Company Performance Evaluation Tools
As a manager, I must make sensible decisions in order to lead my department in developing our business, outsourcing IT projects to foreign developers, and even employing programmers from other countries to work remotely with us.
Therefore, the top three Managerial Accounting tools that might benefit me are:
Differential Analysis to Make-or-Buy Decision (including how to analyze the qualitative factor)
Sometimes I need to choose whether we need to make the product by our team in Japan or outsource the project to our software house partners in Indonesia. Most of the cases, even though the quantitative results show it will be cheaper if we outsource the project to Indonesian software houses, we choose to develop the product by our team to protect our customers’ satisfaction. Not only that, differential analysis is useful in making managerial decisions related to the maintenance or elimination of product lines, the retention or elimination of customers, and the acceptance or rejection of special customer orders (Heisinger & Hoyle, n.d).
Since our company service is mostly providing made to order product, we need to consider whether we need to accept or reject the customer orders. Because not all orders are worthy for us to work on, sometimes the cost is much bigger than the profit we gain. Therefore, we need to reject this kind of order.
Capital Budgeting Decision: NPV, IRR, and Payback
Capital budgeting (also known as investment assessment) is the process of determining if an organization’s long-term investments, such as new machinery, replacement machinery, new facilities, new products, and research and development initiatives, are worthwhile (Heisinger & Hoyle, n.d.). As for me as a manager, I need to understand the concept of capital budgeting decision because currently I lead the research and development team and work together with the product managers to develop a prospective new product in the future. As for the current time our company is just a software house that not provide our own product, but in the future we want to develop our own product and change the concept into SaaS Company (Software as Service). Hence, I need to understand how to make the best decision by looking on the NPV, IRR, and Payback period of the investment. As a manager, I must consider the possible risks of the investment not performing as expected for a variety of reasons when embarking on this decision-making process.
Financial Ratios Calculation and Analysis
Financial ratio analysis is used to determine whether a firm is healthy enough to get investment or loan capital to run (Heisinger & Hoyle, n.d.). Lastly, the tools that will benefit me more is the financial calculation and analysis. By understand my company financial statements performance by looking on its financial ratios, I can help the finance department making a better decision for our company. Other than that, in my personal goals, I want to be a stock investor in the future. By understanding the financial ratios of the companies listed on the stock market, I can choose the best investment for myself in the future.
References
Heisinger, K., & Hoyle, J. B. (n.d.). Accounting for Managers. https://2012books.lardbucket.org/books/accounting-for-managers/index.html
Note:
This article is written based on University of The People Managerial Accounting (BUS 5110) written assignment by Fristy Tania in August 2022
