Do Management
Accountants
Perform Decision
Analysis Better than
Accounting Students?
B Y L I S A M . V I C T O R AV I C H , P H . D . , C PA
IT
HAS BEEN ARGUED THAT MANAGEMENT ACCOUNTANTS HAVE TRANSFORMED FROM AN
ORGANIZATIONAL ROLE OF
“BEAN
COUNTERS” TO BUSINESS PARTNERS, THOUGH NO
STUDY HAS ACTUALLY EXAMINED THE DECISION-MAKING SKILLS OF MANAGEMENT
ACCOUNTANTS. THIS STUDY SOUGHT TO OBSERVE MANAGEMENT ACCOUNTANTS’ ABILITY
TO IDENTIFY AND INTEGRATE RELEVANT INFORMATION FOR USE IN A RESOURCE
ALLOCATION DECISION. THE DECISION-MAKING ANALYSES FROM
IMA
PROFESSIONALS
WERE COMPARED TO ANALYSES MADE BY NONPROFESSIONAL ACCOUNTING STUDENTS.
RESULTS
FROM THE COMPARISON SUPPORT THE CLAIM THAT MANAGEMENT ACCOUN-
TANTS EXCEL AT PERFORMING A DECISION ANALYSIS, GIVEN THEIR ABILITY TO EXCEL AT
THE STUDY’S TASK. THIS SUGGESTS THAT MANAGEMENT ACCOUNTANTS HAVE THE
NECESSARY SKILLS TO ASSIST AND PARTICIPATE IN ORGANIZATIONAL DECISION MAKING.
raises the question: “Do management accountants really excel at decision analysis and outperform accounting
students who lack on-the-job management accounting
experience?” This question is answered by comparing
the performance of IMA® professionals to that of nonprofessionals at a universal task.
If management accountants are now indeed business
partners, it is imperative that they acquire a broad
raditionally, the role of management accountants has been described as that of a counter,
recorder, and reporter of financial information. This role has recently shifted, however,
from “bean counters” to business partners.
As business partners, management accountants are seen
as organizational team members and are involved in
both strategic and operational decision making.1 This
T
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knowledge base and maintain a skill set that enables
them to add value to the organizational decision-making
process. By adding value, management accountants will
assist top management in running the business. This
means providing relevant information, explaining how
the information impacts a decision, and participating in
the decision-making process.2 In interviews, 300 management accountants who had greater than seven years
of management accounting experience noted that they
spend more time analyzing information and being
involved in decision making and less time preparing
financial statements than they did five years ago.3
Also recognizing this changing role, the Chartered
Institute of Management Accountants (CIMA) created
the Improving Decision-Making in Organisations
Forum. The forum contains senior management
accountants from top companies around the world and
has set out to determine how the transformation to
business partner improves decision making in organizations. The forum ascertains that key roles of business
partners include framing a decision, supplying management with information, contributing insights, and analyzing alternatives.4 It is apparent that, to be business
partners, management accountants should excel at identification and interpretation of relevant information in
order to make accurate and efficient decisions.
Assuming that management accountants are involved
in gathering relevant information and making decisions,
they should excel at these tasks. Despite the global
attention given to this new role, no study has investigated the ability of management accountants to excel at a
germane decision-making task. Examining their performance at realistic decision making will give firsthand
insight into their abilities. This insight is complementary to survey- and interview-based research, which has
only investigated whether the duties of today’s management accountants are consistent with that of business
partners.5 Additionally, management accountants are
likely to face competition from information technology
specialists or production managers with strong financial
bases.6
AC CO U N T I N G E X P E R I E N C E
process in which decision makers specify possible alternatives, identify the relevant costs and benefits of each
alternative, and select the best course of action.7 If
management accountants excel at these tasks—and
hence are active members of organizational decision
making—they will participate in determining how
resources are allocated to various investment opportunities. Thus, in determining how resources should be
allocated, management accountants are likely to be
responsible for collecting relevant information, analyzing alternatives, and making a recommendation based
on that information.
