A manager’s responsibilities in a business include making decisions related to planning (identifying goals and strategies for accomplishing them), directing (guiding daily operations and carrying out plans), and controlling (comparing expected and actual results and taking action for improvement). Since human, financial, and time resources are limited, managers must select from among many alternatives, foregoing other options. Managers try to optimize the collective outcome of their choices. Managerial accounting provides the timely and relevant information needed for effective decision making.

Let’s look at a typical organizational chart for a manufacturing company:

Large companies are usually incorporated. The Chief Executive Officer runs the company on behalf of the board of directors, who are appointed by the shareholders (owners). The CEO may also be the president, and the company may have several vice-presidents in charge of various aspects of the company like manufacturing, sales, and human resources. That level of the organization provides leadership and delegates day-to-day operation of the company to managers.

Here is a closer look at a typical manufacturing company organizational chart from the plant manager on down. Each column in the chart is a department with divisions, and each of those divisions could consist of dozens, hundreds, or even thousands of employees.

The manager is responsible for three basic functions:

• Planning — strategic v. operational

• Directing

• Controlling

A successful business relies on good decisions. Those decisions occur across a spectrum of planning, directing, and controlling activities, and quality decision making relies on accurate, timely, and reliable information.

Planning

Planning includes both strategic (long-term, high-level) and operational (short-term, day-to-day) planning.

Strategic planning leads the company and usually includes mission, vision, and values statements, along with some guidance that links the day-to-day activities with the larger picture.

Directing

Managerial accountants create and report on budgets, pricing, and competition. They monitor production and inventory levels. They design and implement tracking and reporting systems.

In addition, they provide information on costs, volume, and profits, and attempt to capture the cost of quality, or perhaps better said, the cost of a lack of quality. Finished goods that do not function as promised cause substantial warranty costs, including rework, shipping, and scrap. There is also an extreme long-run cost associated with a lack of customer satisfaction.

Managerial accountants also find ways to allocate and assign costs to departments and divisions, so managers can make rational decisions and be held accountable for their cost reductions and cost overruns—and not be held responsible for something over which they have no control.

Controlling

Most large organizations have a person designated as the controller (sometimes termed “comptroller”). The corporate control function is sufficiently complex that a controller may have hundreds of support personnel to assist with all phases of the management accounting process. As this person’s title suggests, the controller is primarily responsible for the control task: providing leadership for the entire cost and managerial accounting functions. In contrast, the chief financial officer (CFO) is usually responsible for external reporting, the treasury function, and general cash flow and financing management. In some organizations, one person may serve a dual role as both CFO and controller.

To assist in monitoring productive efficiency and cost control, managerial accountants develop standard costs systems, flexible budgets, and balanced scorecards. These standards represent benchmarks against which actual productive activity is compared. Standards can be developed for labor costs and efficiency, materials cost and utilization, and more general assessments of the overall deployment of facilities and equipment (the overhead).

Managerial accountants also implement larger strategic initiatives, such as total quality management (TQM) and enterprise resource planning (ERP).

You’ll be exposed to all of these techniques and concepts throughout this course.

Now, check your initial understanding of managerial accounting: