I.

MANAGEMENT AND ITS FUNCTIONS

Management is essential for an organized life and necessary to run all types of organizations. Managing
life means getting things done to achieve life’s objectives and managing an organization means getting
things done with and through other people to achieve its objectives.

Five Functions of Management:

1. Planning - Planning is future-oriented and determines an organization’s direction. It is a rational and

systematic way of making decisions today that will affect the future of the company. It is a kind of
organized foresight as well as corrective hindsight. It involves the predicting of the future as well as
attempting to control the events. It involves the ability to foresee the effects of current actions in the
long run in the future.

Steps in Planning Process:

• Develop objectives.

• Develop tasks to meet those objectives.

• Determine resources needed to implement tasks.

• Create a timeline.

• Determine tracking and assessment method.

• Finalize plan.

• Distribute to all involved in the process.

Role of Management Accounting in Planning:

Management accounting is closely interwoven in planning both because it provides information for
decision-making and because the entire budgeting process is developed around accounting-related
reports. Management accounting helps managers in planning by providing reports which estimate the
effects of alternative actions on an enterprise’s ability to achieve desired goals.

2. Organizing - Requires a formal structure of authority and the direction and flow of such authority
through which work subdivisions are defined, arranged and coordinated so that each part relates to the
other part in a united and coherent manner so as to attain the prescribed objectives.

Thus, the function of organizing involves the determination of activities that need to be done in order to
reach the company goals, assigning these activities to the proper personnel, and delegating the
necessary authority to carry out these activities in a coordinated and cohesive manner. It follows,
therefore, that the function of organizing is concerned with:

• Identifying the tasks that must be performed and grouping them whenever necessary

• Assigning these tasks to the personnel while defining their authority and responsibility.

• Delegating this authority to these employees

• Establishing a relationship between authority and responsibility

• Coordinating these activities

Role of Management Accounting in Organizing:

Management accounting helps managers in organizing by providing reports and necessary information
to regulate and adjust operations and activities in the light of changing conditions. For example, the
reports under management accounting can be prepared on product lines on which basis managers can
decide whether to add or eliminate a product line in the current product mix. Similarly, management
accountant can provide sales report, production report to the respective manager for taking suitable
action about the sales and production position.

3. Staffing - Is the function of hiring and retaining a suitable work-force for the enterprise both at
managerial as well as non-managerial levels. It involves the process of recruiting, training, developing,
compensating and evaluating employees and maintaining this workforce with proper incentives and
motivations. Since the human element is the most vital factor in the process of management, it is
important to recruit the right personnel.

This function is even more critically important since people differ in their intelligence, knowledge, skills,
experience, physical condition, age and attitudes, and this complicates the function. Hence,
management must understand, in addition to the technical and operational competence, the
sociological and psychological structure of the workforce.

4. Directing – Is concerned with leadership, communication, motivation, and supervision so that the
employees perform their activities in the most efficient manner possible, in order to achieve the desired
goals.

• The leadership element involves issuing of instructions and guiding the subordinates about procedures
and methods.

• The communication must be open both ways so that the information can be passed on to the
subordinates and the feedback received from them.

• Motivation is very important since highly motivated people show excellent performance with less
direction from superiors.

5. Controlling - The function of control consists of those activities that are undertaken to ensure that the
events do not deviate from the pre-arranged plans. The activities consist of establishing standards for
work performance, measuring performance and comparing it to these set standards and taking
corrective actions as and when needed, to correct any deviations.

The controlling function involves:

a. Establishment of standard performance.

b. Measurement of actual performance.

c. Measuring actual performance with the pre-determined standard and finding out the deviations.

d. Taking corrective action.

All these five functions of management are closely interrelated. However, these functions are highly
indistinguishable and virtually unrecognizable on the job. It is necessary, though, to put each function
separately into focus and deal with it.

