To better understand differences between many similar types of terms in accounting such as management accounting and financial accounting, management control and financial control and strategic management accounting we will explore the case study of TNT and how the company has been able to implement these important concepts practically in this case.
Firstly, we will see how the management and financial controls were used in order to achieve what Taylor say’s is Critical Mass. We will also see how efficient and effective Taylor was in utilizing his resources given the limited number of employees and the outsourcing of his production to save underutilization costs.
Secondly, we will examine the spreadsheet which was flexible enough to alter according to the changing needs, of which Taylor had made good use of, by making a model which has all the elements programmed in it, which assisted Taylor in decision making and forecasting sales, which resulted into preplanning for the future.
Lastly, we will see in the later part of the report, that there are many other situations where TNT has made good use of the models such as Porter’s five forces and Value chain analysis.
“Management control is plan of organization, methods and procedures adopted by management to ensure that its goals are met whereas financial control involves management of a firm's costs and expenses in relation to budgeted.
Management controls include processes for planning, organizing, directing, and controlling program operations. Financial Control include comparison of what you have actually achieved with what you have planned in your budget and as such it is one business function amongst many, and comprises but one facet of the wider practice of management control.
A subset of management controls are the internal controls used to assure that there is prevention or timely detection of unauthorized acquisition, use, or disposition of the entity's assets with money being used as a convenient measure of variety of other more complex dimensions not as an end in itself.
A financial control firstly uses financial information to monitor financial flows; that is it is concerned with looking after the money. Secondly, it is also often used as a surrogate measure for other aspects of organizational performance.”
Some of Financial controls in field study are:
Taylor reduced the capital investment in CNC cutting and milling machinery and avoided the capacity utilization problem his competitors (mainly engineering companies that manufactured packaging machines) are facing by outsourcing its manufacture.
He has employed 120 peoples worldwide that lead to lower amount of salary payments. Doing all the financial planning with the efficient use of Spread sheet model which is used for: Historical record, forecasting, decision making.
Matching results of external accountant with his results to avoid errors and misstatements. Flexible model was easy to modify according to time, technology and expansion. Model enabled him to approach finance and develop export market with in his cash flow and borrowing limits.
Some of Management controls in field study are:
Formulation of Strategies:
To achieve “Critical Mass”.
Planning based on future changes
To build premises and using it as security for lenders and subleasing the spare capacity to cover his interest cost because bank lend against real-estate not business.
Used spreadsheet model and very good market knowledge to make strategic decisions like, firstly switching to a stainless steel construction, necessary for wet packaging. Secondly he plans to dominate the low cost machines market which is 25 % of the market and wants his competitors to go broke. Used model to estimate how many Robags TNA could sell.
Used Cost benefit ratio to make important decision.
Emphasised Research and development.
Defending Intellectual property...