Early research in management accounting found that
years of general business experience does not improve
decision making.8 Although there have not been a large
number of studies, a high level of management
accounting experience has been shown to lead to integration of opportunity costs in decision making if cash
flow analysis was chosen to represent the problem
rather than analysis based on accrual earnings.9
Although this research suggests that management
accounting experience contributes to the integration of
opportunity costs in decision making, it is unclear
whether this specific experience will enable individuals
to excel at identifying all types of relevant information
and to make optimal decisions.
Identification of information relevant to resource
allocation decisions by management accountants is
imperative because they tend to engage in futureoriented job-related tasks such as capital budgeting and
forecasting. In addition, experienced individuals are
better able to differentiate between information that is
relevant and irrelevant because they exhibit a top-down
approach to information acquisition using rules of
thumb and structured mental checklists.10 This relevant information will likely include items such as
opportunity costs and outlay costs. Consistent with
these expectations, analysts performing a financial
analysis task demonstrated a highly structured search
for information.11 This finding suggests that experience
not only improves identification of relevant information
but also improves a decision outcome, as situational
experience was found to improve auditors’ ability to
select relevant information used in making efficient,
appropriate control-risk assessments.12
AND
DECISION MAKING
Managerial decision making is often conceptualized as a
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IMA members are business leaders, managers, and
decision makers in management accounting and
finance. This group had a mean age of 41.5 years; 54%
(26) were male, and 46% (22) were female.
IMA professionals were solicited based on attendance at events sponsored by the organization. Two
responses were unusable because participants did not
perform a cash flow analysis and/or did not provide
complete responses to questions, resulting in a total of
48 usable responses. Forty-three usable responses were
obtained via on-site administration at various IMAsponsored events. Participants were not given any time
constraints and were simply told to complete the case.
The remaining five responses were obtained by having
a chapter president hand out the experimental instrument in a pre-stamped envelope at a monthly meeting.
The case took IMA professionals a mean time of 41
minutes (standard deviation = 3.80 minutes) to
complete.14
The IMA members reported having an average of 3.5
years of public accounting experience, 8.3 years of management accounting experience, 7.6 years of general
resource allocation experience, 5.4 years of capital budgeting experience, 4.7 years of experience analyzing
capital projects, and 4.7 years of project management
experience. Commonly reported job titles were controller, executive (chief executive officer, chief financial
officer, and chief operating officer), corporate or staff
accountant, accounting manager, consultant, and analyst. Additionally, 35 (73%) held the CMA® (Certified
Management Accountant) certification, while 27 (64%)
of the experienced participants were CPAs (Certified
Public Accountants).
The nonprofessionals included 58 upper-level
accounting majors enrolled in a managerial accounting
course at a large state university. This group was chosen
because its members had been exposed to relevant
coursework but lacked work experience. Because they
had completed several economics and accounting courses, they were expected to have an adequate level of
instruction necessary to understand and perform the
experimental task. The mean age of this group was 21.5
years. Fifty-two percent (30) were male, and 48% (28)
were female. The case was administered to the students during regular class time, and they were given
PREDICTIONS
Repeated decision making in a management accounting
context will increase awareness of information that is
relevant for assessing a course of action, such as
whether to continue a project already in process. This
awareness will increase the number of relevant information cues identified in a decision analysis, which consists of two categories: opportunity costs and outlay
costs. In comparing the performance of management
accountants—namely IMA professionals—to nonprofessionals, the accountants should identify more opportunity costs and outlay costs.
If management accounting experience is the factor
that leads to superior performance in terms of identifying relevant information, then task performance should
increase as management accounting experience increases. As IMA professionals have significantly more experience than nonprofessionals, they should identify more
opportunity costs and outlay costs when performing a
decision analysis. There also should be a correlation
between management accounting experience and the
number of opportunity and outlay costs identified.
Prior management accounting experience will not
only affect the identification of relevant information but
will also affect judgments and decisions. As a result, I
argue that increased identification of relevant opportunity costs and outlay costs will be related to decision
makers’ project continuance judgments and decisions.
As the decision alternative of project continuance is the
least favorable in terms of cash outlays and forgone
opportunities, an increased identification of relevant
cues is expected to be associated positively with decision makers’ decisions to discontinue the project.13
Because IMA professionals are expected to identify
more opportunity costs and outlay costs, and, as a result,
will properly identify the discontinuance as the less
costly outcome, they are less likely than nonprofessionals to continue a project .
