The end of management accounting as we know it
At the core of management accounting is the presentation of decision making information. This information is presented in many forms: business cases, costing models, budgets, forecasts, management and statutory reports. Traditionally, the decision making information prepared by a finance function has focused on accounting structures underpinned by both the chart of accounts and the processes by which we define periods, otherwise known as the month end process.
However the combination of accelerating advancements in information technology and the developments in performance management techniques has begun the process of throwing out management accounting as we know it.
And here are three reasons why:
1. Modelling and KPIs
Strategic development and business modelling techniques have been refined to an artform. Better yet, the process for navigating to business goals via KPI mapping and target setting has never been more straight-forward. To deliver strategy, the reporting focus is clearly on value driving activity and less on outcome measures (financial reports) which cascade from the successful execution of value driving activity.
2. Advancements in applications
The advancements in database design, flexibility and functionality, combined with web integration, cloud applications and the simplification of user interface design means the accountant no longer needs to learn how to ‘code’ to develop or mould software solutions. Software now has the flexibility to be shaped to your business processes. KPI reporting in Excel flat-file format that is shared via Windows Explorer folders is akin to using a sexton to navigate a Boeing 787 or Airbus A350.
3. Focus on infrastructure
The focus is on the mapping of data flows and the integration of forms via web and mobile devices to driver-based Enterprise Performance Management (EPM) reporting software. The EPM translates the business strategy to business targets which are then assigned to key staff via KPIs. The EPM becomes more than just a tool for navigating business strategy but also underpins the staff reward and recognition process.
While the chart of accounts will remain a necessary evil for the purpose of statutory reporting, it will being to play a lessor role in strategic management reporting.
Management accounting as we know it is changing irreversibly from report preparation for decision making to report automation for workforce optimisation.
You can read more about Professional Advantage and corporate performance management here.
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