The

importance of management accounting in any organization is indubitable. It instills veracity in institutional processes, provides a comprehensive overview of the business by making activities visible, imparts new insights and instigates action (Swieringa, Weick; 1987). On completion of the action it also provides an elucidation of the outcome. This assists managers to plan further for the advancement of the company. A question then arises whether increased precision in accounting techniques is always required to realize this advancement. I will attempt to answer this question in the course of this article by concentrating on performance measurement techniques used in accounting. This essay consists of four perspectives. The first one describes the idea of what I think precision in management accounting means and through a historical perspective tries to explain how it has led to innovations and creation of different accounting techniques over the past century. The second is a theoretical perspective highlighting how techniques in performance measurement in organizations inculcate modern academic theories to increase precision. The next explains the negative aspects of increased precision in accounting to insert a balanced view to the argument. Lastly through a futuristic perspective assumptions are made about the use of performance measures in the years ahead whilst taking a stand that increased precision in accounting is desirable but identification of processes and situations in which it can benefit the most is also equally necessary. It is my belief that precision within management accounting can be looked at in two different ways. Meticulousness in numbers and exactitude of calculations is one way while correctness of models employed to measure both financial and nonfinancial performance is another. The latter links management accounting techniques and organizational control and will be the focus of this essay. An integral part of todays organizational control system is performance measurement. By evaluating the expediency of people and processes in an organization it enables the achievement of predefined strategies and goals. In search of precision, performance measures have been evolving over time as businesses have tried to incorporate them with the organizational purpose. This has led to innovations in performance measurement techniques and an effort is

made to highlight some that have ensued over the past century in order to stress on how search for precision leads to novelty. The use of performance measures is dated as early as 1920 by large corporations like Du Pont and General Motors because the then used system of measuring financial performance was unsuccessful in indicating the rate of return on capital invested (Kaplan; 1984). The Return on Investment (ROI as a product of profit and turnover) performance measure was also employed to indicate the competence of their many operating departments and managers since these organizations had become vertically integrated and decentralized while dealing with mass production and distribution. However it was found that detrimental actions like waning new investments to increase capital turnover by decentralized managers that were focusing excessively on short-term profit led to decrease in the long-term value of the business (Kaplan and Atkinson; 1998). On realizing the confines of the ROI method, General Electric adopted a new measure called Residual Income method in 1950. Residual Income was calculated by subtracting the charge on capital from operating income. This was to encourage managers to make investments that would lead to long-term benefits thus aligning the interests of divisional managers and the enterprise (Christensen et al; 2002). This practice matured further by 1990 as a result of innovation of a more precise measurement system called Economic Value Added or EVA that was an extension of the RI method and used a financial economics framework to derive the charge on capital by considering the opportunity cost of the capital and portraying economic profits. (Stern, Stewart and Chew; 1995). Young writes about frequently proposed adjustments that are made to EVA model to increase its precision as a performance measure (Young; 1999). Capitalizing research and development to prevent under investments by managers. Non-dismissal of intangibles like goodwill leading to increased motivation for management to earn returns on capital invested. Capitalizing costs of restructuring so as to demand returns. He predicts many such changes will be proposed to the EVA model in the future. It is clear that a search to make the fiscal performance measures more accurate has led to the advance in performance-based management accounting

techniques. However the adequacy of only financial evaluations to accomplish proficiencies that organizations aim for in todays information age has been questioned leading to the incorporation of both financial and nonfinancial measures into an objective portrayal of the performance of organizations and its employees known as the Balanced Scorecard (Kaplan, Norton; 1992). The Balanced Scorecard makes available to managers the ability to collectively scrutinize issues within the customer, internal, innovative and financial perspectives that they think shape the organizations progress. It acts as a tool for planning, predicting and reviewing the processes to reach desired targets. In the past decade the use of the Balanced Scorecard has accelerated within businesses and has enabled them to move forward. An example is the transition made by the First Financial Corporation from a product oriented to a single banking service company comprised of ten different banks (Kaplan; 2005). FCFC tailored the design to its own needs and produced scorecards for the board of directors, CEO, managers and the enterprise and a whole. This enabled them to attain their requirements of corporate governance. Thus steady transition between ROI, RI, EVA and Balanced Scorecard has been a gradual process as a result of an endeavor to reduce fallacy and improve accuracy. As new and better techniques of performance measurement evolve, their relation to two allied theories concerning precision in accounting must be mentioned. These are the paradoxical (Meyer, Gupta; 1994) and contextual theories (Chenhall; 2006). The paradoxical model emphasizes that there are diverse norms for measuring performance in any organization and they continually change over time. The change occurs on running down of measures due to factors like improved performance, perverse learning, selection of efficient managers, suppression of continual discrepancies in performances and external changes. This frequently creates instability within organizations. The managers in such cases must be precise in identifying new performance indicators that are not correlated and are orthogonal to the earlier ones to prevent repeated use of run down measures. This averts the repeated use of run down measures and facilitates the company to move from completion of one strategy to the vision of another one motivating and empowering employees along the way thus augmenting organizational performance.

