Managament accounting

R N Anthony, a leading writer on organisational control, has suggested that the activities of planning, control and decision making should not be separated since all managers make planning and control decisions. He has identified three types of management activity.

(a) Strategic planning: 'the process of deciding on objectives of the organisation, on changes in these objectives, on the resources used to attain these objectives, and on the policies that are to govern the acquisition, use and disposition of these resources'.

(b) Tactical (or management) control: 'the process by which managers assure that resources are obtained and used effectively and efficiently in the accomplishment of the organisation's objectives'.

(c) Operational control: 'the process of assuring that specific tasks are carried out effectively and efficiently'.

Strategic plans are those which set or change the objectives or strategic targets of an organisation. They would include such matters as the selection of products and markets, the required levels of company profitability and the purchase and disposal of subsidiary companies or major non-current assets.

While strategic planning is concerned with setting objectives and strategic targets, management control is concerned with decisions about the efficient and effective use of an organisation's resources to achieve these objectives or targets. (a) Resources are often referred to as the '4 Ms' (men, materials, machines and money). (b) Efficiency in the use of resources means that optimum output is achieved from the input resources used. It relates to the combinations of men, land and capital (for example how much production work should be automated) and to the productivity of labour, or material usage. (c) Effectiveness in the use of resources means that the outputs obtained are in line with the intended objectives or targets.

The third, and lowest, tier in Anthony's hierarchy of decision making consists of operational control decisions. As we have seen, operational control is the task of ensuring that specific tasks are carried out effectively and efficiently

(a) Senior management may decide that the company should increase sales by 5% per annum for at least five years – a strategic plan. (b) The sales director and senior sales managers will make plans to increase sales by 5% in the next year, with some provisional planning for future years. This involves planning direct sales resources, advertising, sales promotion and so on. Sales quotas are assigned to each sales territory – a tactical plan (management control). (c) The manager of a sales territory specifies the weekly sales targets for each sales representative. This is operational planning: individuals are given tasks which they are expected to achieve.