Trends in Management Accounting

Trends in Management Accounting Page 01
The Top 7 Trends in Management Accounting
Trend 1 – Expansion from product to channel and customer profitability analysis

The reporting of more accurate product and standard service-line cost and profitability information
using Activity-based costing (ABC) traces expenses into cost with resource and activity drivers and
provides much cost visibility that is traditionally hidden. Sadly, many organisations continue to use a single
indirect and shared expense “pool” that allocates resource expenses into costs based on a single cost factor,
which violates cost accounting’s causality principle. The result is products and service-lines are
simultaneously over- and under-costing because allocations always have a zero-sum error. It’s baffling
how accountants can accept this deficient practice when ABC is a better alternative.
Today customers view the offerings of suppliers in most industries as commodities. For example, most
banks offer similar checking and deposit services. Consequently, the importance of services rises, which
results in a shift from product-driven differentiation toward service-driven differentiation to differentiated
customer microsegments in order to gain a competitive advantage.
The objective for the marketing and sales functions should no longer be solely about increasing market
share and growing sales but about growing profitable sales. That requires tracing expenses below the
product gross profit margin line, including channel distribution, selling, marketing, and customer service
costs to serve.
Trend number 1 is that management accounting must help the sales and marketing functions. A company
needs to know the best types of customers to retain, grow, win back, and acquire – and those who aren’t.
Trend 2 – Management accounting’s expanding role with enterprise performance management
(EPM)
Enterprise performance management (EPM) can be defined as the integration of multiple methods (such as
strategy maps, balanced scorecard, performance measures, driver-based budgeting, lean management, and
customer relationship management) to achieve the executive team’s strategy, improve control, and increase
financial profits – all through making better decisions. The output of a management accounting system is
always the input to use in gaining insights and managing activities and operations.
Trend number 2 is about integration. The various components of EPM are like gears in a machine – they
are interconnected.
Trend 3 – The shift to predictive accounting
A gap is widening between what management accountants report and what managers and employee teams
want. The gap is being caused by a shift in managers’ needs – from needing to know what things cost (such
as a product cost) and what happened to a greater need for detailed information about what their future
costs will be and why. The past reflects decisions already made. Decisions that will be made are the ones
that impact the future.
The value-add, utility, and usefulness of accounting information increases, arguably at an exponential rate,
as one shifts from financial accounting (i.e., for regulatory compliance) to cost reporting to decision
support with cost planning.
When the cost reporting shifts to decision support with cost planning, analysis shifts to economic analysis.
For example, one needs to understand the impact that changes will have on future expenses, so the focus
shifts to the needed changes in resources and their capacities. This involves classifying the behavior of
resource expenses as sunk, fixed, step-fixed, semi-variable, variable, and discretionary with changes in
service offerings, volumes, mix, processes, and the like.
Trend number 3 reveals a major transition from management accounting for reporting costs and profits to
managerial economics for decision support and analysis that impact the future.
Trends in Management Accounting Page 02
Trend 4 – Business analytics imbedded in enterprise performance management (EPM) methods

Business analytics and Big Data are hot topics. They are here to stay because complexity, uncertainty, and
volatility are on the rise. Today the need for analytics may be the only sustainable long term competitive
advantage. This is because the traditional generic strategies, like being the lowest cost supplier or product
or customer differentiation, are vulnerable to agile competitors who can quickly match a supplier’s price or
invade your customer base.
Business analytics can generate questions, stimulate more complex and interesting questions, and have the
power to answer the questions.
Trend number 4 recognizes that progressive accounting functions now realize that competency and
capabilities with analytics provides a competitive edge.
Trend 5 – Co-existing and improved management accounting methods
There are debates in the management accounting community about what is the most appropriate costing
method. There can be rival camps such as lean accounting and activity-based costing (ABC) advocates.
The solution is accept having two or more co-existing management accounting methods. There can be
different costs for different purposes used by different types of managers and employee teams.
Trend number 5 demonstrates that the more progressive CFOs and their management accounting staff are
considering the various needs of different types of managers in their organisation.
Trend 6 – Managing Information Technology and Shared Services as a Business
It is human nature that when something is free one doesn’t care how much one consumes whatever the
item or service may be. There is a trend toward using management accounting for internal chargebacks
(like an invoice) from internal service providers to service users. Line-item IT charge back invoices create
a service provider a market for pricing. This information also serves for establishing what are effectively
“transfer prices” based on cost consumption rates for service level agreements (SLAs).
Trend number 6 is for management accounting to support internal IT and shared services to be managed
as a business.
Trend 7 – The need for better skills and competency with behavioural cost management
An evolving trend is that activist management accountants, those who are promoting progressive methods
as described in the trends already mentioned, are encountering obstacles to get buy-in and acceptance of
their ideas. They are realizing they need to improve their behavioural change management skills and
capabilities.
Today’s primary barrier is no longer technical, such as “dirty data” and disparate data sources. The barrier
is social, behavioural and cultural. There are many examples of this type obstacle, including people’s
natural resistance to change; not wanting to be measured or held accountable; fear of knowing the truth (or
of someone else knowing it); reluctance to share data or information; and “we don’t do that here.”
Trend number 7 requires change agent management accountants to motivate mid-level managers and
other “champions” to demonstrate to their co-workers that progressive management accounting and EPM
methodologies make sense to implement.
Future trends?
This article has been a journey describing seven (7) current trends. Few organisations are pursuing all
seven, but years from now the successful organisations will be well along the way with all of them. Will
there be future new trends? Of course. If you care to know what my crystal ball is showing me, keep your
eye on the role that technology, such as in-memory chip technology with analytics at the “speed of
thought,” will bring.

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Trends in Management Accounting Page 01

The Top 7 Trends in Management Accounting

Trend 1 – Expansion from product to channel and customer profitability analysis

Trend 4 – Business analytics imbedded in enterprise performance management (EPM) methods

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