Management

Accounting and the

Business
Environment

By: Ryan C. Rosel

 Expanding Role of
Management Accounting

o The Business Environment in recent years has been

characterized by increasing competition and relentless
drive for continuous improvement.
o Adapting management accounting system to better meet
management’s needs for information is crucial to an
organization’s survival when competing in global markets
 Expanding Role of
Management Accounting
o These changes include:
 An increase in global competition
 Advances in manufacturing technologies
 Advances in information technologies, the internet
and e-commerce
 A greater focus on costumer
 New forms of management organization
 Changes in the social, political and cultural
environment of business.
Contemporary Management
Techniques
 Just-in-Time  Theory of Constraints
 Total Quality  Life Cycle Costing
Management  Target Costing
 Process Re-Engineering  Computer-aided Design
 Benchmarking and Manufacturing
 Mass Customization  Automation
 Balanced Scorecard  E-commerce
 Activity-based Costing  The Value Chain
and Management
 Just-In-Time (JIT) or Toyota
Production System (TPS)
The four characteristics of JIT are:
1. Elimination of all activities that do not add to value
to the product or service.
2. Commitment to a high level of quality.
3. Commitment to continuous improvement in the
efficiency of an activity.
4. Emphasis on simplifications and increased visibility
to identify activities that do not add value.


 Just-In-Time (JIT) or Toyota
Production System (TPS)
The main benefits of JIT are:
• Working capital position- improved by recovery of
funds that were tied up in the inventories
• Throughput time is reduced resulting in greater
potential production and quicker response to
customers
• Areas previously used to store inventories are
released and are made available for other more
productive uses.
• Lesser waste and move customer satisfaction are
achieved because of reduction in deficit rates.
 Total Quality Management
• The focus is to ensure that their products are of
the highest quality and that production processes
are efficient.
• It is a technique in which management develops
policies and practices to ensure that the firm’s
products and services exceed customer expectation
• It affects product costing by reducing the need to
track the cost of scrap and re work related to each
job.
• It is a formal effort to improve quality throughout
an organization’s value chain.
 Total Quality Management

The two major characteristics of TQM are:

• A focus on serving costumers

• Systematic problem-solving using teams made up
of frontline workers
 Process Reengineering
• Is a process for creating competitive advantage in
which a firm reorganizes its operating and
management functions, often with the result that
jobs are modified, combined, or eliminated.

• It has been defined as the “fundamental and radical

redesign of business of business process to
achieve dramatic improvements in critical,
contemporary measure of performance, such as
cost , quality , service, and speed”.
 Process Reengineering
• It is an approach where a business process is
diagrammed in detail, questioned and then
completely redesigned in order to eliminate
unnecessary steps, to reduce opportunities for
errors and reduce costs.

• The main objective of this approach is the

simplification and elimination of wasted effort
and the central idea is that all activities that do not
add value to product of service should be
eliminated, in its most simplified version
 Process Reengineering
Steps used in process reengineering are:
• A business process is diagrammed in detail.
• Every step in the business process must be analyzed
and justified.
• The process is redesigned to include only those steps
that make the product or service more valuable.

This process can yield the following anticipated

results:
1. Process is simplified
2. Process is completed in less time
3. Cost are reduced, and
4. Opportunities for errors are reduced
 Benchmarking
Benchmarking is a process by which a firm….
• Determines its critical success factors
• Studies the best practices of other firms (or other
units within a firm) for achieving these critical
success factors, and
• Then implements improvements in the firm’s
processes to match or beat the performance of
those competitors.
 Mass Customization
• Is a management technique in which marketing
and production processes are designed to handle
the increased variety that results from delivering
customized products and services to customers.
• The growth of mass customization is in effect
another indication of the increased attention
given to satisfying the customers.
 Balanced Scorecard
It is an accounting report that includes the firm’s
critical success factors in four areas:
• Financial performance
• Customer satisfaction
• Internal business process and
• Innovating and learning

The concept of Balanced Caption the intent of broad

coverage, financial and nonfinancial of all the
factors that contribute to the success of the firm
achieving its strategic goals.
 Balanced Scorecard
It is a strategic planning and management system that
organizations use to:

1. Communicate what they are try to accomplish

2. Align the day to day work that everyone is doing
with strategy
3. Prioritize projects, products and services
4. Measure and monitor progress towards strategic
targets
 Activity–based Costing and
Management
It helps to improve planning, product costing,
operational control and management control by using
activity analysis to develop a detailed description of
the specific activities performed in the operation of the
firm.

