The Value of Providing More Accurate Costing- Part 1

This is the first blog of three on how management accountants can become more strategic advisers based on the article, Don’t Be Stuck in the Last Century, from Strategic Finance Magazine.

The main goal of management accounting is to understand the past, present and future of the business in order to help make strategic decisions.  How can they understand their organization at such a granular level needed to make truly strategic decisions with outdated practices? A recent article in Strategic Finance magazine, Don’t Be Stuck in the Last Century, examines six areas of management accounting practices that concern business professionals, as well as ways to resolve these concerns. We’ll cover the first two areas in this post.

It is 2016 and many companies are still using accounting techniques that were used decades ago.

This image shows three different finance managers, all with different experience and different issues they are dealing within their particular organizations. The manager on the left is the most experienced and struggles with visibility of his company’s profitability. He needs real-time accurate profitability numbers so he can make more strategic decisions and make his organization more profitable. The middle manager wants more detailed allocations and company data so he knows if he is pulling his weight. The manager on the right does not like their accounting formats because she can’t manage them. She struggles to see the COGS and the value chain in the numbers and doesn’t understand the cost allocations. We want to explore how these managers can go about solving these issues so they can make the most strategic decisions for their companies.

Source: Don’t Be Stuck in the Last Century

Do Management Accountants Know What Their Internal Clients Want?

It is important that CFO’s understand the decision making needs of each department they serve because not all departments are the same. With the increasing use of technology and the internet, competitors are making faster business moves. Businesses need to realize how important it is to keep up with the changes in finance and technology to get to the forefront of the competition. Some of these changes include the timing of information and the level of detail and accuracy in their information. These are critical factors when it comes to strategic decision making.

The central issue is that CFO’s and other business leaders in the same organization see how to business should run differently. Some of these differences include the timing of decisions and how these decisions are made. Management accountants should learn how the business works and have open communication with all levels of the business so they are on the same page. Once the accountants and all internal parties know what to expect from each other, there can be an open line of communication which will aid in the strategizing for the company.

Do Management Accountants Care About Giving The Right Information to Internal Clients?

Now that we know that an open line of communication is necessary in order to know what each level of the business expects from one another, we need to make sure the right information is getting to the right people at the right time.

In some companies, CFO’s know that their management accounting data that is used internally for decision making is severely flawed, yet they do not do anything about it. Management accounting data is only useful if the data helps finance leaders make good decisions. If the data is flawed, it makes it much more difficult to make those strategic decisions.  Every department has different data needs and it is important that management accountants recognize this and share correct data with the appropriate department so the business can make the best decisions.

These were the first two of the six areas of management accounting practices that concern business professionals. Stay tuned for part two in this blog series!

At 3C Software, we strive to help our customers be as strategic with their finances as possible. One of our main goals is to keep our customers up to date with the best of breed technology by using our enterprise modeling tool.

To learn more about how 3C Software can help your company make more strategic business decisions, Start Here!

To continue reading to Part 2 of this blog, Click Here!