METHODOLOGY
Participants
The study involves 106 participants. The professionals
included 48 members of IMA, one of the leading organizations dedicated to empowering accounting and
finance professionals to drive business performance.
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extra credit for participating. They were not given any
time constraints and were simply told to complete the
case. The inexperienced participants completed the
case in a mean time of 53 minutes (standard deviation =
8.6 minutes). This group reported minimal amounts of
professional experience.
3. Annual sublease revenue on the warehouse,
4. Annual salary revenue from contracting out the
trained managers,
5. Savings due to decreased spoilage from implementing a Just-in-Time (JIT) inventory system, and
6. Annual return on marketable securities lost because
of liquidation.
Procedure
The study’s task consisted of a case-based scenario that
described the current progress of a project and the
resources necessary to complete it (see Appendix A).
The project consisted of creating an internal logistics
division for a regional high-end grocery store named
Fresh Foods, Inc. Participants were told to assume the
role of the company’s recently appointed internal
investment project supervisor and to perform a cash
flow analysis to determine whether the logistics project
should be allocated the additional resources necessary
for completion. The “recently appointed” verbiage,
which indicated that the project was initiated by the
prior supervisor, was used to avoid creation of a project
sponsorship bias toward the logistics project.15
The experiment consisted of an experimental
phase (Phase I) and a post-experimental phase (Phase
II). In the first phase, participants read case materials,
performed a cash flow analysis regarding continuance
or discontinuance of the logistics division, and made
judgments and decisions regarding continuance of
the logistics division. The second phase included
questions to gather information regarding participant
demographics.
The study’s third measure was the number of outlay
costs included in participants’ cash flow analyses, which
ranged from zero to six. The relevant outlay costs were:
1. Liquidation value of marketable securities,
2. Annual lease of plane,
3. Purchase of cargo trailers,
4. Annual cost of a third-party logistics provider,
5. Annual rent of protective containers, and
6. Annual operating costs of the in-house logistics
division.
The study’s fourth and fifth measures were participants’ project continuance judgments and decisions.
The judgment was measured as the likelihood that they
would continue the in-house logistics division as indicated on a 11-point scale, with endpoints labeled
extremely unlikely (0) and extremely likely (10). For
the project continuance decision, participants were
asked to mark an “X” next to their favored course of
action.
Participants were asked to perform their cash flow
analysis on two sheets of provided paper labeled “continue” and “discontinue.” They based their decisions
on the difference between the two courses of action—in
other words, on choosing the least costly course of
action. Properly identifying that discontinuing the project was the least costly course of action was a function
of identifying relevant information in terms of opportunity costs and outlay costs. The number of opportunity
costs and outlay costs were identified by two independent coders who counted the number of relevant cues
included in each participant’s cash flow analysis. The
two coders agreed 91.6% of the time, and interrater reliability was assessed with the Kappa Coefficient (Kappa
= 0.90, p < 0.01). Any discrepancies between the two
coders were resolved by an independent discussion
between them.
Measures
The study’s first measure of interest was management
accounting experience, which was based on whether
participants belonged to the professional or nonprofessional sample. In addition, management accounting
experience was measured in years.
The study’s second measure was the number of
opportunity costs included in participants’ analyses,
which ranged from zero to six. The six relevant opportunity costs were:
1. Margin from creating an internal product line,
2. Current disposal value of the semi-trucks to be used
in transportation,
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in total and in each category.
A Pearson correlation (r) was used to examine
whether there was a relationship between management
accounting experience and integration of relevant
cues.17 There was a positive relationship between management accounting experience and number of opportunity costs identified. A Pearson correlation also was
used to determine whether there was a positive relationship between management accounting experience
and the number of outlay costs identified. There was a
significant and positive relationship between management accounting experience and both the number of
opportunity costs identified (r = 0.28, p < 0.01) and
number of outlay costs identified (r = 0.32, p < 0.01).
This suggests that, as management accounting experience increases, identification of relevant information in
the form of opportunity costs and outlay costs also
increases.
There was a significant and positive correlation
between deciding to discontinue the project and both
FINDINGS
The statistics reported include both the mean and standard deviation of management accounting experience
(in years), number of opportunity costs integrated,
number of outlay costs integrated, and project continuance judgments. The frequency of deciding to continue
or discontinue the project also was reported (see
Table 1).
