Modern management accounting techniques

Written by stephen byron cooper | 13/05/2017
Modern management accounting techniques
Triple bottom line reporting accounts for the environmental impact of business decisions. (Jupiterimages/BananaStock/Getty Images)

The field of management accounting has to adapt to new management strategies and production methods. These changes give rise to new management accounting techniques that facilitate the oversight of these new methods. Activity-based management, strategic management accounting and the balanced scorecard are three methods that arose out of innovation in resources and change management. Triple bottom line reporting is a socially-aware method of guiding a company and requires innovative management accounting practices.

Activity-based management

Activity-based management is also known as activity-based costing or activity-based cost management. Of the three abbreviations for these terms -- ABM, ABC and ABCM -- ABC is more frequently used and often applies to all three terms. This methodology for management accounting originated with the management of computerised manufacture. The main point of the system is allocating a value to items and processes in the system. These costs are then included in management accounting calculations in the normal way. This does not create new methods of examining the financial performance of a company, but it uses a different method of valuing the inputs to those calculations. Costs for the same products are usually distributed evenly across all output. However, ABC costing reasons that some markets are more expensive to reach and so the costs of marketing would be applied more heavily to some units than to others.

Strategic management accounting

Strategic management accounting attempts to support the decision making processes of company management by examining and analysing the company’s costs in comparison with the costs employed by competitors and comparable businesses. The purpose of creating analytical formulas and tools with this method is to assess the possibility of reducing costs further. It seeks to use the experience of competitors to drive efficiency gains.

Balanced scorecard

The balanced scorecard is also part of strategic management accounting. It monitors the cost performance of implementations that arise out of the strategic management analysis of costs. It looks at four factors: internal business processes, customers, financial and learning and growth. The four categories are arranged in a graphical representation, each contained in a box lying at the four points of the compass around a central statement of the strategy being examined. The north and south points should attain equal weight. These are the financial aspects of the project at the top of the chart and the learning and growth needs at the bottom. The east and west points are customers and internal processes. These also should achieve equal performance improvements to provide a balance on the scorecard.

Triple bottom line

Triple bottom line reporting is similar to the balanced scorecard because it forces a business to focus on other consequences than just financial when making decisions about processes and expansion. The system attempts to put environmental and social impact of the company on an equal footing with its financial performance. The financial statements of the company are supplemented. The three factors of the triple bottom line are represented by three Ps: profit, which is the traditional balance sheet and profit and loss; people, which accounts for impact on employees and the local community; and planet, which quantifies the environmental influence of the company’s activities. The requirement to report these factors at year-end generates methods to monitor these factors and take them into account when managing the company or introducing change.

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