The management process; from planning to control

The management process will vary in the detailed procedure from company to company, however there are four key areas that exist in almost every variant of this process; planning, decision making, controlling and scorekeeping. These four areas make up the fundamental elements of the management accounting process and encompass a number of skills, responsibilities and types of information handling in each component.

Management accountants will provide managers with information which will enable them to increase the value of the firm by acquiring, allocating and utilising resources as efficiently as possible.

The relationship between the components in the management process can be shown in a simple diagrammatic format as illustrated below;

Management Cycle

The planning stage of the process may involve the development of new ideas, cost planning (i.e. budgeting), or setting targets and achievements to be met. These behavioural control aspects are covered in greater detail in another article entitled ‘Behavioural Aspects of Control’. The planning stage, in essence, develops a set or series of steps or proposals which require decisions to be made about them, leading on to the decision making stage.

As the decisions that management have to make can vary, different types of information will obviously be required.


In a manufacturing company, information is most likely to be related to the costs of things such as labour and materials, but it may also include the efficiency of labour/materials etc. These efficiencies may focus upon other aspects such as the learning curve theory which applies to labour and suggests that operating efficiency and or productivity increases the more a project or event is repeated.

In respect of this, decisions may not only be made about selling prices, but also about improving variances within classifications e.g. materials efficiency. Therefore, management accounting is extremely important and useful in supplying reliable (as far as possible) information to management to aid their decision-making processes. This information should allow or at least help in someway, managers to determine strategies; long/short-term/pricing etc., evaluate opportunities, and plan out resources (resource management – an essential process in manufacturing companies).

Although not highlighted in the diagram above, the decision-making process is in a continual loop with the controlling process i.e. when an outcome is evaluated and controlled, improvements may be made and decisions about the best steps forward will need to be made e.g. re-evaluating business objectives. The control process involves gathering and comparing actual results against targets or budgets to see how well the company or department has performed (performance management).

Despite the diagram showing scorekeeping as the final stage in the management process, it is in fact a crucial element present throughout each of the other three stages. Scorekeeping is essentially keeping account of figures to ensure all costs are accounted for.

Types of Information

There are three main types of common information used by managers to help make different decisions. Long-term information is often more future based or at least focuses on the future of the company, thus it is used for strategic planning and control e.g. mergers, takeovers etc. On the other hand, short-term information is used for tactical planning and control. Finally, information that is available on a day-to-day basis e.g. labour costs, number of unit produced etc. will be used to make decisions on operational planning and control.

Uses of Management Accounts

Management accounts are the accounts used by management accountants to convert figures into useful information to be presented to managers and decision makers within the business. Management accounts are not externally regulated and are solely for internal purposes, which allows more creativity of presentation, making it easier for managers without a financial background to understand business performance, costs etc.

Management decisions are often in regards to future events, and thus it follows that most management information is future orientated i.e. costs, prices and production volumes are generally estimated and uncertain. However there are a number of techniques and tools available to managers to account for this risk and uncertainty, for example decisions trees, probabilistic models, and other decision making criteria such as maximax and maximin. As stated previously, all businesses will have different needs for management accounting information depending on the size and complexity of the organisation, and the environment in which the company operates.


Qualities of a Good Management Accountant

All management accountants will be expected to be able to communicate effectively with other managers, employees and clients. They will need to communicate with others to collect required information from other managers/departments, present information clearly to managers in meetings, and deal with staff and clients.

The job involves dealing with a lot of costs and calculations, thus it is essential that management accountants are both competent and capable of working with numbers. In addition, management accountants need to be able to analyse figures for performance reports to see how the company/departments are performing against any targets (part of the control process).

Finally, part of the job is to develop new, innovative ideas either for products or for changes to the business, perhaps to improve efficiency or implement ideas to reduce business costs e.g. remuneration/incentive schemes.


Technology in the Management Process

Technology is playing an increasingly important role in the management accounting process. Computer program systems and computer application programs are used every day by almost every company as an essential part of the company’s accounting information system. It helps perform tasks that would otherwise have to be completed manually and would take much longer. However, as with a company’s financial statements, these computer processing and application systems must also be audited to verify their integrity for the protection of both shareholders and other stakeholders.

Technology in Management Process


Click here to read a very interesting paper on ‘The Impact of Information Technology on Management Accounting Practices’ by Gary Spraakman and Cristobal Sanchez-Rodriguez (2010).

For more information on management accountants, read my post ‘The Roles and Responsibilities of the Management Accountant‘.

Featured image courtesy of×450/people-management-strategy.png


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