The critical success factors for any particular managerial accountant depend upon their organizational circumstances and personal qualities. They are the basis for proactive identification of problems, opportunities and developing a range of viable options. Their common element is using both financial
and non-financial information that support the decisions and judgments of non-accounting managers.
This implies they ensure that the information they provide is well understood by non-accounting managers. There is also an element of luck. The domestic and international economy and governing arrangements may provide a stable environment that favors the decisions that are implemented. Table 6-1 summarizes the eight CSFs discussed. Using the attributes of roles and responsibilities discussed i n Chapter 5, it summarizes the knowledge (procedural and declarative), primary skills (learned behaviors) and abilities (inherent qualities) of the managerial accountant in relation to in the CSFs.
Table 6-1 is then reviewed to consider some implications for the managerial accountant.
Table 6-1 Summary of knowledge, skills and abilities associated with the identified CSFs.
Critical Success Factor Knowledge Skill Ability
1.
Preoccupation with costs, efficiency, economy and
productivity
Processes and methods
Accurate and quick calculations
Search out relevant information 2.
Ensuring the improvement of the quality of products and services and
systems
Statistical processes and methods
Graphical display of information and recommendations
Creativity in formulating
options 3.
Awareness of behavioral or human responses to information and
decisions
Cognitive biases and motivation
Anticipating consequences
Attention and sensitivity to
manager's reactions 4. Moving to managing costs from
calculating costs Suitable AIS Gaining confidence Fostering short- term change 5.
Commitment to availability-on- demand by reducing commencement
and completion process times
Full costing and pricing analyses
Costing of different process options
Creativity in formulating
options 6. Customer value orientation Value and customer
choice analyses Making tradeoffs
Understanding the relationship with
the customer 7. Support innovation in products,
services and systems
Strategy and technology
Technical understanding
Trial and error patience and
diligence 8. Cross-functional perspective
Conditions to successfully apply
processes and methods
Integrating, aggregating and
presenting information
Making sufficient time available The CSF’s place responsibility on the managerial accountant to use an AIS that provides information about performance, cost of quality and cost management. In some cases, the organization can fund an expensive integrated system endorsed by consultants. This does not mean that a managerial accountant in organization without an Enterprise Resource Planning (ERP) system is any
less effective. Manual and semi-automated systems can collect and adequately process information, and specialized external assistance can overcome knowledge or skill gaps. The most important factors are that the managers can rely on output from the AIS particularly as the organization evolves and the managerial accountant can show non-accounting managers how they can use information obtained from the AIS based on collegiate relationships with all organizational units.
CFS’s make clear the importance of the managerial accountant influence over information gathering and analyses for planning, implementation, defining and measuring successful competitive advantage.
However, the CSF’s lack any framework for this. The managerial accountant’s compass offers a framework that guides the application of knowledge, acquisition and use of skills and the development of abilities to fulfill the CSF’s. Decision making and judgment that were briefly noted as part of CSF’s receive detailed attention in the next chapter.
Notes
1. Some authors suggest that critical success factors enable achievement of objectives (Parmenter, 2015). Consequently, a Key Performance Indicator (KPI) is a measure that quantifies management objectives, along with a target or threshold, and enables the measurement of strategic performance. In other words, CSFs are the cause of success, whereas KPIs are the effects of actions.
2. EBIT or Earnings Before Interest and Taxes can be readily determined from the Profit and Loss/Income Statement. EBITDA or Earnings Before Interest, Taxes, Depreciation and Amortization Depreciation and Amortization may, for example, be included in Cost of Goods Sold and as part of General & Administrative expenses on the Profit and Loss/Income Statement and can be cross- checked with the Cash Flow Statement. The difference between EBITDA and EBIT of capital-intensive industries (e.g., mining and infrastructure) is significant as depreciation expense and capital requirements are high.
3. The managerial accountant and production/sales managers will need to be able to successfully navigate the lag between investor enthusiasm (irrational exuberance), expanding raw material availability, production of refined material and components, regulator uncertainty (e.g., taxation) and eventual product availability. For example, current bottlenecks in supply of battery equipment using lithium, cobalt and nickel for the automotive industry, which competes with hardware technologies (laptops, tablets, smartphones), have encouraged buyers to finalize 5-year supply contracts (Montgomery, 2018).
4. Of course, in some cases this will result in breaches of fiduciary duty. It is legal duty to act solely in another party’s interests. Parties owing this duty are called fiduciaries. The individuals to whom they owe a duty are called principals.
5. Cognitive biases differ from logical fallacies. A logical fallacy is an error in logical argumentation (e.g., using a circular argument, making a personal attack). A cognitive bias is a genuine flaw in processing information (e.g., focusing only on information that is readily recalled).
6. Non-value adding activities are those that can be eliminated without any deterioration in the product or service quality, performance or perceived value by the customer. Many statistical and routine reports are non-value adding. Many intrusive interactions with customers are regarded as non-value adding by customers after they have made online purchases from organizations with well- thought-out transaction systems.
7. A danger in a narrow focus for activities is the risk that activities that have no financial added value to the organization are eliminated
or not supported. The tendency of performance management systems to overlook activities that have an implicit value that is not embodied in any financial value in a product or service can have repercussions. For example, a workplace that provides a pleasant environment may attract and retain the best staff, but this will not be evident by any additional value to the product or service. Again, this stresses the need for non-financial information to be used when making decisions that have an organization-wide impact.
8. Fifty-first-generation turbine cars were given to the public to road test in 1962– 1964 by Chrysler. They traveled more than 1 million miles with an operational downtime of 4%. By 1977, the engine had reached the fourth generation and could achieve performance, economy and pollution-reduction goals to satisfy US vehicle standards (Lehto, 2010). Although successful, the program ran out of funds and was terminated.
7
Recommendations, Decisions and Judgments by the Managerial Accountant With the Managerial Accountant’s Compass
The managerial accountant makes a variety of recommendations, decisions and judgments applying a range of methods and processes specific to managerial accounting using financial and non-financial information in planning and control. Where the managerial accountant is not the decision maker, they prepare a recommendation. A recommendation describes the preferred course of action accompanied by a rationale. A decision is the outcome from the process of formulating options (alternatives), evaluating them and choosing between them (Baron, 2008). A decision involves judgment if there is evaluation of evidence (Baron, 2008) or the need to estimate, infer or predict the character of unknown events (Hastie & Dawes, 2001). A decision also involves the commitment of resources.
There are many processes for making decisions available to the managerial accountant. Some are specialized methods and processes that provide a specific answer to given problems (e.g., discounted cash flow). Some consider more than one option and all possible consequences including chance event outcomes, resource costs and utility (e.g., decision tree). There is a need for decisions to be integrated with the role and responsibilities of the managerial accountant because poor decisions have a major impact on the organization.
The role and responsibilities of the managerial accountant are concerned with revenue and expenses, and this has seven implications for decision making, and each of them is considered. First, the impact of decisions is financial. Second, the process often requires preliminary problem solving and using creativity to perceive the world differently, make connections between seemingly unrelated phenomena, discover hidden patterns and generate practical solutions. Third, the decision making should be situated in an extended stepwise process, which begins with problem identification and concludes after implementation. Fourth, the decision process is affected by cognitive bias and the consequences of using heuristics. Fifth the process is affected by constraints and risks. Sixth a decision requires approval and managing of its implementation, which may also have behavioral consequences. Finally, the many ways of making judgments about success are considered. Thus, decisions as well as the process are not simple. The managerial accountant needs to be aware of these implications and consider each when making a decision. Most decisions have a financial impact.