predominant.
10 reasons why budgets cause problems:
Budgets are time consuming and expensive.
Budgets provide poor value to users.
Budgets fail to focus on shareholder value.
Budgets are too rigid and prevent fast response.
Budgets protect rather than reduce costs.
Budgets stifle product and strategy innovation.
Budgets focus on sales targets rather than customer satisfaction.
Budgets are divorced from strategy.
Budgets reinforce a dependency culture.
Budgets lead to unethical behaviour.
There are twelve principles (two sets of six) that govern the Beyond Budgeting Model. One set relates to adaptive management processes and the other set relates to a devolved leadership.
The six principles of managing with adaptive processes are as follows:
Goals - set aspirational relative goals for continuous improvement, don’t negotiate fixed contracts
Rewards - reward shared success based on relative performance, not on fixed targets
Planning - make planning a continuous and inclusive process, not an annual event
Controls - base controls on relative KPIs and performance trends, not on variances against plan
Resources - make resources available as needed, not through annual budget allocations
Coordination - coordinate interactions dynamically, not through annual planning cycles
The results of applying these principles include setting aspirational goals, reducing gaming, encouraging ambitious strategies and fast response, reducing waste, improving customer service, and promoting learning and ethical behaviour.
The evidence from our cases is that there are six principles that leaders should adopt:
Outcomes - focus everyone on the outcomes, not on hierarchical realtionships
Processes - organize as a lean network of accountatble teams, not as centralized functions
Autonomy - give teams the freedom and capability to act, don’t micro-manage them
Responsibility - create a high responsibility culture at every level, not just at the centre
Transparency - promote open information for self-management, don’t restrict it hierarchically
Governance - Adopt a few clear values, goals and boundaries, not detailed regulations
The effects of these principles include: a clear governance framework leads to the acceptance of local decision making by front-line teams throughout the organization; a high-performance climate leads to sustained competitive success; the freedom to decide fosters innovation and responsiveness; team-based responsibility results in a greater focus on creating value and reducing waste; customer accountability builds more commitment to satisfying customers profitably; and finally, an information culture based on openness and “one truth” promotes ethical behaviour.
SAS can assist with the implementation of these principles as follows:
Target setting - obtain information on competitor activity and link to external databases
Strategy - make the update and maintenance of objectives and targets an easy process
Growth and improvement - build hypotheses and scenarios and test against capabilities
Resource management - track the life time cost and value of resources
Coordination - search for and use cause and effect relationships across business units and processes
Cost management - identify areas of cost which need attention through analysis (eg. Activity Based Costing) and data mining
Forecasting - create and maintain rolling forecasts
Measurement and control - implement a balanced scorecard with leading and lagging indicators
Rewards - track actual performance against targets
Delegation - maintain personal information portals.
SAS is the only software supplier that is capable of collecting, transforming, modelling, analysing and supporting the complex information needs of organisations. Our flexible framework adapts technology to the management processes - not the other way around.
Budgeting, as most corporations practice it, should be abolished. That may sound like a radical proposition, but it is merely the final (and decisive) action in a long running battle to change organizations from centralized hierarchies to devolved networks. Most of the other building blocks are in place. Firms have invested huge sums in quality programs, IT networks, process reengineering, and a range of management tools including EVA, balanced scorecards, and activity accounting. But they are unable to establish the new order because the budget, and the command and control culture it supports, remains predominant.
10 reasons why budgets cause problems:
Budgets are time consuming and expensive.
Budgets provide poor value to users.
Budgets fail to focus on shareholder value.
Budgets are too rigid and prevent fast response.
Budgets protect rather than reduce costs.
Budgets stifle product and strategy innovation.
Budgets focus on sales targets rather than customer satisfaction.
Budgets are divorced from strategy.
Budgets reinforce a dependency culture.
Budgets lead to unethical behaviour.
There are twelve principles (two sets of six) that govern the Beyond Budgeting Model. One set relates to adaptive management processes and the other set relates to a devolved leadership.
The six principles of managing with adaptive processes are as follows:
Goals - set aspirational relative goals for continuous improvement, don’t negotiate fixed contracts
Rewards - reward shared success based on relative performance, not on fixed targets
Planning - make planning a continuous and inclusive process, not an annual event
Controls - base controls on relative KPIs and performance trends, not on variances against plan
Resources - make resources available as needed, not through annual budget allocations
Coordination - coordinate interactions dynamically, not through annual planning cycles
The results of applying these principles include setting aspirational goals, reducing gaming, encouraging ambitious strategies and fast response, reducing waste, improving customer service, and promoting learning and ethical behaviour.