The contextual theory states that performance measures have to be set by companies based on external environment, strategy, technology, organizational structure and size of the organization. An example is a business that deals with complex technologies involved in manufacturing highly specialized products using advanced methods like just in time and total quality management. The performance measures in this case must be flexible and perceptive to mutual dependence across elements of the production process (Chenhall; 2006). The advantages of such a measurement system are not guaranteed unless the organization is successful in setting them precisely furnished to their own system and functions. An analogous framework emphasizing the notion of situated functionality has also been adopted (Ahrens, Chapman; 2007). The writers articulate the use of accounting techniques for creating general awareness thereby instilling activity to achieve specific purposes within individual organizations calling it situated functionality of accounting. These measures may not be the constant within different businesses but are exercised as a resource for action depending on the composition and strategy of the organization. The role of theories mentioned above is an attempt by academics to guide practitioners after considerable research in choosing precise measures and thus shaping the success of their business. Every action has an equal and opposite reaction and it is the same in the case of precision in performance measurement. Even though it incentivizes innovation and is supported by academic theories there is a skeptical view towards it under certain circumstances. A mention of some of these views is warranted to shed light on both sides of the coin. A major concern in todays business environment is whether managers can deal with the extreme pressures that are an adjunct to their work. Weick shares this trepidation and illustrates that as the need to enhance efficiency in corporations grow and as economic pressures intensify the measures employed to monitor performance increase. Increased search of precision in both goal setting and organizational control leads to excessive stress within employees (Weick; 1983). In the case of setting goals when the difficulty of tasks is set as per perceived abilities of the workers, it creates maximum ambiguity that might cause stress. Deciding to cut the workforce or to reduce operating costs so as to tighten organizational control every so often increases

both quantitative and qualitative workload. Managers end up monitoring too many events and actions. This leads to increased stress levels and severely affects utility as absenteeism increases, medical restrictions escalate and problem solving using innovation takes a back seat. In physical expenses the costs incurred can even go up to 20 billion dollars per year (Weick; 1983). It can be argued that with better time management and actions such as meditation stress levels can be reduced. But if not then is a stress-induced condition like a myocardial infarction too high a cost to pay for precision? Excessive precision also deposits the onus of decision-making on top-level managers leading to complete organizational control within a few managers and lack of innovation in lower tiers of the organization. This shortcoming of increased precision via the top down hierarchical model of organizational control is well explained by Norreklit (Hanne Norreklit; 2000). When the top levels of management formulate the balanced scorecard to accurately align the goals of individual workers with company strategy the lower tier perceive it as a basis of reaction rather than action. Sometimes the aspirations of workers are negatively affected leading to a decrease in motivation. The language barrier may also create problems because terminologies used in the scorecard to signify strategy could have different meanings in diverse social and cultural groups. The solution could be to create performance measures interactively with lower level managers and workers to take into account the outlook of the entire organization. If the inadequacies mentioned above are identified accurately within organizations they can be corrected easily in the future. Mark Strand said, The future is always beginning now and it holds true in the case of accounting techniques making it vital that most modern developments in it are not overlooked. The prospect of accounting and performance measurement within it looks bright as the ambition to achieve precision and accuracy is never ending. Some old academic theories can be revisited while several contemporary ones will be formed. Frameworks about organizational control like the belief, boundary, diagnostic and interactive systems can be re-examined and applied (Simon; 1995) resulting in the combination of elements of control and empowerment via performance measures and encouraging active debate

between senior and operational managers. This facilitates formulation of tactics to counter strategic uncertainties and to solve the problem of hierarchical setting of performance measures posed by the balance scorecard. Academics like Meyer have constantly asked questions of how performance measurement can be improved in the future (Meyer; 2002). He has suggested an original method known as Activity based profitability analysis or ABPA that uses economics, sociology and organization theory to suggest individual financial rewards for managers depending on their performances (Meyer; 2002). We can only hope that by trying to increase precision within its framework ABPA could be the next stepping-stone after the balanced scorecard for newer and improved performance measures to develop. Through this essay I have made an attempt to communicate that increased precision in accounting is always desirable. To counter the debate that practitioners and academics share different views on management issues I have used both their standpoints to demonstrate that they are comparable in the case of precision in accounting so as to boost my argument. This essay has stressed, how by means of application of precision, administrators in businesses have transformed accounting techniques over the past century leading to substantial expansion in the industrial and information age. Examples of Du Pont, General Motors, General Electric and First Financial Corporation have been stated to illustrate this. Within academics Kaplan, Gupta, Chenhall, Ahrens and Chapman have played a major role in devising theories that support the views of managers while making a point that identification of situations where increased precision is desirable depends on the functionality of the organization and the scenario in which the business operates. A negative view is also put forth by certain academics showing that increased precision leads to stress among managers and can also de-motivate workers in the lower tier of the organization as the decision making and innovation become hierarchical in nature. But this can be counteracted by newer, more precise methods in performance measures like ABPA that may be the future. On the whole I think that increased precision in accounting is vital because of the three Is that are identification, innovation and implementation. Identification of weaknesses in the preceding frameworks of accounting techniques paves the way for innovation within organizations leading

to implementation of accurate techniques in management accounting. On the basis of my argument I can state that businesses cannot function without precision in all their practices and management accounting and especially performance measurement that forms an integral part of any business will always welcome increased precision.