Importance of Management Accounting in decision making

“Whenever you see a successful business, someone once made a courageous decision”- Peter Drucker. Have you ever thought why Management Accounting is considered as such a crucial part of businesses? The answer is the “Power of decision making”. It is the single biggest factor that makes management accounting an indispensable element. This is not to say that decision making is something new to businesses, it has been there since time immemorial. However, its nature and dynamics have changed.

Let us understand as to why decision making skills are so important for organisations today and how Management accounting is suited for acquiring and implementing those skills.

4 factors that have propelled the importance of strategic decision making in recent times:

• Data deluge: As per IBM, every day, we create more than 2.5 quintillion bytes of data. This quantum of data available through information technology has transformed the way organisations function. It has become imperative to utilize analytics and predictive techniques to study the trends. This calls for data-driven judgement apart from the usual accounting knowledge.

• Globalization: Globalization has led organizations to adopt internationally best practices of accountancy and business management across countries. There is also growing demand for more detailed information and transparency. Thus, companies need professionals, who apart from evaluating business activities can also provide detailed reports about the decision making process.

• Internal changes: Corporate landscape is a perpetually dynamic one. Mergers & acquisitions, restructuring, decentralization/ centralization, hierarchical change or downsizing have increased in recent times. According to think tank, KPMG, global M&A activities are expected to rise 17% annually in 2017. All these changes have huge impact on businesses. With so many changes on a global level, organizations must have prudent decision makers to balance its opportunities and risks.

• External changes: Changes that happen outside the company but have an impact on its operations can be termed as external changes. BREXIT in the UK, Election of the new US President, change in US immigration laws as well as demonetisation and GST in India have been major game changers. No business is immune to these and the onus of smooth functioning under these circumstances solely lies with the strategic decision makers of the company. They are the ones who would guide the management on the future course of action.

How management accounting is best suited for decision making?

The scope of management accounting is beyond the numbers or the charts. Their functions are more aligned towards formulation of strategies, which involves:

• Identifying key performance metrics for all the departments.
• Collecting the data and Comparing and reporting the current performance as compared to the expectations.
• Using various advanced tools and techniques such as Key Performance Indicators (KPI), Balanced Scorecard, Scenario Planning, Management Information System (MIS) etc.
• Analyzing the reasons for deviations and suggesting corrective measures.

Management Accountants use variety to tools and plans to aid in strategic decision making. They focus on major deliverables such as revenue growth, productivity growth and efficient asset utilisation. This further trickles down to other internal as well as external aspects such as Customer Management, Internal Operations, Public relations as well as Human resource management.

How to acquire Management Accounting skills?

While we have a number of institutions that provide specializations in one or two of the above aspects, there is a lack of institutions combining all the aspects. For instance a Chartered Accountant course does not cover much about the overall management process, while an MBA program is deficient in the accounting aspect.

However, Chartered Institute of Management Accountant (CIMA) professional qualification is a course which covers all the above aspects. The curriculum prepares students at three levels- Operational, Strategic and Management. The CIMA member is not only adept in the accounting aspects, but also financial strategy formulation, risk management as well as strategic relationship management. With all these skills in the pool, management accountants don’t just form a top rung of professionals, but they are truly the global growth partners.