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Strategic Management Accounting Definition: An Introduction

This article will provide an introduction to the strategic management accounting definition. Before delving into the topic, it’s important to state the difference between management accounting and strategic management accounting.

Definitions

The Chartered Institute of Management Accounting (CIMA) defines management accounting as follows: “management accounting is the sourcing, analysis, communication and use of decision-relevant financial and non-financial information to generate and preserve value for organizations.”

This is quite different from the strategic management accounting definition.

According to CIMA, strategic management accounting is defined as “a form of management accounting where emphasis is placed on information which relates to factors external to the entity, as well as non-financial information and internally generated information.”

We realize by the definition that external factors are a key component of the concept of strategic management accounting.

So what is strategic management accounting

Strategic management accounting involves the evaluation of external information regarding competitors in the marketplace, political/monetary policies affecting the market, current trends in prices, share and costs. The result of this evaluation is then focused on the available resources of the firm. So, management can determine the needed responses of the organization in order to be at the top in the market.

In carrying out this analysis, management brings three basic elements to play:

1. Quality
2. Cost
3. Time

Enterprises evaluate the relative implication and importance of these three factors on their customers and the entire market and draw out strategic paths of actions to put them at the top of the competitions. This is carried out most effectively using behavioral, technical and cultural analysis that provides both the information and actions the firm has to take to beat the competition.Strategic planning and SWOT analysis are two well-known tools to assist this process.

Strategic planning and SWOT analysis are two well-known tools to assist this process. A management accountants role could include preparing and updating such a tool.

Strategic management accounting definition put into action

Here is an example to properly illustrate the strategic management accounting definition works in practice:

A coffee retail shop that wants to stand out of the competition, satisfy customers in terms of quality, cost, and time, and still make maximum profit and save costs can apply strategic management accounting. Based on the technical, behavioral and cultural analysis carried out on the market and customers, the management might discover that to stand out of the competition, cost is a major factor. In a move to reduce costs, it might decide to sign a contract with suppliers of coffee to supply at a fixed price for a given period of time. This will help the firm reduce the price at which they can sell to customers, keep profit high and thus be at the top of the market in terms of sales.

They might, however, discover that time is the major factor and may decide to sign a contract with construction companies and real estate holders to construct outlets at various points in the locality to reach customers quickly, and thus be at the top of the competition in terms of time.

Conclusion

In conclusion, strategic management accounting goes beyond internal affairs to include all other external data and information. It aims to take strategic steps to beat competition in the marketplace.

Adrian

I'm Adrian, a chartered management accountant with many years of practical experience. I studied strategy, financial controlling and entrepreneurship in Switzerland and England.

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