Finance: Writing a `balanced scorecard'

Management accountants qualifying this month find themselves in a market that is about as buoyant as anybody can remember. Even the huge mergers in the banking sector and the planned link-up between two Big Six accounting firms have done little to diminish the general demand for financial staff. And within that, the stock of management accountants is still rising, as companies put greater store by commercial awareness and business experience than the grounding in the fundamentals of accounting still associated with the syllabus of the Institute of Chartered Accountants.

Nevertheless, certain challenges await young management accountants, as well as their counterparts in other accounting bodies. Indeed, a conference was told yesterday that the traditional finance function - encompassing accounting, planning and budgeting, investment appraisal and management reporting - can prevent managers from adding value to their organisation.

Jim Marsh, partner in charge of "value-based management" at KPMG Management Consulting, said at the conference, "Strategic Focus on the Finance Function": "All businesses should have one governing objective: to maximise shareholder value. Traditionally, measures such as accounting profit and earnings per share were thought to play the major role in determining this value. But an excessive focus on these measures can give a distorted picture of a company's real success and lead to decisions being taken for the wrong reasons."

This is the sort of thinking that has given rise to a concept known as the "balanced scorecard". Though the idea has gained wide acceptance among accountants, it is still not as widely adopted as may be thought.

Likewise, activity-based costing, or ABC, is widely reckoned to be a key part of the management accountant's armoury, in that it enables more appropriate allocation of costs than more traditional methods. But it, too, has not been so extensively taken up as may be imagined.

Mr Marsh offers other options. These range from cash-flow figures, which - while more suitable, are easy to manipulate and do not differentiate between investment and spending - to budgeting, which ignores strategic considerations and, according to him, is "little more than a mixture of number-crunching and an extrapolation of past performance".

He added: "The decision to invest in a particular area of the organisation should be made on the basis of the value that it can add to the company. The finance function should be flexible enough to enable the identification and appraisal of new opportunities and to facilitate the allocation or reallocation of resources, as necessary."

With executives increasingly conscious that the only way for companies to prosper in the future is through genuine growth and innovation, management accountants are likely to find themselves in the thick of such debates, and being required to deliver ever more detailed management reports. As Mr Marsh told conference delegates, "Management reporting should be used to give the board the right information to enable them to know, at any point, how much value is being created, relative to the market and their competitors".

One of the easiest ways of achieving this is to give general managers access to management accounting data. And yet a recent survey suggests that this is hard to achieve.

According to the report "The Changing Role of the Finance Function", by the business software analyst Tate Bramald Consultancy, in association with PS Financials, more than 70 per cent of management accountants say that the need for other managers' access to their accounting system and data has increased over the past three years. However, only 58 per cent say that access is possible, while more than 40 per cent blame the problem on "limitations of the current system".

A similar proportion admits to providing management information "poorly" for other departments.

Dennis Rymill, PS Financials director, said: "Accountants are crying out for greater system flexibility. Accounting software has largely failed to keep up with the pace of business integration and technical change. Research shows that three in four management accountants are grappling with systems that cannot cope with changes in business strategy or tactics. It is time for the software industry to listen to what users are saying, and act on it."

In the meantime, management accountants are clearly going to have to be personally as adaptable and accessible as possible - as well as highly proficient at monitoring performance in a fast-evolving business environment.