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PLANNING
Planning is the process of thinking about the activities required to achieve a desired goal. It is the
first and foremost activity to achieve desired results. It involves the creation and maintenance of
a plan, such as psychological aspects that require conceptual skills.
Management accountants look after a company's accounts. They advise managers about the
financial implications of business decisions to aid growth and profit. Responsibilities of the job
include: preparing reports, budgets, commentaries and financial statements.
Planning activities include budgeting, capital expenditure analysis and production planning.
Managerial accountants meet with department managers throughout the company to
determine realistic expenses for the following year. Together the managerial accountant and
the department manager evaluate which expenses continue to exist, which should be eliminated
and which need to be revised. Equipment updates require capital expenditure analysis to
determine if each update makes sense financially. Managerial accountants analyze capital
expenditures using the payback method, the internal rate of return method and the net present
value method. The results are shared with managers for final decision making. Managerial
accountants collaborate with the plant manager to create a production plan that accounts for
meeting customers' needs while minimizing costs on additional inventory.
Traditional techniques are those which have been used by the companies for a long time now. These
include:
Personal observation
Statistical reports
Break-even analysis
Budgetary control
1. Personal Observation
This is the most traditional method of control. Personal observation is one of those techniques which
enables the manager to collect the information as first-hand information.
Meaning of Controlling
This type of useful information when presented in the various forms like charts, graphs, tables, etc.,
enables the managers to read them more easily & allow a comparison to be made with performance
in previous periods & also with the benchmarks.
3. Break-even Analysis
Breakeven analysis is a technique used by managers to study the relationship between costs, volume
& profits. It determines the overall picture of probable profit & losses at different levels of activity
while analyzing the overall position.
The sales volume at which there is no profit, no loss is known as the breakeven point. There is no
profit or no loss. Breakeven point can be calculated with the help of the following formula:
Breakeven point = Fixed Costs/Selling price per unit – variable costs per unit
4. Budgetary Control
Budgetary control can be defined as such technique of managerial control in which all operations
which are necessary to be performed are executed in such a manner so as to perform and plan in
advance in the form of budgets & actual results are compared with budgetary standards.
Therefore, the budget can be defined as a quantitative statement prepared for a definite future
period of time for the purpose of obtaining a given objective. It is also a statement which reflects
the policy of that particular period. The common types of budgets used by an organization.
Sales budget: A statement of what an organization expects to sell in terms of quantity as well
as value
Material budget: A statement of estimated quantity & cost of materials required for
production
Cash budget: Anticipated cash inflows & outflows for the budgeted period
Capital budget: Estimated spending on major long-term assets like a new factory or major
equipment
Research & development budget: Estimated spending for the development or refinement of
products & processes
Modern techniques of controlling are those which are of recent origin & are comparatively new in
management literature. These techniques provide a refreshingly new thinking on the ways in which
various aspects of an organization can be controlled. These include:
Return on investment
Ratio analysis
Responsibility accounting
Management audit
Net income before or after tax may be used for making comparisons. Total investment includes both
working as well as fixed capital invested in the business.
2. Ratio Analysis
The most commonly used ratios used by organizations can be classified into the following categories:
Liquidity ratios
Solvency ratios
Profitability ratios
Turnover ratios
3. Responsibility Accounting
Responsibility accounting can be defined as a system of accounting in which overall involvement of
different sections, divisions & departments of an organization are set up as ‘Responsibility centers’.
The head of the center is responsible for achieving the target set for his center. Responsibility
centers may be of the following types:
Cost center
Revenue center
Profit center
Investment center
4. Management Audit
Management audit refers to a systematic appraisal of the overall performance of the management
of an organization. The purpose is to review the efficiency &n effectiveness of management & to
improve its performance in future periods.
Therefore, these techniques are so interrelated and deal with such factors as time scheduling &
resources allocation for these activities.
3. EVALUATING PERFORMANCE
1) Peer review
Peer review is one of the strategies that many organizations and employee
evaluation software use to enhance the traditional evaluation process. The
process of peer review consists of taking anonymous feedbacks from colleagues,
teammates, and peers on specific aspects of an employee’s performance.
It provides a unique opportunity to study the employee skills and capabilities and
help identify individual’s networking, leadership, occupational, and collaboration
skills within an organization. Given the intricate nature of working relationships,
this process provides a unique chance to identify each employee’s strengths and
weaknesses, and use this valuable data to take decisions regarding succession
planning, building teams, and job rotations.
2) Self evaluation
Self-evaluation is a vital activity to help make your appraisal process more
efficient. When done properly, it can provide several key inputs to the
organization. This method offers a chance for employees to play an active role in
their evaluation process. Thus, rather than simply being the receiver of the
management’s feedback, the employees are given a voice.
This provides a direct link between their jobs and evaluation process and fosters
better communication between staff and management. With active participation,
employees can experience better engagement with the overall review process,
while managers can better understand the individual’s performance as well as
their perception of their performance.
3) Quantitative evaluation
Quantitative evaluation is based upon statistics and uses various standards to
track productivity. The process begins with the formulation of company standards
against which employee’s data can be measured. It is critical to lay out standards
in clear and precise terms without ambiguity, leaving no chance for
misinterpretation.
4) 360-degree feedback
360-degree feedback appraisal method provides a chance for all employees to
submit their views and contribute towards the business goal. Under this system,
an employee is rated by his/her subordinates, superiors, peers, and even clients
and customers. As an employee is evaluated from all the sides it is called ‘360-
degree feedback’.
5) Competency on a scale
This is one of the most commonly used employee performance
evaluation technique. Under this method, the individual’s performance in various
areas of job duties is graded on a scale. A wide range of criteria, including
productivity, customer service, teamwork, quality of work, concern for safety, etc.
are evaluated. This method can be accomplished with letters or numbers and it
usually consists of a range, moving from unsatisfactory to outstanding. This
method also allows employers to simultaneously evaluate several employees.