The mean numbers of opportunity costs integrated
by management accountants and nonprofessionals were
4.89 and 3.31, respectively. The mean difference was
statistically significant (t-statistic = 4.99, p < 0.05).16
The mean numbers of outlay costs integrated by management accountants and nonprofessionals were 4.98
and 4.09, respectively. This mean difference was also
statistically significant (t-statistic 4.10, p < 0.05). Given
the significant difference between the means of opportunity costs and outlay costs attended to by the two participant groups, these results suggest the professionals
integrated more relevant cues than did nonprofessionals
Table 1:
Descriptive Statistics of Study Measures
Management Accountants
Management accounting experience (in years)
Opportunity costs (zero to six)
Outlay costs (zero to six)
Project continuance judgment (zero to 10)
Project Continuance Decision
Continue
Discontinue
Nonprofessionals
Management accounting experience (in years)
Opportunity costs (zero to six)
Outlay costs (zero to six)
Project continuance judgment (zero to 10)
Project Continuance Decision
Continue
Discontinue
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Mean
Standard Deviation
8.30
4.89
4.98
3.44
7.72
1.16
0.96
1.63
Number
11
37
Percent
22.9%
72.1%
Mean
Standard Deviation
0.04
3.31
4.09
5.34
0.27
2.06
1.23
3.12
Number
28
30
Percent
48.3%
51.7%
SPRING 2011, VOL. 12, NO. 3
the number of opportunity costs identified (r = 0.65, p <
0.05) and number of outlay costs identified (r = 0.65,
p < 0.05). Specifically, as the number of opportunity
costs identified increased, the participants’ continuance
judgments were lower on the scale, with endpoints
labeled extremely unlikely (0) and extremely likely
(10). With respect to continuance decisions, participants’ tendency to choose discontinuance as their
favored course of action increased as the number of
opportunity costs and outlay costs increases.
These findings suggest that attention to relevant
information led participants to properly quantify discontinuing the project as the least costly course of action.
Thus, attention to relevant information is positively
associated with discontinuance of the project. Further,
72.1% of the professionals chose to discontinue, and
only 51.7% of the nonprofessionals chose to discontinue. These findings suggest that management accounting professionals were more likely to discontinue the
project.
business partners. On the back end, it is important for
companies to accept the management accountant’s new
role as a business partner and facilitate the growth of
professionals beyond existing boundaries. In fact, many
top international firms have worked to improve decision
making across their entire organization by developing
their accounting personnel to operate as business
partners.19 ■
Lisa M. Victoravich, Ph.D., CPA, is assistant professor of
accounting at the Daniels College of Business at the University of Denver in Denver, Colorado. She is a member of
IMA’s Denver-Centennial Chapter. She can be reached at
[email protected].
E N D N OT E S
1 Gary Siegel, James E. Sorensen, and Sandra B. Richtermeyer,
“Are You a Business Partner?” Strategic Finance, September
2003, pp. 1-5.
2 Gary Siegel, “Adding Value,” Strategic Finance, May 2005,
pp. 89-90.
3 Gary Siegel and James E. Sorensen, “Counting More, Counting Less,” The 1999 Practice Analysis of Management Accounting,
IMA, Montvale, N.J., 1999.
4 Peter Simons, “Transforming Finance,” Financial Management,
November 2007, pp. 36-37.
5 Siegel, 2005; and Sean Byrne and Bernard Pierce, “Towards a
More Comprehensive Understanding of the Role of Management Accountants,” European Accounting Review, September
2007, pp. 469-498.
6 Jan Mouritsen, “Five Aspects of Accounting Departments’
Work,” Management Accounting Research, September 1996,
pp. 283-303.
7 This perspective is commonly discussed in managerial and
cost accounting textbooks. See Edward Blocher, Kung Chen,
Gary Cokins, and Thomas Lin, Cost Management: A Strategic
Emphasis, Fourth Edition, McGraw Hill, New York, N.Y., 2006;
and Don R. Hansen and Maryanne M. Mowen, Managerial
Accounting, 8th Edition, South-Western, Mason, Ohio, 2007.
