Chapter 1 Class 1 _7.JAN.2025

Chapter 1: Managerial Accounting and the Business Environment

Introduction

• Author: Robert G. Ducharme, MAcc, CA, University of Waterloo

• Focus on Managerial Accounting in business settings.

Strategic Management Skills

Definition of Strategy

• A strategy is a game plan for attracting customers and distinguishing a company from competitors.

• The strategy should prioritize target customers.

Customer Value Propositions

Types of Strategies

1. Customer Intimacy Strategy

   • Focus on understanding and responding to individual customer needs.

2. Operational Excellence Strategy

   • Aims to deliver products and services more quickly and at lower prices.

3. Product Leadership Strategy

   • Focuses on offering higher quality products.

Work of Management

Key Functions

• Planning: Creating objectives and outlining steps to achieve them.

• Controlling: Monitoring performance to ensure plans are followed.

• Directing and Motivating: Managing day-to-day activities to maintain organizational flow.

Planning

Essential Steps

1. Identify alternatives.

2. Select the best alternative based on objectives.

3. Develop budgets to guide progress.

Directing and Motivating

Key Activities

• Manage employee work assignments.

• Routine problem solving and conflict resolution.

• Maintain effective communication.

Controlling

Importance of Control

• Ensures adherence to plans through performance reports comparing actual results with budgets.

Planning and Control Cycle

• Decision Making: Includes planning, controlling, directing.

• Formulating Plans: Create long- and short-term plans.

• Measuring Performance: Evaluate against established controls.

Business Plans

Elements of a Business Plan

• Information about products/services, market strategy, production methods, competition, and team.

• Serves as a key document for internal management and external attraction of creditors/investors.

Comparison of Financial and Managerial Accounting

Seven Key Differences

1. Users: External vs. internal (managers).

2. Time focus: Historical vs. future.

3. Verifiability: Emphasis on accuracy vs. relevance.

4. Precision vs. Timeliness: Focus on exactness vs. timely information.

5. Subject: Global vs. segment reports.

6. Rules: Must follow GAAP for financial vs. flexibility in managerial.

7. Reporting Requirement: Mandatory for financial, not for managerial.

Organizational Structure

Decentralization

• Decentralization involves delegating decision-making authority throughout the organization.

Line and Staff Relationships

Definitions

• Line Positions: Directly achieve organizational goals (e.g., production supervisors).

• Staff Positions: Support line positions (e.g., cost accountants).

The Controller

Role and Responsibilities

• Provides timely data support for planning/control; prepares financial statements for external users.

The Professional Management Accountant

Types of Management Accountants in Canada

• CGA (Certified General Accountant)

• CA (Chartered Accountant)

• CMA (Certified Management Accountant)

Certified Management Accountant (CMA)

Qualifications

• Must meet qualifications and pass a professional exam to earn the CMA designation.

Professional Ethics for Management Accountants

Ethical Standards by CMA Ontario

1. Maintain a level of competence.

2. Ensure confidentiality of information.

3. Uphold integrity by avoiding conflicts of interest and communicate limits.

4. Objectivity in communications for clear information delivery.

Competence

Guidelines for Ethical Behavior

• Follow laws, maintain professionalism, and provide accurate decision-support information.

Confidentiality

Ethical Requirements

• Do not disclose confidential info unless legally obligated.

• Prevent subordinates from unauthorized disclosures.

Integrity

Maintaining Ethics

• Mitigate conflicts of interest and avoid discrediting the profession.

Credibility

Fair Communication

• Provide timely and relevant information; disclose any deficiencies.

Importance of Ethical Standards

Significance in Business

• Ethical standards are crucial for maintaining quality of life and ensuring a functioning economy.

Corporate Governance

Overview

• Governs how a company is directed and controlled. Concerned with stakeholders' interests.

Corporate Social Responsibility (CSR)

Definition

• CSR includes voluntary actions addressing stakeholder needs beyond mere legal compliance.

Process Management

Value Chain Components

• Includes R&D, Design, Manufacturing, Marketing, Distribution, and Service.

Improving Business Processes

Approaches

1. Lean Production: Cutting waste and improving efficiency.

2. Six Sigma: Data-driven approach for quality improvement.

3. Enterprise Systems: Integration of data throughout an organization.

4. Risk Management: Identifying and managing risks effectively.

Traditional "Push" Manufacturing

Characteristics

• Involves large inventories of finished goods and raw materials before actual sales take place.

Lean Production

Five Steps

1. Identify value.

2. Identify delivery processes.

3. Organize work arrangements.

4. Create a pull system.

5. Pursue perfection consistently.

Supply Chain Management

Definition

• Coordination of business processes across companies to serve end consumers efficiently.

Six Sigma

Overview

• A method emphasizing customer feedback and data analysis to minimize defects.

Six Sigma DMAIC Framework

Stages

1. Define: Scope and process flow.

2. Measure: Baseline performance data gathering.

3. Analyze: Identify root causes of issues.

4. Improve: Develop and implement solutions.

5. Control: Ensure sustained improvement.

Enterprise Systems

Definition

• A single software system integrating data for simultaneous access with centralized databases.

Enterprise Risk Management

Defined Process

• Involves proactive risk identification and control implementation to mitigate potential risks.

Measurement Skills

Importance

• Effective data-driven analysis aids in planning, directing/motivating, and controlling.

Conclusion

Purpose of Measurement Skills

• This course aims to teach measurement skills essential for managerial roles.

Lean production is a methodology aimed at minimizing waste within manufacturing systems while simultaneously maximizing productivity. It relies on the following five steps:

1. Identify Value: Determine what is valuable to the customer.

2. Identify Delivery Processes: Map out the flow of activities that create value.

3. Organize Work Arrangements: Arrange workstations and processes to support efficiency.

4. Create a Pull System: Implement a system where production is based on actual customer demand rather than forecasts.

5. Pursue Perfection Consistently: Continuously seek ways to reduce waste and improve processes.