Financial Decision Making 1 Introduction to management accounting Introduction to management accounting

Financial Decision Making 1 Introduction to management accounting What is management accounting? Providing information to managers Aim to support decision making Financial and non-financial information Reading: Drury chapter 1

Financial Decision Making 1 Introduction to management accounting What is information? Questions: Is there a difference between data and information? What makes information useful (or not)?

Financial Decision Making 1 Introduction to management accounting Data and information Data –Facts which have been recorded but not converted into a form suitable for use Information –Data which has been processed in such a way that it is meaningful and useful to the recipient

Financial Decision Making 1 Introduction to management accounting Characteristics of good information Accurate Complete Cost-effective Understandable Relevant Accessible Timely Easy to use

Financial Decision Making 1 Introduction to management accounting Information for management decisions Questions: What do managers need information for? What decisions do they need to make? What kind of information do they need?

Financial Decision Making 1 Introduction to management accounting The main functions of management Planning –The first part of the decision-making process Decision making Control –The final part of the decision making process

Financial Decision Making 1 Introduction to management accounting Different levels of planning and decision making Strategic –Long–term objectives and plans Tactical –Short-term objectives and plans Operational –Day-to-day

Financial Decision Making 1 Introduction to management accounting Decisions to be made Long-term –Build a new factory –Expand into new markets Short-term –Should we increase the size of our workforce to improve sales? –Should we make this product on-site or buy it in?

Financial Decision Making 1 Introduction to management accounting What information do managers need? Key issue – what are the objectives of the business Historic information Forecasts Performance reports Analyses of different options Financial and non-financial information

Financial Decision Making 1 Introduction to management accounting Management accounting Provision of information for use within the business Uses historic information but also looks forward Format and content determined by the needs of the business – not legal requirements Aims to aid planning, decision making and performance management Differs in a number of ways from financial accounting

Financial Decision Making 1 Introduction to management accounting Development of management accounting Origins in the industrial revolution (19 th century) Largely about accounting for product costs Little development until 1980s Challenges to traditional approach such as: –Changes in technology –Development of service sector –Criticism of narrow focus 1980s onwards: new management accounting approaches Development of ‘strategic management accounting’ Recent years - emphasis on creating value through better use of resources