Management Decision Making

Given this definition of the problems of accounting for management decision making, our scheme of work is as follows:

Section 1: A framework for planning and control

In this section, we examine the concepts of planning and control as they are applied to business organizations. We shall see that central to this analysis is the selection of the goals towards which the activities of such organizations are to be directed. These goals, therefore, provide the focus to the decision-making process.

We examine the management process in some detail so as to establish the role of information in this context. Costs play an important role in the planning and control process. The problems of ascertaining unit product costs are examined in this section.

Section 2: Planning

This section is concerned with a relatively detailed analysis of the planning process. It begins with a discussion of long-range planning as a means of attaining the organization's long-term goals. We proceed with an examination of the stages by which these goals may be realized. This involves, on the one hand, providing the assets which will enable the firm to operate and involves capital expenditure, and on the other hand, realizing long-range plans in annual stages by means of the activities envisaged in the annual budget.

Planning decisions are made in the face of uncertainty. We devote a webpage, therefore, to the analysis of risk and the means by which this problem may be reduced to some extent.

Our discussion of the nature and importance of the annual budget leads us to such problems as the relationship between costs, volume of output and profit, and pricing. Lastly, we examine those types of decisions which tend to be made on a 'once-and-for-all' basis and do not form part of the long-range planning process, for example, such decisions as the acceptance of special offers, dropping product lines and making or buying decisions.

our Control Section: Control

We begin this section by relating control to planning by establishing that the purpose of control is to ensure that the firm's activities conform with its plans. We relate the concept of control also to an organizational framework which is aimed at securing the performance of the tasks involved in implementing plans. This enables us to introduce the idea of responsibility accounting.

The importance attached in accounting to the control of costs, which we mentioned earlier, and the use of costs in the control of performance is considered in a webpage on standard costing and associated techniques such as flexible budgeting. Throughout this section, we stress the importance of information feedback as a means of ensuring that actual performance conforms with planned and required performance. We devote a webpage to performance appraisal, in which it will be noted that we recognize the importance of the behavioural factors associated with the human element in organizations. We argue also that the accountant should play a larger role in the design of management information systems.

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Read on: Planning and Control

The significance of the role which the management accountant fulfils today lies in his contribution to the overall management of business operations rather than in the set of procedures for which he is responsible and which relate purely to the financial aspects of management control. Accordingly, an appreciation of management accounting as a field of knowledge is more appropriately developed through the systems approach, is really a way of viewing accounting in the context of the organization as a whole.

The objective of this part is to provide our readers with a coherent and intelligible... see: Planning and Control