Significance of Management Accounting
Management accounting (MA) is a method for gathering and data storage so that, when the data is retrieved and the information has been generated, the management accounting system may be used (Drury 2018). There have been some existing researches on the management accounting and its impact on various perspectives of businesses. Cleary (2015) carried out one such research on management accounting where he investigated its impact on business performance and structural capital. He found a favourable relationship between the business performance and MA systems and MA is not an element of capital structure of the firm. However, no such research emphasized on the effect of this concept on both decision-making process of the organisations located in the United Kingdom and their business performance. This proposed study will be generally focusing on this mentioned aspect so as to cover the research gap observed in the existing researches. The effect of this management on each of the mentioned factor will be determined and then critically analysed.
The key aim of this proposed research is to critically investigate the overall impact of the management accounting on the organisational decision-making process and business performance of the business operating in the United Kingdom.
- To understand the concept of management accounting and its major uses in real world scenario
- To understand whether management accounting affects business performance
- To determine and examine the ways in which management accounting affects business performance in UK if it influences business performance in recent times
- To understand whether management accounting affects organisational decision-making
- To determine and analyse the ways in which management accounting affects the organisational decision-making in the UK if it influences such decision-making in recent times
The questions which this research will be examining are stated below:
- Explain the concept of management accounting and its utilisation in real world scenario?
- Do management accounting affects business performance? If yes, how management accounting influences business performance of the organisations in the United Kingdom currently?
- Do management affects the organisational decision-making process? If yes, how management accounting impacts the organisational decision-making process of organisations in the United Kingdom currently?
The significance of management accounting in business performance and organisational decision-making has become an issue in recent times as recently there have been many developments in the businesses across the globe which is raising a question on importance of this concept in business performance and organisational decision making in recent times. This means that whether there is a change in the way management accounting used to affect these two perspectives of business in recent times especially after the outbreak of Covid-19 pandemic. It is observed that after the outbreak of this pandemic all across the globe, there were several changes in different concepts as overall perspective of the business has changed. It is quite essential to analyse this issue as there is no current research on this topic which is specifically focusing the businesses operating in the UK and covering both these perspectives in a single research paper.
Management accounting can be regarded as the procedure of developing the reports regarding the business operations which enables the manager to make long run and short run decision-making (Tappura et al. 2015). It enables to pursue its goals or targets by recognising, measuring, evaluating, interpreting and interacting the information to the managers (Van der Stede 2015). Management accounting is different from financial accounting. Management accounting is majorly concerned with giving the information to the managers that is people who are inside the firm and guides and controls the overall operation of the firm (Shields 2015). In a contrary, financial accounting is mainly concerned with giving the essential financial information to the creditors, stockholders and such other external stakeholders of the firm. It is observed that management accounting information must adhere to several number of the characteristics incorporates relevance, understandability, comparatively, verifiability, comparatively, timeless and reliability in case it is to quite beneficial in decision-making, control and planning.
Characteristics of Management Accounting
Controlling: The real performance of each business activity is generally measured and then compared with the planned or standard fixed one (Bromwich and Scapens 2016). In case the deviations are observed which are controllable, management can make decision with regards to the course of the actions in order to exercise the control. Moreover, both the budgetary control system and standard costing are observed to be significantly helpful to the top manager in this aspect.
Planning: The management can develop the required plan and implement the same for the efficient and effective operation of the business (Sunarni 2015). With this regards, several functional budgets are developed and then the accounting information are being rearranged in the section wise, product wise, department wise for adequate planning.
Organising: The scope of responsibility and authority of the major executives are adequately defined as well as explained under the management accounting framework (Massicotte and Henri 2021). It enables appropriate organising work in the organisation.
Coordination: It is procedure of incorporating several work which is generally performed in the firm in order to attain the objectives in an efficient and effective manner. Therefore, perfect coordination is essential for among sales, finance, production, finance, and purchase departments. This generally attained via developing reports and budgets of the performance.
Upgrading efficiency: The management accounting framework might remove several kinds of defectives, production, wastage, and such other work thereby improving the overall efficiency of the workers.
