Managing by the Numbers

In a large hierarchical organisation, where operational decision-making is delegated and strategic decisions are co-ordinated centrally, accounting provides a vitally important basis for defining goals, forecasting the consequences of possible actions, deciding between alternative courses of action, measuring progress towards achieving the anticipated consequences, and modifying actions accordingly to direct actions towards achieving the goals defined at the outset. Accounting information will not be the only information used to formulate, implement and evaluate progress towards corporate strategic goals, but it is often the most important formal basis for organisational co-ordination and control.

The extensive use of accounting information to manage large, diversified organisations has proved enormously successful since accounting techniques were first applied in this way in the 1920s. None of the giant corporations that exist today could have developed without effective systems for control and co-ordination. However, the tendency for managers to rely on accounting controls as their sole source of information about the organisation's operations, and a belief that management can be adequately exercised without a proper understanding of the technological and operational details of a businesses has been suggested as an important factor in UK and US declining industrial performance. Such an approach has been termed 'managing by the numbers'.