Planning, budgeting, and forecasting. On various occasions, I have called these topics the "heart and soul" of management accounting and, on others, its "lifeblood." Therefore, I thought it appropriate to use the term "anatomy" to describe the key internal elements of the multiyear strategic planning process (which includes budgeting, long-run forecasting, and other types of decision analytics), current practitioner issues, lessons learned, and keys to success. The most important thing I'll discuss in this article is the roles that management accountants do or can play as critical influencers in the strategic planning process. I'll also cover some better practices for planning and budgeting. (Since few companies have reached a state of perfection in the planning and budgeting process, I prefer the term "better" rather than "best" practices.)
Why is planning the heart, soul, and lifeblood of management accounting?
Planning is the ultimate forward-looking, influential activity that impacts key stakeholders over a long period of time. Management accountants and finance function professionals have been on a decade-plus quest to shift their roles from shareholder value stewards to shareholder value creators, from bad cop to respected and credible influencers at the decision table, from transaction processors to strategic business partners. This isn't a complete shift away from their "home base" of finance and accounting because management accountants must demonstrate technical accounting depth in order to have the "right" to influence a breadth of business operations. What better opportunity to influence operations, value creation, and business performance than involvement in an organization's multiyear strategic plan, budgets, and forecasts--those forward-looking activities that chart the path ahead for an enterprise's critical stakeholders, such as customers/members, investors, and employees, to name a few!
To do this, what knowledge and skills must management accountants and finance professionals have? They regularly list planning, budgeting, and forecasting as areas in which they are seeking to build additional competency, and Table 1 seems to agree. It lists strategic planning as number 1 and budget preparation as number 5 under "most important knowledge and skills," according to a job analysis conducted by the Institute of Certified Management Accountants (ICMA) in March 2006. The job analysis was conducted to test/validate whether the Certified Management Accountant (CMA[reg]) exam content is consistent with the tasks and functions performed by management accountants in practice today and to suggest future content changes to ensure ongoing exam relevance as environmental conditions change.
Table 1: Knowledge and Skills Management Accountants Need to Possess Strategic Planning 87% Organization Management 83% Decision Analysis 78% Statement Analysis 75% Budget Preparation 75% Information Management 74% Performance Measurement 71% Cost Management 71% Internal Controls 70% Business Process 66% Investment Decisions 64% Business Economics 63% External Reporting 63% Strategic Marketing 58% Global Business 57% Quantitative Methods 56% Corporate Finance 53% Operational Paradigms 51% Source: ICMA Job Analysis (March 2006--1,899 respondents)
Once management accountants gain these and other skills, a highly desirable set of jobs awaits them! An "FP&A" (financial planning and analysis) job is often a "required" stop on the career path for the aspiring management accountant, regardless of an organization's size or structure. The position could be inside the central group that manages the planning process (the central FP&A organization), which could be the chief strategy organization (CSO), the controller's department, or even you (in a small enterprise), among other organizational options. Roles could include developing a master planning calendar; developing guidelines, standards, and templates for business units to apply in their planning; developing forecasts based on external expectations; and "rolling up" business unit forecasts to determine gaps relative to market expectations for key performance metrics such as revenue growth.
Influential positions abound outside the central planning organization as well, namely in the business units, product groups, and/or departments that are the operational "piece parts" or components that make up the total …