Management Accounting for Effective Decision-making

1.0 Introduction;

Effective decision-making is critical in today’s competitive business environment. Companies are not able to experience the desired growth as their capital is being eroded faster than they are able to replace it. Businesses are being pushed deeper into dependency on supplier’s credit and the need to constantly borrow in order to stay afloat as self-financing is stifled by thin profit margins and poor debtor performance. Decision makers should strive to possess reliable and accurate business reports with sufficient numerical support to inform them about the state of their business and how it’s being run if they are to make good decisions. They are advised to develop an appetite for management accounting business reports specifically looking at their nature, quantity, and quality to ensure that they are sufficient in boosting quality of decisions.

2.0 What are management accounting business reports?

Two forms of accounting processed reports exist in a Business; Standard accounting reports and management accounting reports.

     i) Standard business reporting; These are like the final accounts (the statement of comprehensive income, balance sheet, cash-flow and the asset schedule). Here data capturing, processing and reporting is guided by international standards such as the standard accounting IAS (International Accounting Standards) and international financial reporting standards IFRS. This mainly looks at only accounting on financial matters and helps report to external users such as creditors, shareholders, owners not in management and authorities/regulators.

                                    

       ii)  Management accounting reports; These reports result from capturing both financial and financial data to process it into reports to inform its users about events that are transpiring or have transpired in the entity. They are prepared according to how leaders of the entity have assessed its risks and wishes to address them by ascertaining various aspects of the business to help inform decision-makers at the strategic level or in operation.

  

3.0 Why Businesses need tailored (management) Reports;

Standard reporting does not avail sufficient information for effective decision making. What managers and owners taking part in the day-to-day running of the entity need? are tailored reports which contain both financial and non-financial information to support the work of both decision-makers and those executing tasks to understand and become more informed about what is happening in the business.
Tailored reports are prepared through management accounting and cost reporting process. The reports give a picture on what is happening in various aspects of the business. This includes business segments/processes like administration, operations, marketing, advertisement, sales and distribution, manufacturing in a manufacturing entity or service delivery process for a service business. These reports can effectively support planning and strategy execution by integrating all information such as on customer acquisition cost analyzed against its long term value, market analysis, R&D

4.0 The challenge in producing management accounting report;

In the myriad of reports that can be generated for an entity, the challenge many entities face is to identify which reports are needed and are crucial towards advancing both the short time goals (aspirations) of the business and the long term as well. The format of these reports should be regularly reviewed and updated to ensure that it evolves at a pace that ensures that it continues to address the hurdles being encountered at each stage of strategy execution of the business such as in its marketing, human resource development, research and development, investment etc… Many entities get over whelmed at the task to generate the right up-to-date tailored business reports and resort to only having standard financial reports which has been proven not to possess sufficient information for effective decision-making.

 5.2 Developing Management reporting Capabilities of the entity;

A consultant would assess the reporting requirements of an entity and compile a list of critical reports that should be generated, then design a data capturing and storage framework and build its information processing capabilities in the following ways.

i)       Developing a profile list of reports that would provide sufficient information to ensure quality decision-making.

ii)            Developing report format that will present information in the report document in a clear and easily understandable form to users who are NON-Accountant.

iii)     Design an input screen for data capturing/entry and methods of information processing that will ensure the most timely, accurate and a less bureaucratic process that flows with the normal working or preferred method of accomplishing tasks in the entity.

6.0 IMPORTANCE FOR MANAGEMENT ACCOUNTING BUSINESS REPORTS:

Studies show that majority of medium–large Uganda businesses only grow by twice their size in 30 years if at all they grow as opposed to similar firms in Ghana that grow by four times in 10 years. The rapid pace at which the business environment is changing means the future of any business is dependent on possession of quality business reports.