When Spending Money Saves You Money – The Values of Management Accounting

An uncomfortable silence spread through the board room as the directors mulled over the presented year end financials until the managing director spoke up with a strong rhetorical question… “Why have we produced a seventy thousand euro loss?”

About fourteen months previously the company had some cash flow problems and thought the best way to deal with them was to cut back on their overheads or as we refer to in the business, non-value adding activities and unfortunately for this company, that included the management accounting & reporting!

Obviously, the reduced overheads left the company in a better position but they weren’t able to tell because they didn’t have up-to-date management reports. Now, don’t get me wrong on this, the client were by no means stupid. They were senior qualified professionals with multiple years of business experience behind them but this doesn’t mean that they were management accounting experts!

After finishing the meeting I felt compelled to write this article as it really brought home to me the value of the management accounting and management reporting work that I do. The non-value adding activities have some value after all!

The point is that year end financial statements are produced months after the end of the financial year. Therefore, the reports produced are history. The value of the information from them will only cause heart ache or vanity from a director’s point of view. If the company had continued to invest in their management accounting and management reporting structure, they could have tackled the problems within days of them happening. If corrective action was taken, they would have reduced the loss and possibly produced a profit. After all, isn’t that what they are employed to do?!