Managerial Accounting In the Power Generation Sector

Introduction  

The emerging business on a global scale and the accompanying competitive environment continue to become impacted and influenced by the growing operating complexity and intricacies of the industrial workplace. In more cases than one, managers and decision makers are learning to understand and appreciate the need to adopt managerial accounting strategies and techniques in confronting the issues and problems in the modern organization. Business,  especially those that have entered the international market have become fiercely competitive and diversified in scope demanding extraordinary as well as innovative approaches to enhance decision making and problem solving.

Further, the complexities of the burgeoning global economy plus the desire to factor the environmental issues may have strongly demanded a more effective and appropriate kind of managerial and strategic expertise that more often spelled the difference between real effectiveness and operating losses on the shop floor. Here, the issues of sustainability and management of risks are becoming the core issues in the decision processes required of managers (Shaw, 2003)

From here, the various economic drivers faced by decision-makers without the adequate financial knowhow and expertise are tremendous and stressful but nonetheless surmountable.

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Thus,.new managers are given very little options except to assume a position strongly demanding more advanced application of managerial accounting techniques to achieve efficiency and effectiveness in the company’s day-to-day production and operations.

 Managerial Accounting as Tools for Effective Decision-Making

Organizations, especially those established primarily for profit, are perennially faced with the prospects as well as the need to maximize and optimize corporate resources to accomplish goals and objectives specifically the ultimate issue of profit.

For purposes of generating corporate value, modern managerial approaches demand extraordinary personal commitments considering the expanding scopes of managerial responsibilities. In many ways, this is tempered by the internal and external issues of environmental concerns, people diversity, sustained and adequate profitability and the motivational aspects needed to accomplish strategic intents. (Simons, 1995)

Using managerial accounting strategies and techniques require varied forms of tools that compose the management control system which are primarily derivatives of cost accounting and management system. These tools may take the form of variance analysis, transfer pricing, strategic planning, swot analysis, performance management, flexible budgeting, activity-based management systems. The complexities of corporate manufacturing operations would require the right tools for the right issue issue. (Anthony & Govindarajan, 2003)

The Chief Executive Officer of the National Power Corporation, one of the biggest energy companies in Asia, is a mechanical engineer by profession but hardly underwent training in cost management systems. His cost and financial experience is limited to knowhow adopted by the company as a result of training and other crash courses in finance that are reasonably difficult to determine from his end. For two decades, management of the company has been encountering difficulties in the areas of   cost controllership functions.

At the outset, simple cost accounting systems adopted by the company were limited to the cost accumulation procedures under the traditional process or job order costing systems. Budgeting was equally limited to programs and activities and were not as much concerned or oriented with activity-based cost management system. Because of the lack of cost control system over production, maintenance, energy generation and normal operating processes, the profitability and other performance indicators hardly reflected viable sustainability and shareholder value.

With a profile of 100 million energy consumers, 400 employees and 20 years of existence, the CEO initiated activity-based cost management measures that addressed and achieved the following objectives. The features of the activity-based cost system and the use of technology-driven enterprise resource package system enabled the following control objectives to be achieved:

• Adoption of activity-based cost (ABC) management (ABM) system that identified cost drivers by area, functions, activities and objectives. The cost accounting system used a logical cost allocation process that made production planning and control easier and more efficient.
• The use of ABC in an ABM system led to the utilization of responsibility accounting and transfer pricing system that further enabled the use of a fair measurement of performance using the flexible budget and variance analysis system. This made the dream of target costing realizable strengthening the marketing, competitiveness and value of the firm
• This compendium of cost-based management control system motivated production and administrative managers to control costs at their levels and share uncontrollable expenses more rationally. The auxiliary flexible budget system further optimized the use of resources that led to better asset-liability- benefits management.

The effects on corporate management were discernible and objective. The aims of the program resulted in more concrete benefits to the company, such as: (1) Prompt submission of cost accounting reports and financial statements on a regular basis that likewise helped managers utilize relevant and accurate data to monitor operations and arrive at more efficient and effective decision-making processes. Incidentally, accurate and complete financial information reporting system has led to better liquidity, solvency, profitability and capital adequacy positions for the company; (2)

The implementation of a system of responsibility accounting enabled the use of cost, profit and investment centers that enabled managerial training more focused and competency-based. Using accurate and relevant transmission of data from the fields, helped determine better approaches to the uniqueness of the various operating units of the firm; (3)

A resultant annual evaluation of the operational and strategic plans likewise helped determine operating variances and accurate identification of the reasons for such budget differences as means of resolving discrepancies and timely accomplishment of targets; (3) Risks analysis and appropriate management through cost accounting research and studies served to analyze corporate viability and break-even scenarios over the long-term.

Similarly, (4) an added benefit of a monthly review of debt-servicing programs helped ensure timely payment of local and foreign liabilities as well as compensation packages of all employees competitive enough to retain capable manpower. Othe value-added benefits generated include: determination of the consumer profiles, past due accounts monitoring and policies on disconnection updating as means of creating a more realistic liquidity position for investment purposes. This was enhanced by the strategic and operational planning system that determined long-term viability in connection with credit positioning with lenders and financiers.

NPC punctuated its cost management processes with its brand of Performance Reporting System (PRS) as means of determining the qualitative and quantitative performance of units, offices and departments for purposes of incentives and programming, promotions and ranking. A more effective system of accountability as profit, cost and investment centers raised the learning and growth perspective of the corporation’s human capital at all levels/

In its entirety, the CEO and President of the company made use of a package of management control measures to define the corporate direction as mandated by government and state charters of its existence. Part of the control systems are the internal and external audit control as the operating leverage system, value-chain analysis and the reengineering processes.

On the other hand, management accounting techniques that dwell on the marketing and customer management systems enhanced core areas of service excellence demanded among front liners. Consumer satisfaction factors and collection efficiency has constantly been a target. Here, training of employees on a sustained basis emerged as a measure to maintain the motivation and career paths of its people. Thus, the resulting system of benefits represented the centerpiece of the human resource management. With a system that is heavily oriented on information technology, the company has in fact adopted the balanced scorecard system for long term development program. (Kaplan & Norton, 2003)

Conclusion        

The use of managerial accounting techniques at the National Power Corporation has become a basically fundamental measure of sustaining the viability of the company considering the risks and capital investment profile in aiming to serve a government service mandate and the competitive position and value desired for the company.

Achieving corporate goals and objectives hence, become easy as managers put and bring themselves into the financial and strategic management position demanded from them without the usual stress and demotivating factors that negate the work-life balance dream of most companies. In effect, the ultimate benefit of the cost management measures equally addressed the need of managers to equally become competent not only as technical men but also as quintessential decision-makers whose expertise must be inter-disciplinary.

Works cited

Anthony Robert. & Govindarajan, Vijay.   Management control systems. International Edition, McGraw-Hill

Publications, New Jersey, 2003. Print.

Kaplan, Robert  and Norton, David. Strategy maps. Transforming intangibles to tangible outcomes.  Boston,

            Harvard Publishing Corporation. 2003. Print

Shaw, John C. Corporate Governance and Risk: A systems approach. New Jersey, John Wiley & Sons. Pp.

86-87. 2003. Print

Simons, Robert.  How new top managers use control systems as levers of strategic renewal. Strategic

Management Journal. May 1994. 15, 3: ABI/INFORM Global pg. 169. Print