At the beginning of the year, the global business community was looking forward to a return to growth and stability. But 2022 has brought with it challenging macroeconomic and geopolitical conditions, which are causes high inflation and interest rates, continuing supply chain issues, and economic uncertainty. In fact, many economists are forecasting a global recession. Businesses are facing a complicated set of challenges, struggling to grow revenue and maintain reliable supply chains. Many long-term plans have been postponed as enterprises become more conservative to conserve cash flows and cut costs. This is exactly what was borne out by the recent Global Economic Conditions Survey (GECS), carried out jointly by IMA® (Institute of Management Accountants) and ACCA (the Association of Chartered Certified Accountants), which predicts that while global growth will continue, it will be at a modest pace. Interestingly, the survey was done twice, just prior and then after Russia invaded Ukraine, and it clearly shows that the war will have an impact on the global economy.
India is also having to deal with inflation which is putting pricing pressures on manufacturers as the cost of raw materials, energy, transportation, and financing increases. This puts disproportionate pressure on the leadership team, primarily the CFO team who are increasingly tasked with making strategic and operational decisions in addition to fiscal management. For smaller companies struggling to keep cash flows steady and maintain a robust supply chain against these headwinds, the risk is disproportionately higher. Uncertainty in times of difficulty clearly necessitates careful enterprise risk management. Businesses looking to turn obstacles into opportunities can benefit greatly from the analytical and business insight skills of management accountants. More than ever, management accountants are essential. They combine in-depth technical expertise in accounting and finance with the capacity to think strategically and be true business partners. Let us look at three fundamental competencies that management accountants bring to the table.
Equipped to carry out the most crucial job in uncertainties – Risk Management
In business it is prudent to be risk averse before calamity strikes. Consequently, businesses must take a proactive approach to monitor and manage enterprise risk in all its manifestation – be it cyberattacks or a global pandemic. Fortunately, the Committee of Sponsoring Organizations of the Treadway Commission’s (COSO) Enterprise Risk Management Framework provides management accountants with a clear direction on enterprise resource management (ERM). COSO was created to help organizations become more fraud resistant and IMA is one of COSO’s five co-sponsors.
The primary accountability of ERM falls, not surprisingly, on management accountants, as they frequently have the best visibility into a company’s finances, operations and supply lines. To assess non-financial risks across the firm, they collaborate cross-functionally with departments like IT, HR, and sustainability and create a comprehensive risk framework by taking all relevant/potential hazards into consideration. Risk management is focused on risks, of course, but also on opportunities and how to manage the risk surrounding those opportunities. This aligns well with another important competency, strategic decision making.
Providing an innovative approach to strategic decision making
Management accountants are trained to identify and evaluate opportunities that will add value to the company. That involves not just quantifying the financial aspects of decisions (ROI, cash flow, net present value, etc.), but also working with senior leadership to evaluate business opportunities in the context of organizational strategy. Having a strategic mindset and technical analytical skills is increasingly important at a time when companies and organizations need to be resilient, adapting quickly to changing business realities. It also necessitates broader abilities, such as business acumen, interpersonal skills, and the capacity to build rapport with upper management. Finance teams led by management accountants are better able to see possibilities for value creation and the risks associated with achieving those opportunities’ objectives. Professional management accountants, CMAs for example, assess the costs and advantages of developing a new product, purchasing another business, implementing a radical innovation, or partnering with a company abroad.
Best suited to carry out performance management
Evaluating the success of strategic initiatives is imperative and management accountants are best suited to assess the success of growth opportunity investments and determine which one’s merit additional investment, and which ones should be abandoned with resources being deployed elsewhere. Tracking sustainable company KPIs and informing stakeholders are crucial tasks for management accountants. Performance management is a set of evaluation tools that help management look back so that they can better plan for sustained success in the future.
The verdict is very clear. Companies that realize the relevance and strategic value of management accountants are more likely to gain a competitive advantage over those that do not. Navigating regulatory minefields in addition to operational and strategic challenges, these organizations are therefore more likely to deliver sustainable value for shareholders and drive economic growth. For those that have not recognized management accountants as business partners, the time is now!
(The author is Mr. Dennis Whitney, CMA, CAE, CFM, Senior Vice President, Certifications, Exams, & Content Integration at IMA® (Institute of Management Accountants) and the views expressed in this article are his own)