Shareholder Value Analysis: Definition Of Strategic Management Accounting

Definition of Strategic Management Accounting

According to Innes (1998), strategic management accounting is the provision of information to support the strategic decisions in organizations. On the other hand, the Chartered Institute of Management Accountants (CIMA) in the UK defines it as a form of management accounting in which emphasis is placed on information which relates to factors external to the firm, as well as non-financial information and internally generated information (CIMA Official Terminology, 2005:54).

Balanced Scorecard

Kaplan and Norton (1996) defines the balance scorecard as “The Balance Scorecard translates an organization’s mission and strategy into a comprehensive set of performance measures that provides the framework

It measures past and not future performance. O’Hanlon and Peasnell (1998) highlights the ad hoc adjustments made in EVA as it decides what items to capitalize and what method is subjective. Lastly, it is a single measure of performance as it does not measure the means of achieving the objectives of the organization.

Shareholder Value Analysis

Rappaport (1988) recommended the Shareholder Value Analysis (SVA) on how decisions of management can affect value of cash to shareholders. Two stages can be considered, identifying the free cash flows coming from operations and calculating shareholder value. This analysis is relatively simple to use, highlighting key decision areas which affects the shareholder value the most.

A key disadvantage is the subjectivity of the analysis. If any assumptions of the variables are incorrect then it’s no use implementing the shareholder value analysis. Furthermore, other models have been promoted and no model appears to gain universal acceptance.

Customer

The process value chain is a guide for companies when applying the internal business process perspective. It consists of the following three processes: the innovation process, the operations process and the post-sales process.

The management team of the hotel needs to do basic research to identify new products and services and latent needs of existing customers for the innovation process. An example is more room choices in the hotel. Then the company will need to come out with new products and services to reach the needs of current and new customers.

The operations process shows value creation. The concern for this is creating and giving the existing products and services to customers. In the hotel industry, the quality of the hotel can be classified under operations process as the revenue of the hotel will decrease if customers are unsatisfied with the product and services rendered by the