Activity-Based Costing (ABC) - is a costing method

that identifies activities in an organization and assigns
the cost of each activity to all products and services
according to the actual consumption by each
 Activity–based Costing and
Management
Activity Based- Management (ABM) - Is a method of
identifying and evaluating activities that a business
performs, using activity-based costing to carry out a
value chain analysis or a re-engineering initiative to
improve strategic and operational decisions in an
organization.
 Theory of Constraints (TOC)
• is a sequential process of identifying and removing
constraints in a system.
• It emphasizes the importance if managing the
organization’s constraints of barriers that hinder or
impede progress toward an objectives.
 Theory of Constraints (TOC)
The basic sequential steps followed in applying TOC are:
1. Analyze all the factors of production (materials,
labors, facilities, methods, etc.) required in the
production chain.
2. Identify the weakest link, which is the constraint.
3. Focus improvement efforts on strengthening the
weakest link.
4. If the improvement efforts are successful, eventually
the weakest link will improve to the point where it is
no longer the weakest link.
5. At this point, a new weakest link (new constraint)
must be identified and improvement efforts must be
shifted over that link.
 Life Cycle Costing
- is a management technique to identify and monitor
the costs of a product throughout its lifecycle. It
consists of all steps from product design and purchase
of raw material to delivery of and service of the finish
products.
The steps include:
1. Research and development
2. Product design, including prototyping, target
costing and testing
3. Manufacturing, inspecting, packaging and
warehousing.
4. Marketing, Promotion and Distribution
5. Sales and service
Target Costing
• involves the determination of the desired cost for
a product or the basis of a given competitive
price so that the product will earn a desired profit.
The basic relationship that is observed in this
approach is.

MARKET DETERMINED PRICE

-DESIRED PROFIT
TARGET COST
Target Costing
• The entity using target costing must often adopt
strict cost-reduction measure to meet the
market price and remain profitable. This is a
common strategic approach used by intensely
competitive industries where even small price
differences attract consumers to the lower-priced
products.
 Computer-Aided Designed and
Manufacturing
Computer Aided Design (CAD)
• is the use of computers in product development,
analysis and designed modification to improve the
quality and performance of the product.

Computer Aided Management (CAM)

• is the use of computers to plan, implement, and
control production.
Automation
• It involves and requires a relatively large
investment in computers, computer programming,
machines, and equipment.

Two (2) Integration Approaches:

 Flexible Manufacturing System (FMS)
- is a computerized network of automated equipment
that produces one or more groups of parts or
variations of a product in a flexible manner. It uses
robots and computer- controlled materials-handling
systems to link several stand-alone, computer
controlled machines in switching from one
production run to another.
Automation
• It involves and requires a relatively large
investment in computers, computer programming,
machines, and equipment.

Two (2) Integration Approaches:

 Computer Integrated Manufacturing (CIM)
- is a manufacturing system the totally integrates all
office and factory functions within a company via a
computer-based information network to allow hour-
by-hour manufacturing management.
e-Commerce
• This E-Commerce Business model adopting by
Amazon.com and Ebay has also attracted many
investors to pursue the use of Internet in
conducting business. Established companies will
undoubtedly continue to expand into cyberspace-
both for business-to-business transactions and for
retailing..
The Value Chain
• It is an analysis tools that firm use to identify the
specific steps required to provide a product or
service to the costumer. The key idea of this
concept is that the firm studies each steps in its
operation to determine how each activity
contributes to the firm’s competitiveness and
profits.
The Value Chain
Analyzing the firm’s value chain helps management
discover:
• Which steps or activities are not competitive?
• Where costs can be reduced, or
• Which activity should be outsourced, and
• How to increase value for the customer at one or
more of the of the steps of the value chain.
 Current Focus on
Management Accounting
IMPACT ON ORGANIZATION STRUCTURE

The design of a management accounting system should be

guided by the challenges facing managers. There are at
least four (4) themes common to many companies, namely:
1) customer focus theme,
2) value-chain and supply chain analysis
3) key success factors (i.e., cost and efficiency, quality,
time and innovation), and
4) continuous improvement and benchmarking.
 Current Focus on
Management Accounting
FOCUS ON THE CUSTOMER

• The value of a product or service to the customer is

affected by such diverse attributes as products price,
quality, functionality, user-friendliness, customer service,
warranty and maintenance costs.
• By managing the activities that will increase customer
value, the firms can establish a competitive advantage by
creating a better customer value for the same or lower
cost than that of competitors.
 Current Focus on
Management Accounting
VALUE CHAIN AND SUPPLY CHAIN ANALYSIS

Value chain refers to the sequence of business functions in

which usefulness is added to the products or services of a
company. The term value refers to the increase in
usefulness of the product or service and as a result its
value to the customer
 Current Focus on
Management Accounting
VALUE CHAIN AND SUPPLY CHAIN ANALYSIS
 Current Focus on
Management Accounting
KEY SUCCESS FACTORS
 Cross-Functional Teams
 Computer-Integrated Manufacturing
 Product Life Cycles and Diversity
 Time-based Competition
 Global Competition
 Information and Communication Technology
Management
 Cost Management System
 Current Focus on
Management Accounting
CONTINUOUS IMPROVEMENT AND COMPETITIVE
STRATEGY
• To stay competitive, companies must concentrate on
continuously improving the different aspects of their own
operations.
Continuous Improvement is the constant effort to
eliminate waste, reduce response time, simplify the design
of both products and services, and improve quality and
customer service
Competitive Strategy involves determination and
implementation of a set of policies, procedures and
approaches to business that produces long-term success.
Referenc
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