Executives in every industry must learn to speak the language of business. Marketing, economics, finance, organizational behavior and project management are all core components of any MBA curriculum for this very reason. Unless business leaders are familiar with the concepts and terminologies associated with these areas of operation, they cannot achieve the level of perspective necessary for continued growth.
Accounting plays a key role, both in day-to-day business operations and with respect to long-term business strategy. More than just a tabulation of debits and credits, or a set of mathematical formulae useful for generating budgets, accounting equips the executive with a set of quantitative analytical tools that can be applied to multiple tasks. Nowhere is this truer than in the realm of managerial accounting.
Definition of Managerial Accounting
Managerial accounting is the practice of using accounting information — from revenues to production inputs and outputs affecting the supply chain — internally, in support of organization-wide efficiency and for tracking the organization’s progress toward attaining its stated goals.
Managerial accounting differs from financial accounting. Financial accountants report profits and losses, issue earnings projections, and otherwise produce facts and figures that third parties (e.g., stockholders) are likely to encounter in an annual report. Financial accountants also create data for review by oversight agencies, such as the Securities and Exchange Commission (SEC) and the Internal Revenue Service (IRS).
What Is the Value Of Managerial Accounting?
While both managerial accountants and financial accountants may occasionally make use of the same data, the scope of managerial accounting is much wider. Managerial accounting supports a broad understanding of cost versus benefit. Managers faced with specific decisions may request information on any number of business operations to chart the best possible course of action.
Further, whatever their area of expertise, all managers are responsible for allocating and measuring the performance of their resources. These resources may be financial (e.g., investments), human (e.g., team members), or even technological (e.g., a customer database). To be fluent in accounting, all managers should be able to read a balance sheet, navigate line items in a budget, evaluate return on investment (ROI), and comprehend the host of underlying (and sometimes hidden) circumstances that affect how they manage the resources under their control. Managerial accounting information is, therefore, actionable data.
Managerial Accounting in Practice
Variance analysis remains one of most powerful and versatile of all managerial accounting tools. Because budgets constitute expressions of expectations, executives have a means of measuring just how reasonable those expectations are and how they relate to actual outcomes. Whether or not these outcomes are exceeded or unmet, variance analysis seeks to uncover the factors responsible for the difference between estimates and actual amounts (expenditures, earnings, etc.).
Further, variance analysis seeks to determine how particular factors interact in throwing off projections. Most importantly, it seeks to identify what steps may be taken to better predict future outcomes and to mitigate against unfavorable results. A variance analysis can also reveal mistaken assumptions that require dispelling, as well as create a context in which managers can begin asking even more important questions related to efficiency, cost savings and business growth.
Managerial accounting practices also play a vital role in corporate governance. Charles Tilley, former CEO of the Chartered Institute of Management Accountants (CIMA), observed in 2014 that “over the last few years, we’ve all seen how globalization and the breakneck pace of technological progress are making change harder to predict and organizations more vulnerable. Management accountants have the ability and judgment to make objective ethical decisions that consider the public interest.” Managerial accounting is thus instrumental to good customer relations and, by extension, strong reputation management. Even a handful of negative comments scattered across the internet can cost companies millions of dollars in annual sales.
Students who choose the online MBA program at Boise State University have the opportunity to learn and apply the principles of managerial accounting by enrolling in BUSMBA 525. This 7-week course introduces students to an array of cost-based accounting concepts and practices. The readings and assignments designed for this course help MBA candidates meet the challenges involved in using best managerial accounting practices. Like all of Boise State’s online MBA courses, Managerial Accounting (BUSMBA 525) provides students with opportunities to enhance their interpersonal skills with collaboration with classmates to solve problems common to the profession.