8 For this research, see Paul D. Harrison and Adrian Harrell,
“Impact of ‘Adverse Selection’ on Managers’ Project Evaluation Decisions,” Academy of Management Journal, June 1993,
pp. 635-643; and Maryanne M. Mowen and John C. Mowen,
“An Empirical Examination of the Biasing Effects of Framing
on Business Decisions,” Decision Sciences, Fall 1986, pp. 596602.
9 Sandra C. Vera-Munoz, William R. Kinney, and Sarah E. Bonner, “The Effects of Domain Experience and Task Presentation Format on Accountants’ Information Relevance Assurance,” The Accounting Review, July 2001, pp. 405-429.
10 Jean C. Bedard and Michelene T.H. Chi, “Expertise in Auditing,” Auditing: A Journal of Practice & Theory, Supplement,
1993, pp. 21-45.
11 Stanley F. Biggs, “Financial Analysts’ Information Search in
the Assessment of Corporate Earnings Power,” Accounting,
Organizations, and Society, September 1984, pp. 313-324.
12 Jefferson T. Davis, “Experience and Auditors’ Selection of
CLOSING THOUGHTS
This study indicates that management accounts excel at
a key task: identifying relevant information for decision
making. It also shows that years of management
accounting experience is directly associated with the
number of relevant cues identified. By identifying and
relying on relevant information, management accountants are able to fully analyze a particular decision
avenue.
These findings should be of interest not only to
accounting practitioners but also to educators. Accounting curriculum is often concerned with the functional
aspects of accounting (e.g., tax, auditing, cost/managerial) and does not integrate necessary softer skills such as
writing, decision making, and problem solving. Yet practitioners and educators indicate that thinking, problemsolving, listening, and quantitative skills are important
components of accounting education.18 Consequently,
accounting educators should focus on these skills to
assist accountants to be more than simply bean counters.
On the front end, it is important for educators to
integrate skills such as decision making as universal
components of the accounting curriculum to ensure that
new professionals have the skills necessary to become
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13
14
15
16
17
18
19
Relevant Information for Preliminary Control Risk Assessments,” Auditing: A Journal of Practice & Theory, Spring 1996,
pp. 16-36.
In terms of total cash outflows, it was unfavorable to continue
the project under analysis. The case was designed so that
attention to more relevant cues indicated that continuing the
project was the most costly alternative.
The standard deviation shows the amount of variation of the
data scores (e.g., experience in years) from the “average”
(mean). A low standard deviation indicates that the data points
tend to be very close to the mean, whereas high standard deviation indicates that the data are spread out over a large range
of values.
Sponsorship bias is the idea that managers will be more in
favor of a course of action that they were involved with or supported initially. See Robert Chenhall and Deigan Morris, “The
Effect of Cognitive Style and Sponsorship Bias on the Treatment of Opportunity Costs in Resource Allocation Decisions,”
Accounting, Organizations and Society, January 1991, pp. 27-46.
The t-statistic assesses whether the means of two groups are
significantly different from each other; this allows the conclusion that the difference between the two means is due to the
variable of interest rather than pure chance. The p-value indicates whether or not a test statistic (e.g., t-statistic) is statistically significant; a p-value < 0.05 is considered statistically significant by conventional standards.
The Pearson correlation measures the strength of a linear relationship between two measures, e.g., experience and identification or relevant cues. A negative value indicates a decreasing
linear relationship, and a positive value indicates an increasing
linear relationship. The closer the coefficient is to either ?1 or
1, the stronger the correlation between the variables. See
Francès Clegg, Simple Statistics, a Course Book for the Social Sciences, Cambridge University Press, New York, N.Y., 1982.
For commentary, see Lin Mei Tan, Michael Fowler, and Lindsay Hawkes, “Management Accounting Curricula: Striking a
Balance between the Views of Educators and Practitioners,”
Accounting Education, March 2004, pp. 51-67.
Peter Simons, “Transforming Finance,” Financial Management,
September 2007, pp. 36-37.
M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY
APPENDIX A
FRESH FOODS, INC.
