Financial Decision Making: A Report on Sainsbury's

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FINANCIAL DECISION MAKING
TASK 1

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TABLE OF CONTENTS
INTRODUCTION AND BACKGROUND.............................................................................................3
ROLE OF MANAGEMENT ACCOUNTING TECHNIQUES IN PLANNING, CONTROL AND DECISION-
MAKING PROCESS..........................................................................................................................4
CRITICAL ANALYSIS........................................................................................................................ 5
CONCLUSION................................................................................................................................. 7
REFERENCES...................................................................................................................................8

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INTRODUCTION AND BACKGROUND
Finance and accounting are being considered as the most important aspects of business
organizations as the primary objective of the organization are associated with the same. These
activities are required to be coordinated at all the stages within an organization. Financial
analysis is acting as one of the most crucial aspects of the financial decision-making process. All
the decisions which are being undertaken by the management of the organization are based on
the financial performance of the company (Loughran and McDonald, 2016). The future of
business organizations is being determined by the effectiveness of the senior management of
the company in making financial decisions. These decisions are being taken by the management
after considering the internal and the external factors. Therefore, it can be said that the
management should have a detailed knowledge of the financial aspects of the organization,
which would facilitate the decision-making process.
This assignment is being aimed at analyzing the role and importance of finance and accounting
in the business operations of Sainsbury. The report would also be aimed at applying the
techniques of management accounting for analyzing the planning, controlling and decision-
making process within Sainsbury.
Sainsbury's was established in the year 1869 and is headquartered in the United Kingdom. The
company is engaged in various activities such as general merchandise, food, financial services
and clothing retailing amongst others. The company performs its operations through various
store formats such as supermarkets and convenience stores. In addition to this, the company is
also engaged in developing real estate properties and also providing financial services to
customers.

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ROLE OF MANAGEMENT ACCOUNTING TECHNIQUES IN PLANNING,
CONTROL AND DECISION-MAKING PROCESS
The various techniques of the management accounting play a crucial role in planning,
controlling and decision-making process of the company. Planning can be defined as the
formulation of strategies to achieve a definite objective. This can only be possible by defining
the methods which are being used for achieving the goals (Nielsen et al., 2015). Controlling can
be defined as an essential activity of the management which is aimed at monitoring the
implementation of the plans and also taking corrective actions wherever required. After the
preparation of the plan, it is the responsibility of the management to ensure that the plan is
being implemented and controlled and also that the feedback from the employees is obtained
for taking corrective actions (Armitage et al., 2016). The decision-making process is required to
select the best possible alternative available with the organization.
The various management accounting techniques which can be used by the organizations are as
follows:
Financial Planning: In this management accounting technique, the managers of the
organization are responsible for planning the financial objectives of the organization. The steps
which should be undertaken for achieving the objectives should also be determined by the
manager (Chiarini and Vagnoni, 2015). This is a very useful technique in identifying the financial
status of the organization at any given point of time.
Analysis of Financial Statements: The financial statement analysis is a highly beneficial tool of
management accounting is it facilitates the clarification and representation of the financial data
which could prove beneficial for the management. The analysis of the financial statements can
be done by using various tools such as ratio analysis, cash flow analysis and trend analysis
amongst others. By making use of these techniques, the manager of the organization can
forecast the cash flows, earnings, and debt maturities (Armitage et al., 2016). The reports are
also beneficial in determining if the organization would be capable enough of sustaining the
business losses if any.

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Budgetary Control: Budgetary control can be used as an effective tool by the management of
the organizations for exercising control over the various business activities. This technique is
highly beneficial in directing the business operations in a pre-determined direction which would
be further beneficial in gaining high returns on investments (Chiarini and Vagnoni, 2015).
Cash Flow Statement: The cash flow statement is being used by the managers of the company
in analyzing the present financial status. It also helps the management in keeping a track of the
sources of funds along with the cash outflows. By performing this analysis, the management of
the organization can make decisions about the best use of the available funds (Armitage et al.,
2016). Therefore, it can be said that this technique of management accounting is beneficial for
the organizations in controlling the costs and also undertaking future planning activities for
ensuring efficient utilization of cash.
Decision Making: The business activities are highly complex. Therefore, the business activities
require the assessment of several factors and circumstances before actually making decisions
about them. The management should take into consideration all the possible alternatives
before making the decisions (Chiarini and Vagnoni, 2015). The most favourable alternative can
be selected by using the different tools of management accounting such as capital budgeting,
marginal costing and differential costing among others. All this is highly beneficial in maximizing
the profits of the business.
CRITICAL ANALYSIS
Sainsbury's is facing a strong economic downturn along with tough competition. Therefore, it is
of crucial importance for Sainsbury's to undertake a timely review of the internal operations
and also in determining the areas of improvement. Sainsbury's is required to adopt financial
management with the objective of ensuring that the organization is possessing sufficient funds
for undertaking the day to day operations (Caplan, 2016). The regular operations which
necessitate the adoption of management accounting comprise up of obtaining seasonal
financing, making decisions for investing the surplus amounts and also paying suppliers and
making collections from customers.