The evidence from our cases is that there are six principles that leaders should adopt:
Outcomes - focus everyone on the outcomes, not on hierarchical realtionships
Processes - organize as a lean network of accountatble teams, not as centralized functions
Autonomy - give teams the freedom and capability to act, don’t micro-manage them
Responsibility - create a high responsibility culture at every level, not just at the centre
Transparency - promote open information for self-management, don’t restrict it hierarchically
Governance - Adopt a few clear values, goals and boundaries, not detailed regulations
The effects of these principles include: a clear governance framework leads to the acceptance of local decision making by front-line teams throughout the organization; a high-performance climate leads to sustained competitive success; the freedom to decide fosters innovation and responsiveness; team-based responsibility results in a greater focus on creating value and reducing waste; customer accountability builds more commitment to satisfying customers profitably; and finally, an information culture based on openness and “one truth” promotes ethical behaviour.
SAS can assist with the implementation of these principles as follows:
Target setting - obtain information on competitor activity and link to external databases
Strategy - make the update and maintenance of objectives and targets an easy process
Growth and improvement - build hypotheses and scenarios and test against capabilities
Resource management - track the life time cost and value of resources
Coordination - search for and use cause and effect relationships across business units and processes
Cost management - identify areas of cost which need attention through analysis (eg. Activity Based Costing) and data mining
Forecasting - create and maintain rolling forecasts
Measurement and control - implement a balanced scorecard with leading and lagging indicators
Rewards - track actual performance against targets
Delegation - maintain personal information portals.
SAS is the only software supplier that is capable of collecting, transforming, modelling, analysing and supporting the complex information needs of organisations. Our flexible framework adapts technology to the management processes - not the other way around.
Present role of Management Accountants – Conceptions & Misconceptions
Cost and Management accounting system had often become of little importance to managers. Many regarded them as minor routine belonging to the accountants, used to evaluate stocks and prepare monthly results speedily.
There are all the obvious things to do: Statutory and Financial accounting, Taxation compliance, Funding, Management reporting and so on. All of this tends to be in the background; it just has to happen in any event. Management Accountants have not yet progressed more towards bridging the gap between managers and accountants and they have yet to concern more with looking towards the future – at where business is going and what is going to happen.
Very few conceptual modifications have been brought in, in the cost and management accounting in the last 40 years.
Cost is too important to be left to the cost and management accountant.
Futuristic role of Management Accountants
Most of us will be doing the job, which we have never learnt and quite different from what we have been doing so far
The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn and relearn.
We have to undergo the process of “Learning, Un-learning and re-learning” more frequently.
Industry will be requiring “learning” professional rather than “learned” professional.
Future will be “knowledge era”. So obsolesce of knowledge will be very fast and more visible among accounting professionals.
Management Accountant must re-orient its capabilities, otherwise he will be overtaken by other professionals.
Management Accountant has to be futuristic instead of provider of historic or current information. He should ask “how better” and help management in decision-making level and for performance improvement.
‘Imagination is more important than knowledge’. – Albert Einstein.
The responsibility of the management accountant is less on forecasting the future and more on contributing to its creation.
Management Accountant will more often play the role of a catalyst / changing agent rather than an accountant.
Management accountant will have to be more adaptable to be a versatile professional rather than an accounting specialist.
Quality of “leadership” will be more in demand than that of a “manager” or an accountant.
Out –cost ascertainment, product costing and cost control. In –cost management, activity-costing etc.
Re-positioning of the management accountant – make it more relevant and useful to the organisation.
Management accountant to change the “Accountant” from their name to information manager/Cost manager.
Shift from “informational” role to an “influential” role.
To develop alliance with- finance, MIS/IT, industrial engineering, corporate planning.
To actively participate along with managers in decision making and strategy implementation.
Change in mind-set from product profitability to customer profitability analysis.
No more a scorer of the cricket match – but to be manager advisor to develop appropriate strategy to win the match.
Management accountant needs to lead the effort in training managers to use accounting information along with balancing it with other key data sources.
FOREX and Treasury function will be important profit centres.
Training needs
“If you want to remain employed, you have to remain employable” – Jack Welch, CEO-GE.
Dilemma for the management accountant will be to either change or cease to exist.
Management accountant must learn fast, forget even faster and focus on winning.