Moreover, management accounting relies on various kinds of techniques so as to attain all its goals. The major techniques of management accounting are stated below:
- Constraint analysis: The analysis of production lines of the business recognises the principle bottlenecks, inefficiencies developed by such bottlenecks and their influence on the ability of the firm in order to generate the profits and revenues.
- Trend analysis and forecasting: Forecasting and trend analysis are fundamentally concerned with recognition of the trends and patterns of the product costs and with identification of unusual variances from predicted values or figures and reason for these variances.
- Capital budgeting: Capital budgeting is generally concerned with the evaluation of the information needed to make essential decision with regards to the capital expenditures. In the evaluation of capital budgeting, the managerial accountants calculate NPV (net present value) and IRR (internal rate of return)
- Margin analysis: Marginal analysis is fundamentally concerned with incremental advantages of optimising the production. This analysis is among the most essential and primary techniques in the management accounting. It incorporates calculation of breakeven point
- Product costing and Inventory valuation: Inventory valuation includes the recognition and evaluation of real costs related to inventory and product of the firm. The procedure typically indicates allocation and evaluation of overhead charges and the evaluation of direct costs with regards to the COGS (Cost of goods sold).
An organization’s goals and management accounting are inextricably linked. The approach and style of language are used to perform the functions of strategic planning and management in companies. As one of the controller-based symbols, the method of making decision approaches influence the design and execution of the system. The researchers discovered that management accounting systems helped organisations make better decisions by providing, interpreting, and analysing data, improving communication, conducting appropriate cost analysis, and creating budgets and projections. Technological development, the strategy of the organization, organisational characteristics, and the severity of market rivalry are all impacted by management accounting methods. Management accounting helps the business improve performance by providing them with effective planning such as the functional budget and others (Adu-Gyamfi, and Chipwere 2020). Every company activity’s real productivity is assessed and compared to the benchmark fixed or intended performance that ensure better control. The standard costing and the budgetary control helps the business in this regard. This accounting method ensures that management provides better quality services to clients. It increases the performance of the business and helps to develop the level of customer’s satisfaction as well. With help of a management accounting system, the extent of power and duty of top management is clearly defined and stated. Therefore, everyone is clear about who is responsible for what and ensure better coordination. With the development of effective reports of performance and budget, perfect coordination can be achieved. It increases the efficiency of a business eliminating wastage, defective production. Management accounting system also motivates and maintain a high degree of morale among employees that helps to improve the business performance as well (Amara, and Benelifa 2017).
Techniques of Management Accounting
The researchers sought to discover how management accounting approaches affect the decision-making process in the study. Research has shown a relationship between management accounting and decision-making. Management accounting approaches can benefit from the use of current technology to assist organizational decision making (Ratnatunge 2015). According to Ratnatunge (2015), intra-organizational duties that technological improvements have improved can be used to select the best management techniques for each department. Ratnatunge (2015) provided examples of how information technology has changed management accounting systems and practices. According to Nian and Nair (2017) small and medium-sized enterprises are less affected by advanced manufacturing technology. According to Nian and Nair (2017), larger enterprises benefit from more advanced production equipment. It has been suggested by Nian and Nair (2017) in their research that the manufacturing process’s technology constraints may hinder the development of new management accounting practices that enhance an organization’s decision-making capabilities. Nian and Nair (2017) stated that modern management accounting methods, such as budgeting and reporting, are made possible by improving information technology.
As mentioned by Nian and Nair (2017), management accounting approaches can help managers better comprehend their options for taking action. According to Ratnatunge (2015), comparable data using management accounting approaches facilitates and improves decision making. They said that management accounting tools assist managers in developing systems that limit data accumulation and implement best practices that steer information to give fact-based information for informed decision making argued that management accounting methods in an organization are important instruments for decision-making purposes by analysing performance and demonstrating the repercussions of choosing one plan over another. As mentioned by Ratnatunge (2015), management accounting approaches can help managers better comprehend their options for taking action. According to Nian and Nair (2017), comparable data using management accounting approaches facilitates and improves decision making. According to them, management accounting tools assist managers establish systems that limit data gathering and implement best practises that guide information to deliver fact-based information for informed decisions.