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For organizations such as Sainsbury, planning, controlling and decision making is being
considered as the most essential aspects within the process of management. When all these
activities are being appropriately adopted by the managers of Sainsbury's, it can be ensured
that the objectives of the organization are being fulfilled. Sainsbury's has been very efficient in
integrating the management accounting process within the operations. Sainsbury's should plan
and making decisions which would be helpful in the decision-making process of the company
(Alenius et al., 2015). The management is responsible for drafting the best sales strategy which
can enhance the overall sales of the company. The supermarket chain Sainsbury's is also
required to make decisions with regards to the strategies and promotions which can be used by
the company for attracting customers and also enhancing the overall profits of the company
(Caritte et al., 2015).
Sainsbury's is required to adopt various management accounting techniques for performing the
cost analysis of the divisions and products provided by the company. In addition to this, the
areas of improvement for Sainsbury's concerning the adoption of the management accounting
systems have also been identified. The activity-based costing system as adopted by Sainsbury's
should be adjusted in a manner that it will facilitate the establishment of competitive prices
within the existing market environment (Todorov and Akbar, 2018). The management of the
company can also focus on cost savings by efficiently managing the inventory. However, it must
also be ensured by the company that the customer satisfaction is being retained in the longer
time duration. The budgeting system used by Sainsbury's should also be efficiently developed in
a manner which is capable of running a reward scheme for the employees of the organization.
This would be based on the revised performance management system as deployed by the
organization (Alenius et al., 2015). This would be beneficial in ensuring that the motivation level
of the employees is high and therefore, would be beneficial in ensuring organizational success.

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CONCLUSION
In the process of management accounting, the most essential managerial function is assumed
to establish collaboration amongst the activities of planning and controlling. In addition to this,
it can also be said that the overall process of decision making can be improved in circumstances
when the possible alternatives have been appropriately evaluated. All the above discussed
aspects of management accounting are highly beneficial for Sainsbury's in determining the
products which must be sold by the company along with the analysis of the costs required for
selling those products. This can majorly include the costs of establishing supermarkets. It is also
helpful in determining the methods which should be adopted for advertising or marketing of
products.
Organizations such as Sainsbury's are also required to undertake the decision of sales of
products. This includes several factors such as the price of the products, the potential
customers for the products and also an image which needs to be established for selling a
product. These decisions can be successfully made by using the various techniques of
management accounting. This is also beneficial for the management of organizations such as
Sainsbury's in determining the most effective production techniques and also ensuring that the
overall profits of the organization are maximized.

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REFERENCES
Alenius, E., Lind, J. and Strömsten, T., 2015. The role of open book accounting in a supplier
network: Creating and managing interdependencies across company boundaries. Industrial
Marketing Management, 45, pp.195-206.
Armitage, H.M., Webb, A. and Glynn, J., 2016. The use of management accounting techniques
by small and medium sized enterprises: a field study of Canadian and Australian practice.‐
Accounting Perspectives, 15(1), pp.31-69.
Caplan, D., 2016. Managerial Accounting Concepts and Techniques..
Caritte, V., Acha, S. and Shah, N., 2015. Enhancing corporate environmental performance
through reporting and roadmaps. Business Strategy and the Environment, 24(5), pp.289-308.
Chiarini, A. and Vagnoni, E., 2015. World-class manufacturing by Fiat. Comparison with Toyota
production system from a strategic management, management accounting, operations
management and performance measurement dimension. International Journal of Production
Research, 53(2), pp.590-606.
Loughran, T. and McDonald, B., 2016. Textual analysis in accounting and finance: A survey.
Journal of Accounting Research, 54(4), pp.1187-1230.
Nielsen, L.B., Mitchell, F. and Nørreklit, H., 2015, March. Management accounting and decision
making: Two case studies of outsourcing. In Accounting Forum (Vol. 39, No. 1, pp. 66-82). Taylor
& Francis.
Todorov, K. and Akbar, Y.H., 2018. Strategic Management in Emerging Markets: Aligning
Business and Corporate Strategy. Emerald Publishing Limited.