Role of Management Accounting in Controlling:

Management accounting helps in the control function by producing performance reports and control
reports which highlight variances between expected and actual performances. Such reports serve as a
basis for taking necessary corrective action to control operations. The use of performance and control
reports follows the principle of management by exception. In case of significant differences between
budgeted and actual results, a manager will usually investigate to determine what is going wrong and
possibly, which subordinates or units might need help.

II. THE DECISION-MAKING PROCESS

Decision-making is a process of choosing among competing alternatives. Decision-making is inherent in

each of three management functions described above, namely, planning, organizing and controlling. A
manager cannot plan without making decisions and has to choose among competing objectives and
methods to carry out the chosen objectives. Similarly, in organizing, managers need to decide on an
organization structure and on specific actions to be taken on day-to-day operations.

Steps in Decision-Making Process

(i) Identifying a problem requiring managerial action.

(ii) Specifying the objective or goal to be achieved (e.g. maximizing return on investment).

(iii) Listing the possible alternative courses of action.

(iv) Gathering the information about the consequences of each alternative.

(v) Making a decision, by selecting one of the alternatives.

Role of Management Accounting in the Decision-Making Process:

Management accounting plays a critical role in step 4 of the decision-making process. Management
accounting system contains a storehouse of valuable information for predicting the results of various
courses of action. The management accounting can assist management in formally structuring decision
problems as well as placing the alternatives and their consequences in a form that will be easier for
management to evaluate. While developing and gathering information for decision making purposes,
the management accountant should include qualitative information also in his report to help managers
better in their decision-making tasks.
III. AREAS IN DECISION MAKING

1. Gathering Information and Establishing your Objective - Evaluate the purpose of the decision you're
facing. The more questions you can answer at this stage, the better. Ask yourself:

• What is the problem that needs to be solved?

• What is affecting the situation as it stands now?

• What is the timeline in which the decision must be made?

• Can anyone else help me make this decision?

• Who will be affected by this decision?

• Should I involve them in the process?

This is an important step in growing your management style, because the answers to the questions you
put forth will help you determine if the decision should be made individually or through teamwork. If
the objective is best approached individually, consult those who have a stake in the decision or those
with expertise on the information to be used.

2. Identifying Alternatives without choosing one

This is the open-minded part of the process. You’re simply searching for alternatives by looking at all
sides of the problem you’re facing. At this stage, it’s important not to focus on coming up with the right
answer, but to identify all the possible alternatives. Look at alternatives from different perspectives,
such as marketing or financial viewpoints. Organize the ideas into common themes to make them easier
to sort.

3. Comparing and Evaluating Alternatives

This step of the managerial decision-making process is where you will get into the nitty-gritty of each
alternative you identified as a possible solution. Evaluate them in terms of feasibility, risk, impact and
benefit. Anticipate the outcomes of each solution and the impact it will have on other sectors. If one
choice does not stand out as better than others, or there are similar outcomes for a few different
choices, sort them as best you can into a list of pros and cons.

4. Making a Choice

At this stage, you have thought the problem through from every angle, sought input where needed and
established a list of possibilities and outcomes. You should be well-armed to make a choice. It’s time to
show your management style, put your decision-making power to the test and choose a course of
action. Since you have thought through all of the factors, you’ll be well-prepared to defend the choice
you’ve made with a reasoned argument.

5. Implementing your Decision

Now that you have made the choice, it is time to implement the infrastructure to support your decision.
This is where your well-considered, fully informed decision emerges as it is transformed from an
abstract idea into a concrete plan of action.
6. Checking your Decision

Just because you've finally made a choice does not mean it has to stand etched in stone. The final step in
the managerial process is where you evaluate your choice to see whether or not it is answering the
problem identified in Step 1. Perhaps this is the most important stage, because this is where you will
take credit for something that worked well or admit that your reasoning was flawed.

If it has not met the need you identified in Step 1, go back to a previous stage and reevaluate. For
instance, the decision may have been the correct one, but the plan in Step 5 was implemented poorly.
Or, perhaps there were consequences you did not anticipate. In that case, go back to Steps 2 or 3 and
identify some additional alternatives.