Research design of this research will be developed on the basis of research onion. Research Onion has been build up to explain the various stages via which the researcher should pass while building up the effective and efficient methodology. The research onion has 6 major areas namely research strategy, research philosophy, research choices, research approach, procedures and techniques, and time horizons.
Research philosophy is generally regarded to examine and build up the overall research study in detail. Research philosophy can be defined as the set of the beliefs which is concerned with the nature of the reality being examined. There are generally 3 forms of research philosophy namely interpretivism, positivism and realism. Positivism research philosophy enables the researcher to build up the detail examination of a specific study. On the other hand, interpretivism is generally concerned with the research on the basis of the management functions and activities. Moreover, mixed research philosophy is regarded as the mixed research philosophy which has blend of other two kinds of research philosophies. Positivism research philosophy is the research philosophy which will be utilised for this proposed research study so as to analyse the issue in a critical and logical manner. It is quite important to understand that the positivism research philosophy is typically derived from the sensory experiences and the examination is on the basis of the facts. The other 2 types of research philosophies will not be utilised as such philosophies generally depends on every person and that perception could vary from one individual to the other.
Impact of Management Accounting on Business Performance
Research approach is generally regarded as the approach which the researcher takes while conducting research on a particular topic. There are generally two kinds of research approach which are available to the researcher namely inductive and deductive research approach. Inductive research approach incorporates the search for the patterns from the observations and building up of the explanations and it is generally related to the qualitative research. Deductive research approach generally focuses on testing the existing theory related to the research topic. Deductive research approach is generally related to the quantitative research. Deductive research approach will be utilised for this research study as it would enable the research to read the existing theories in relation to the research topic and then test the research topic which emerge with those theories and this is not possible with the help of inductive approach.
Research strategy: Research strategy can be regarded as the step-by-step plan of the action which provides direction to the overall thought procedure of the researcher. It is generally the layer of the research onion which defines the ways in which the researcher intends to conduct the work that is what data gathering method will be utilised. Qualitative, quantitative, and mixed research strategy are generally 3 kinds of research strategy which is utilised by the researcher. Quantitative research strategies focuses on statistical, and objective measurements, numerical or mathematical examination of the data gathered via the surveys, questionnaires, polls or by manipulating the pre-existing statistical information or data using the computational tools. Qualitative research strategy includes gathering and examination the non-numeric information or data in order to determine the experiences, opinions, or concepts. Mixed research strategy is considered as the blend of other both kinds of research strategies that is both kind of research strategies is utilised in this research strategy. Quantitative research strategy will be utilised for this research as it would enable the researcher in obtaining statistical or numerical examination of the data which gathered through selected data collection technique. Qualitative data will not be utilised as this depends on the experience of the researcher and thus can lead to misleading or bias conclusions.
Time horizons: Time horizon is regarded as the timeline within which this proposed research is intended for the completion. As per the research onion, there are generally 2 kinds of the time horizon namely longitudinal and cross-sectional time horizon. Longitudinal time horizon is regarded as the collection of the data on a continuous basis over the extended time period. Cross-sectional time horizon is the time horizon when the pre-determined time which is developed for gathering the data. Cross-sectional time horizon will be utilised in this study since it will enable the researcher to carry out the research in an effective, systematic and timely manner which is not possible in case of the longitudinal time horizon.
This research will rely on gathering the required data from both secondary as well as primary data sources. This will enable to develop a research with more in-depth perspective and evidences which would ultimately enhance its reliability. Primary data will be gathered by means of certain sources namely interviews and surveys and the required secondary source will incorporate the data which are present in government publications, annual reports, company websites and other reliable journals. Moreover, both probability and non-probability sampling technique will be utilised and 20 employees from accounts and finance department from each selected organisation will be participating in survey and 5 top managers from each organisation will be asked to represent their viewpoint on the topic. 10 top organisations operating in the UK are selected for this research. The data collected from survey will be converted into numeric, graphs and percentages using MS Excel. The information gathered from interview will be written while considering different themes which are directly connected to research topic.