Management accountant requires very different skills from those that accountants needed to fill the narrow role that has been adopted by many finance professionals over the last three decades.
Continuing Professional Education (CPE) programme be made compulsory by the institute for skill upgradation and aquiring the latest technology.
Able to work well under pressure.
Development of multi-disciplinary skill.
Good communication skill – oral, written and presentation and a team player.
Ability and drive to work against strict deadlines and targets.
Ability to work with minimum supervision and a busy and dynamic work environment.
Ability to prioritise multiple urgent tasks.
Possessing good public relations skill.
Adding a new skill to executive skill-set, every few years.
To develop expertise in new ‘Green Field’ projects like-
This is a guest post by CMA Devarajan Swaminathan. He has over 10 years post qualification experience in Accounting, Auditing, Finance as well as Management Accounting. He is the proprietor of Devarajan Swaminathan & Co - Cost Accountants.
The aim is to sell him my product in return for his money.
A business is not and cannot be more complicated than this. Everything revolves around this.
To do the above I have spent resources like financial, technical, physical, human to bring the product first at my doorstep and then to the customers doorstep. My aim is to sell my product and in turn take his money. The difference what we call PROFIT, is actually my earnings for (a) the efforts I have put (b) the risk I have taken.
How well I do the above is what holds the key to the success or failure of a business ?
The above is true when my product will sell. How about a scenario where my product does not sell? Not because there is no demand but because some one else sells the same or better product better than me and at a better price. I stand to loose the customer. This brings out the question what is the true value of my product and what is the true value of my customer.
PROFIT: Determined by the complex interplay of value, price and cost and its maximization are what every business tries to achieve. In other words maximization of the shareholders wealth, ROI and so on and so forth. The issue how does one go about doing this?
The reason for so much importance to the compliance is because of more and more weightage given to enhancing shareholder value rather than enhancing customer value. Although the irony its customer value that’s creating shareholder value. The sales value declared in the financial are taken for granted without any thought on how and why the sales value has been arrived at.
What is driving the sales?
We have a measurement of the shareholder value with all those EBIDTA, EPS, PV, ROI ratios. All these are meaningless unless we measure customer.
Do we have a measurement of CUSTOMER VALUE?
Cost based pricing and price based costing in my opinion are both insufficient.It should be customer value based costing and pricing.
In my opinion Customer value comes into play not when they are there but when they are not there. Most of the time the customer is taken for granted. Ask Dunlop tyres where they goofed up? Ask Mukand Steel where they goofed up? In fact we need to ask all those companies that were either closed down or are in the verge of closing down and the reason for the same. As the scale of operations increase the customer value increases significantly. E.g. I put a plant and mobilize resources to take my product to my customer for Rs. 10 billion. Tomorrow another player enters the market with a better product and better delivery capability due to which I loose my customers and my business, what is my loss, is my customer value.
Customer value is not the PROFIT per customer that I WOULD have earned but the LOSS per customer that I WILL incur if they are not there/ i loose them. How do I come down to a unit value is based on the capacity built up to serve customers. How well (efficiently and effectively) I either structure the Rs.10 billion or the customer base or both is what determines the cost, the premium that the customer is willing to pay for my product (which is based on his perception of the product value i.e. brand, quality, service, performance, resale value etc) is what sets my premium / margin and the addition of the two is my Price. This significantly varies between market segments. The day the business goofs up on cost structuring (which is a good quality product taken to the customer in the best possible manner and quickest possible time) and customer perception it’s got to loose both the customer and value.
The shareholders expectations is taken care by the generalists and compliance oriented accounting. In terms of money received, deployed and returns generated and reported. We as management accountants need to shift our focus from shareholders and bring it to customers for the sake of shareholders because business revolves around customers and not shareholders. Interests of shareholders are taken care automatically when the interests of the customers are taken care of. Vice versa is not true.
Management accountants as bean growers need to be customer/ business centric and focused. Strategy is how best I can add and create value to my customers and thereby my shareholders using management accounting tools and techniques. To do all that I have said above one needs to focus on management accounting, customer measurement, cost measurement, cost management and cost control. Once the focus shifts to customer value and cost, other things revolving what determines cost (i.e. financial, physical, technical and human resources) are automatically addressed to, managed and maximized. It thus adds value to the needs of the customer which in turn adds value to the shareholders.
Just a thought.
Your value additional thoughts, opinions, perspective solicited.
View CMA.Devarajan Swaminathan’s profile