Financial Budgets – A company must assess financing needs, including an evaluation of potential cash
shortages. These tools enable companies to meet with lenders and demonstrate why and when additional
support may be needed.
The budget process is quite important (no matter how painful the process may seem) to the viability of
an organization. Several of the subsequent chapters are devoted to helping you better understand the
nature and elements of sound budgeting.
2.6
Directing
There are many good plans that are never realized. To realize a plan requires the initiation and
direction of numerous actions. Often, these actions must be well coordinated and timed. Resources
must be ready, and authorizations need to be in place to enable persons to act according to the plan.
By analogy, imagine that a composer has written a beautiful score of music – the “plan.” For it to
come to life requires all members of the orchestra, and a conductor who can bring the orchestra into
synchronization and harmony. Likewise, the managerial accountant has a major role in putting business
plans into action. Information systems must be developed to allow management to orchestrate the
organization. Management must know that inventory is available when needed, productive resources
(man and machine) are scheduled appropriately, transportation systems will be available to deliver output,
and on and on. In addition, management must be ready to demonstrate compliance with contracts and
regulations. These are complex tasks. They cannot occur without strong information resources. A major
element of management accounting is to develop information systems to support the ongoing direction
of the business effort.
Managerial accounting supports the “directing” function in many ways. Areas of support include costing,
production management, and special analysis: