Managerial Accounting and Strategic Planning

To succeed with the investment community, corporate leadership often needs to strike the right balance between short-term profitability and long-term expense management. To ensure healthy returns in the future, senior executives draw up plans to slash costs and launch new products. They also discuss managerial accounting and strategic planning topics when plotting operating tactics.

Managerial accounting discussions give department heads the opportunity to speak their minds about corporate efficiency and profitability. In essence, these talks often result in a call to action to cut spending and shun new projects that may prove costly for the firm. Also called cost accounting or management accounting, managerial accounting enables department heads to reflect on the efficiency of manufacturing systems and identify where to slash costs. By doing so, segment chiefs avoid the testiness that often marks a company's relationship with unhappy investors.

Managerial accounting provides a forum in which department supervisors can have a sober conversation about a company's financial condition. Debating the firm's economic prognosis allows mid-level management to share with top leadership various ways to restore or maintain the organization's solvency and profitability. Methods that can help a business achieve profitability include accurate financial reporting, constant cost monitoring and discussions with vendors about rebates, discounts and other types of price reduction agreements.

Strategic planning draws on the binomial concept of "strategy and planning." Strategy is a plan of action that a company engineers to reach a desired objective. Planning refers to the various methodologies and techniques that the business relies on to identify, approve and allocate resources necessary to achieve the desired goal. In essence, strategic planning is a firm's process of formulating a strategy and deciding how to allocate resources to pursue the strategy.

Strategic planning plays a key role in the way a company lays the groundwork for future success. In modern economies, strategy formulation and implementation are often a tale of operating prowess, exercises in which small firms can gradually erode the market share of bigger players. This scenario of "the lowly challenging the mighty" may happen if a bigger company loses sight of emerging trends in a sector or is too slow to respond to them -- thus handing a smaller firm the chance to increase its market presence.

Managerial accounting and strategic planning are two distinct concepts that often interrelate in corporate operating activities. The managerial accounting decision-making process begins with company principals reviewing corporate activities and formulating adequate strategies. In fact, all aspects of management accounting call for strategy and planning -- be it cost management, budgeting or profitability administration.