Instructor: (2000 words)IntroductionStrategic management accounting is an analysis of factors that affect an organization financially and making decisions based on that analysis. A company works in an environment consisting of both internal and external factors. Strategic management involves the provision and analysis of management accounting data about a business and its competitors for use in developing and monitoring of business strategy. It is driven by market forces, competition and a desire of the company to achieve its objectives. Strategic management accounting as opposed to traditional management accounting placed reliance on the relative cost position of the entity, ways in which an entity can secure a cost advantage in a situation and the cost of making their products different from their competitors.
In other words, it is a form of financial accounting which uses accounting information in order to come up with strategies. In this question, I am going to deal with the issues of strategic management accounting touching on the processes involved and the cost of those processes. Finally I will tackle the advantages and the shortcomings of undertaking strategic management accounting practices by the management.
The aim of this paper is to determine the processes involved in strategic management accounting and whether those processes are worth undergoing both in the long run and the short run. Analysis. The first step involved in strategic management accounting is the strategy formulation. This is step involves various other steps including the definition of the financial goals and objectives of an organization. The financial goals of an organization are the long term aims the organization wants to achieve while the objectives are the short term goals of an organization and usually annual. The next step in the strategic management accounting involves the implementation of the strategy formed in the above step.
Implementation is the process of putting the strategy into action. It involves the designing of the organization structure, managing of human resources and labor relations, acquisitions and deployment of resources designed to implement the strategic management decisions and finally designing a suitable and effective decision making process. There is also the need to design effective communication system to channel key decisions and feedbacks. After implementation there is need to continually review the organization’s actions in order to determine whether the strategy put in place is working as desired or not.
This is the strategic evaluation. During this step performance is measured and corrective steps are undertaken in order to ensure that it meets the organizational objectives. There are various challenges and disadvantages involved in the formulation and implementation of the strategic management accounting processes. Some of the challenges are inherent to the process itself while others can be mitigated. The first challenge involved in this process is that it is associated with a huge cost outlay.
Most of these processes involve the hiring of external consultants who have specialized training on strategic management accounting. Strategic management accounting is a relatively new field and most accountants are conversant with the traditional management accounting. Consultants cost a lot of money to hire and it may not be possible for a small organization to afford. Strategic management accounting also costs a lot to the organization in the form of the time spent in meetings to formulate the strategies and measure performance.
This time could be used in other operational functions of the organizations’.