Management accounting refers to accounting that helps business managers make decisions through measurement and analysis (What is Managerial Accounting?, n.d.). In the managed IT services company where I work, management accounting helps establish a strategy, budget, goals/targets, and key performance indicators (KPIs). These tools help tie individual and team performance to the business performance.
Managed IT service providers often have several teams, such as sales teams, development teams, helpdesk teams, and project delivery teams. They also often have central goals of increasing market share, increasing margins, increasing revenues, and improving customer experience. Managerial accounting is useful in assessing the performance of the teams within the company and the company itself in approaching those goals. In my experience, managed service providers often buy industry-specific software such as ConnectWise, Autotask, BrightGuage, MSP360, and IT Glue to track financials as well as develop metrics and key performance indicators (KPIs) around service delivery in order to develop managerial accounting oversight over the business.
Management accounting helps in the management tasks of decision making and planning, directing, and controlling (Walther, n.d.). That decision making relies on information, and the functions of planning, directing, and controlling are dependent on information (Heisinger & Hoyle, n.d., p.11). Management accounting is the information source that gives identification, measurement, analysis, interpretation of information for use in those management actions (What is Managerial Accounting?, n.d.).
Planning: Defining Strategy, Objectives, and Budgets
As our company plans, it defines strategy and creates objectives to support the strategy (Heisinger & Hoyle, n.d., p.13), managerial accounting helps by framing the strategic objectives in a way that links the objectives to revenues and profit levels, which can be translated into team performance or product-line performance, or even supplier performance. Managerial accounting is crucial then in determining the budgets as well. In formulating a sales budget as well as an operational budget, we analyze our past performance data and project into next year from that data. These analyses and interpretations are managerial accounting.
Directing: Using a PSA system (like an ERP) to control processes and assist in decision making
My company, as many managed service providers also do, uses a professional services automation (PSA) tool. This is like an ERP system in that it controls business processes, inventory, billing, customer relationship management (CRM), helpdesk tickets, and projects. This gives us a central source of truth so that we have real-time results. With metrics and charts, it enables analysis around everything from sales revenue to project revenue to Net Promoter Score (NPS) and ticket performance. It also allows us to see things such as the ratio of incoming leads to closed deals and the relationship between deal size and customer sector. This data is useful in modeling and reporting.
Controlling: Using the current performance metrics/KPI to monitor performance
In managed services, we are constantly adjusting our teams, our products, and our sales in order to perform better. The data we gather with our professional services automation (PSA) software assists in monitoring, visualizing and analyzing performance. If failing to meet our budget, we can hold our metrics against the budget and adjust our tactics. If we are spending too much, we can make cuts. If there are too few sales to support the revenue needs, we push the sales team to meet their objectives.
Management accounting is a core part of running an IT managed service provider (MSP). We make our decisions based on data and analysis. We make our strategic plans, objectives, budgets when we use managerial accounting to plan. When we use managerial accounting to direct, we adjust our team, product, or processes based on information and analysis. When we use managerial accounting to control, we monitor performance using metrics and key performance indicators (KPIs).
Heisinger, K., & Hoyle, J. B. (n.d.). Accounting for Managers. https://resources.saylor.org/wwwresources/archived/site/textbooks/Managerial%20Accounting.pdf
Walther, L. (n.d.). Planning, Directing, and Controlling. Principles of Accounting. https://www.principlesofaccounting.com/chapter-17/planning/
What Is Managerial Accounting? (n.d.). University of Nevada, Reno. https://onlinedegrees.unr.edu/blog/what-is-managerial-accounting/