Impact of Management Accounting on Decision-making Process
It is observed that all the researchers are required to follow certain strict ethical norms while conducting any research. This research will also be build up by following all these strict guidelines. For gathering primary data, no respondents who are participating in the survey will not be forced to take participation and each participant has to acknowledge the concern form before participating in this survey. Moreover, proper appointment with the top managers will be taken for the interview purpose and a permission letter from the university will be represented if required. In addition to that, proper referencing will be done in case of secondary research in order to prevent any problems with regards to plagiarism.
There are certain limitation of every research irrespective of the fact that the researcher has planned it systematically and appropriately (Simonsohn et al. 2017). This research also has certain limitations. First limitation is the timeline of the study which is a major limitation of any research. Moreover, availability and accessibility of all the required resources also a major question. It might happen that some of the essential resources are inaccessible or unavailable. In addition to that, it might happen that appointment with all managers of selected organisations are not gained.
The time plan which has been proposed for this research is demonstrated via the table given below:
Gantt chart
(Sourced by the author)
It is expected that all the developed research questions on the basis of research objectives are investigated in an appropriate and adequate manner and proper conclusion is being drawn on the basis of this investigation. Thus, firstly it is expected that all the research questions are being resolved. Secondly, it is expected that it will be known that whether management accounting affects the business performance and organisational decision-making process in the businesses operating in the United Kingdom. Moreover, the ways in which this management accounting affects the overall organisational performance and decision-making will also be determined.
References:
Adu-Gyamfi, J. and Chipwere, K.Y.W., 2020. The Impact of Management Accounting Practices on the Performance of Manufacturing Firms: An Empirical Evidence from Ghana. Research Journal of Finance and Accounting, 11(20), pp.100-113.
Adu-Gyamfi, J. and Chipwere, K.Y.W., 2020. The Impact of Management Accounting Practices on the Performance of Manufacturing Firms: An Empirical Evidence from Ghana. Research Journal of Finance and Accounting, 11(20), pp.100-113. (Adu-Gyamfi and Chipwere 2020)
Amara, T. and Benelifa, S., 2017. The impact of external and internal factors on the management accounting practices. International Journal of Finance and Accounting, 6(2), pp.46-58.
Bromwich, M. and Scapens, R.W., 2016. Management accounting research: 25 years on. Management Accounting Research, 31, pp.1-9.
Cleary, P., 2015. An empirical investigation of the impact of management accounting on structural capital and business performance. Journal of Intellectual Capital.
Drury, C., 2018. Cost and management accounting. Cengage Learning.
Massicotte, S. and Henri, J.F., 2021. The use of management accounting information by boards of directors to oversee strategy implementation. The British Accounting Review, 53(3), p.100953.
Nian, Y., and Nair, S. (2017). Factors affecting management accounting practices in Malaysia. International Journal of Business and Management, 12(10), 177-179.
Ratnatunga, J. (2015). The impact of new technologies on the management accountant. Journal of Management Accounting Research, 13(1), 1-10.
Shields, M.D., 2015. Established management accounting knowledge. Journal of Management Accounting Research, 27(1), pp.123-132.
Simonsohn, U., Nelson, L. and Simmons, J., 2017. Research Methodology, Design, and Analysis. Annual Review of Psychology, 69(1).
Sunarni, C.W., 2015. Management accounting practices at hospitality business in Yogyakarta, Indonesia. Review of Integrative Business and Economics Research, 4(1), p.380.
Tappura, S., Sievänen, M., Heikkilä, J., Jussila, A. and Nenonen, N., 2015. A management accounting perspective on safety. Safety science, 71, pp.151-159.
Van der Stede, W.A., 2015. Management accounting: Where from, where now, where to?. Journal of Management Accounting Research, 27(1), pp.171-176.
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