May 5, 2020 Last updated May 5th, 2020 3,642 Reads share

Management Accounting: Business Analytics a Key for Effective Decision Making

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The role of the management accountant is developing and changing with changing times. Previously, management accounting involved taking the financial decisions, control of the budget and profitability analysis. However, in today’s time, the role involves performance management of the enterprise, driving profitability apart from doing analysis. Management accounting role also involves Business analytics and descriptive and predictive analysis of the available data.

Making decisions related to production, operation, and investment in the market is all taken by tracking internal costs for any business process that helps an organization, firm or individual. The need for management accounting is to understand the efficiency of their budget, the operational cost, allocate the funds as per the production, sales, and investment.

If you are worried about the well-being of the company then you need to comprehend that the role of management accounting is very crucial. The role of management accounting is so huge that even the smallest error can put the future of the company at stake.

Collecting, recording, and reporting financial data from several units of an organization is one of the most important roles to be played by the management accountant. Their role further expands to observe and analyze their budget and suggest their funding and allocation. The cost of raw material, labor, manufacturing, sales, and advertising, social media networking, lobbying, and the company’s internal operation is included in it.

An important role of the management accountant also includes coordinating with all concerned departments in the company. They are required to make an overall analysis of the functioning of the company, the availability and the use of the capital and availability of funds, and report all the information to senior members of the management of the company.

The main role of Management accounting is budgeting as budgets are a guide to all expenditures. A budget is decided every year to fix the expenses on operation and production cost and then further investment that is to be made. Here comes an important role of the management accountant as he has to review historical data to prepare an accurate prediction to decide for the year’s future expenses.

Time management is also very crucial for making all the plans for a company. Timely forecasting is needed when it comes to predictions, budgets, and reports, taking into consideration the market uncertainties as well.

Automation is taking over accounting in the current era and thus, preparation of financial records, analysis, and forecasting is an important task that is managed by Business Intelligence software. This software automatically creates financial predictions. Thus, the management accountant is saved from lots of burden as time and effort to calculate this lengthy information get reduced to nominal.

A political situation that affects the market, inflation, competition, cost of labor, raw material, internal operations, and coordination among different departments within a company or by its interaction with the rest of the business world and social media, a management accountant has to be aware of everything.

He needs to inform the company about the cash crunch or any other risk in advance so that they can take financial decisions taking into consideration the available funds and requirements of the company.

How Can Management Accountants Use Business Analytics?

The functions of Management Accounting can be divided into three important categories like Cost Accounting, Performance Measurement, and finally the most important is Planning and Decision Making. Cost Accounting and Performance Measurement makes use of internal data. To reach a benchmark performance external data can be used.

But when it comes to planning and decision making data from cost accounting and performance measurement is taken into consideration. In addition to it, external data which is non-financial and available in a disorganized manner is used for planning and decision making

Business Analytics

Business Analytics can be utilized for all three important functions. Cost accounting makes use of descriptive and diagnostic analytics, for performance measurement both descriptive and predictive tools can be applied, and for planning and decision making descriptive, predictive, and prescriptive tools are applied.

Descriptive Analysis

When you want to know ‘what happened’ then the descriptive analysis is applied to provide the answer. It gives the answer to your query in a predetermined manner. If you want to know the client revenue for the previous year then it is going to give you the answer to this with the help of using visualization and text mining tools.

Diagnostic Analysis

Diagnostic Analysis provides an answer to your question-‘How it happened’.  You can get an answer to this by going through a root cause analysis and doing a hypothesis with the available data. The Diagnostic Analysis will not only give you the answer to your question but also provide you with a solution. Taking an example, if a particular client reduced the number of orders then comes the role of diagnostic analysis as to how and why it happened, with a suitable solution to it.

Predictive Analysis

When you want to know the answer to ‘What will happen in the future and when’ then the predictive analysis of a problem is there to serve you with the answer. This involves the prediction of the future occurrence of a particular event; the analyst needs to build a model to identify the necessary constituent. Genetic algorithms, log regression, time series regression and Monte Carlo simulations are some of the tools used for prescriptive analysis.

Prescriptive Analysis

Perspective analysis answers the question to ‘How can I make it happen?’ This analysis brings about improvement by giving recommendations or suggestions.  This helps us to further understand the most appropriate course of action.  Machine Learning is the tool that can help to come up with the solution to the concerns related to time, quality, and revenue versus cost.

Final Words

In the age of automation and digital Information revolution, the application of Business Analytics helps the Management accountants in an organization to make an unbiased judgment on the basis of personal opinion, biases, and irrationality.

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Kapil RANA

Kapil RANA

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