Internal Logistics Project—Summary Report
Project Funding:
In order to fund the logistics division project, Fresh
Foods issued 500,000 shares of $2 par value common
stock for $3.6 million. If the logistics project is discontinued, the proceeds from the stock issuance can be
used to initiate an internal product line that will include
all-natural, low-sodium canned vegetables, whole grain
pastas, and snack foods. Due to the higher margin on
internal products, the product line is expected to
increase operating cash flows by $90,000 a year
($450,000 over a five-year period).
Also, to fund the logistics project, Fresh Foods is
planning to liquidate $750,000 in marketable securities.
According to the Smith Barney investment statement,
the securities average an 8% annual return, which
includes dividend income. If the logistics project is not
continued, there are no plans to liquidate the securities.
Current Progress:
According to a recent engineering progress report, the
logistics project is far from completion, as 10% of the
project has been completed. The logistics project will
be considered complete when it is operational.
Numerous semi-trucks were purchased to enable
ground transportation. The trucks have a total current
resale value of $415,000, a 10-year useful life, and an
expected disposal value of $45,000.
For storage purposes, a five-year noncancelable lease
for two 20,000-square-foot warehouses has been signed
and will cost $600,000 annually for both warehouses
($3 million over a five-year period). The current lessee
is renting them month to month, and they will be ready
for Fresh Foods subsequent to a 60-day notice. Due to
the recent hike in interest rates and the scarcity of
available land in Orlando, Fla., both warehouses can be
sublet for a total of $720,000 annually ($3.6 million over
a five-year period).
In order to support an in-house logistics division, one
of Fresh Foods’ top managers was sent to a logistics
program at Harvard University. The nationally
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acclaimed program teaches managers the skills necessary to effectively and efficiently operate a logistics
division. Because tuition was paid by Fresh Foods, the
manager signed a five-year contract and will be paid
$225,000 per year ($1.125 million over five years) starting on the completion date of the logistics division. The
market salary for this individual is $300,000 per year. A
major national managerial-executive staffing agency has
contacted Fresh Foods regarding the availability of this
manager to assist other companies implement a logistics
division. If contracted out to other companies, the
staffing agency would pay Fresh Foods the market
salary. This demand is expected to persist over the life
of the manager’s contract.
at a cost of $100,000 per year for use by Isis to keep
organic produce separate while in transit. This avoids
pesticide cross-contamination from nonorganic produce.
Improper transportation of organic produce can result in
a fine up to $500,000 by the United States Department
of Agriculture (USDA). As Fresh Foods will be able to
separately transport organic goods with an internal logistics division, these containers will no longer be
necessary.
In House Logistics—Annual Costs
The following average five-year operating cost projections have been made. The incurrence of these
amounts will begin on the date the division becomes
operational.
Additional Outlay Requirements for Logistic Project
Completion:
For expedited transit of perishable goods, one 757 cargo
plane will be leased for $650,000 per year ($3.25 million
over a five-year period). The lease is cancelable if
notice is given 30 days prior to commencement. At the
termination of the lease, Fresh Foods has the option to
purchase the plane for the lower of $500,000 or fair market value.
To enable the semi-trucks to be used for ground
transportation, 20 cargo trailers must be purchased for a
total amount of $375,000. The trailers have a useful life
of 10 years and an estimated disposal value of $20,000.
Average
Annual
Amount
$310,000
230,000
Warehouse employees
General & administrative
Transportation employees
Ground
220,000
Air
180,000
Fuel cost
94,000
Miscellaneous
118,000
Electric
48,000
Total
$1,200,000
Third Party Logistics—Annual Costs
Fresh Foods currently uses Isis USA, Ltd. as a thirdparty distributor, which includes ground transportation,
air transportation, and offsite warehousing. This service
is provided on a contractual basis for a flat fee of
$2.8 million (this would amount to $14 million over a
five-year period). Isis is aware of the possibility that
Fresh Foods may not renew the contract and has
offered to provide a custom Isis JIT (Just-in-Time)
inventory system free of charge upon signing a five-year
renewal contract. Isis will also implement the system
and train employees free of charge. The JIT inventory
system is estimated to decrease normal spoilage, reducing cost of goods sold by 5%, which approximates $1.5
million over a five-year horizon.
Fresh Foods has been renting protective containers
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Five-Year
Total
$1,550,000
1,150,000
1,100,000
900,000
470,000
590,000
240,000
$6,000,000