寄

稿
論 Strategic Management Accounting and Feed­
文
forward Management: with Reference to the
Unified Management of Profit Opportunity
and Risk

西村 明 Akira Nishimura

Abstract
This paper aims to reexamine strategic management accounting１ in relation to profit opportunity and risk
from the viewpoint of feed­forward management２，as few studies to date have discussed the relations
between management accounting and the unified management of profit opportunity and risk. Many stud-
ies have been conducted that emphasize non­financial information and feedback organizational manage-
ment in an attempt to make traditional management accounting relevant to practical strategic needs. As
long as strategies are future­oriented and implemented under strong uncertainty and in complex business
environments, the information and control methods used must also be preventive and proactive. For this
purpose, this paper first examines the value of information and the effects of feed­forward information on
strategic organizational management, after the meaning and role of non­financial information and feed-
back control in strategic management are thoroughly reexamined. Second, with reference to the above
point, the paper examines management accounting in the unified management of profit opportunity and
risk from a feed­forward perspective. Lastly, this paper highlights the relations between global innovation
and proactive variance analysis and notices the further direction of management accounting toward more
proactive and preventive planning（decision making）and control（performance evaluation）．

Keywords: non−financial information, feed ­forward management, profit opportunity and risk, comprehensive
risk management, strategic innovation.

１
Relationships between strategic management and management accounting were already examined in the previous paper（Nishimura，
２００５）．However，the aspects of feed­forward management could not be deeply discussed there．This paper reexamines contemporary
management accounting from the synthesized viewpoint of feed­forward management．
２
The concept of feed­forward management is used as a system in which an enterprise proactively and preventively plans for and controls
business activities based on future­oriented information, or plans a project and arrange the concrete measures to actualize it, before setting out
the project.

4
 １ Introduction ２ Strategic cost man- 寄
Strategy planning plays an increasingly impor-
agement and ac- 稿
論
tant role in business management, with man-
counting information 文

agers seeking to gain competitive advantage ２．

１ Strategic management and non­fi-

Strategic
over rivals in strongly uncertain environ- nancial information
ments. Although management accounting has Many scholars of strategic management ac-
contributed to strategic management through counting have described strategies and tactics

Management Accounting and Feed­forward Management: with Reference

providing decision makers with financial data, for achieving competitive advantage in mar-
traditional management accounting methods kets. This focus seems to be based on Porter
based on financial information（budgetary con- （１９８５）who considers the value chain as a
trol and standard costing）are been judged core category and discusses strategic competi-
from the１９８０s to the１９９０s by some accounting tive advantage from the perspectives of cost
researchers to be inadequate for today s stra- leadership, the differentiation of business, and
tegic needs under fierce market competition its uniqueness. Performing activities generates
and a rapid pace of technological change. For costs, but cost advantage arises from one busi-
the contemporary strategic management, ness performing particular activities more effi-
management accounting must certainly pro- ciently than its competitors（Porter，１９９８）
．
vide the management with more useful infor- For Porter, differentiation arises from both
mation closely related to economic activities the choice of activities and their performance.
and organizational mission, or more proactive In this sense, activities are the basic units of
data. Many who have advocated strategic cost competitive advantage and an overall advan-
management or management accounting have tage or disadvantage results from a company’
searched for ways to satisfactorily incorporate s total activities, not from just a few activities.
non­financial information into internal report- In connection to these activities, Porter cen-
ing processes and to keep an appropriate bal- ters his attention on their non­financial as-
ance between financial and non­financial per- pects rather than the role of financial reports
spectives. However, could this focus on non­fi- in the development of strategic management.
nancial information essentially change the sub- Moreover, Shank and Govindarajan（１９９３）and

to
stance of management accounting and （１９９６；１９９８）have related stra-
Kaplan et al．

the
strengthen its strategic character? This paper tegic cost management to Porter s concept of

Unified Management of Profit Opportunity and Risk

inquiries into the implication of information competitive advantage. In particular, Shank
and control in contemporary management ac- and Govindarajan developed Porter s idea of
counting, and reexamines the strategic space­ competitive advantage from the perspectives
time expansion of information and control of the value chain, cost drivers, and strategic
from the viewpoint of current strategic man- location analyses. They assert that cost data is
agement practices. For this purpose, the rela- used to develop superior strategies en route
tions of profit opportunity and risk to strategic to gaining substantial competitive advantage,
management are clarified and the unified man- and that financial measures only reflect the re-
agement of profit opportunity and risk is ad- sults of past decisions, not the actionable, fu-
dressed in connection to comprehensive risk ture­oriented steps needed to survive in a
management as their integrated concept to competitive environment. Shank and Govinda-
understand the contemporary characteristics raja（１９９３）thereupon state the following:
of management accounting. Last, this paper
further explores the framework of strategic “［…］ we see the rise of non−financial meas-
management accounting with reference to the ures as an attempt to reassert the primacy of
multiple­loop feed­forward management. being operations driven. Non−financial meas-
ures try to capture progress on the actionable
steps that lead to company success, because
first, the non−financial measures were more di-

5
 rectly traceable to the strategy（key success fac- izational mobility, consumer satisfaction, sup-
tors）of firms. [­­­] Management felt that pro- ply chain, and education and training sys-
gress on these measures directly affected the tems）
．In particular, ABC and the Balanced
success of firm strategy． １３８−９）
”（pp． Scorecard（BSC）show the strategic expansion
toward enterprise value（profitability）and or-
They try to shift from traditional financial ganizational mission（target）．Nevertheless,
information to the non­financial information although the new school of thought views tra-
reflected in the accounting data and to relate ditional management accounting as playing a
it more closely to strategic management. declining role in strategic management, it re-
They do not separate the former from the lat- mains to be seen to what extent this belief is
ter, since financial information is a critical true and what function traditional information
component for clarifying the practical rela- will continue to serve in strategic manage-
tions between strategy and actual objective in- ment accounting
formation gained through accounting. For ex- Kobayashi（１９９３）
，who has studied the de-
ample, as represented in activity­based cost- velopment of strategic cost management in Ja-
ing（ABC）
，cost cannot be disregarded and pan from the beginning, points out that sur-
plays a more important role in strategic profit- prisingly few empirical studies have been re-
ability management in combination with activ- ported that show to what extent costing and
ity information and cost drivers. management accounting systems assist man-
Many advocates who have focused their at- agers in making strategic decisions. It appears
tention on non­financial information and stra- that little further progress has been achieved
tegic cost management have surely contrib- since Kobayashi s study. Drury points out that
uted to the reform and improvement of tradi- “in particular, strategic management ac-
tional management accounting by providing a counting has been identified as a forward way.
realistic recognition of strategy and the practi- However, there is still no comprehensive
cal research methods such as case studies and framework as to what constitutes strategic
empirical research. However, the problem is management accounting ”（ p ．４８５）． This
how much their theories can contribute to the point is very important when examining the
development of strategic management ac- present state of management accounting prac-
counting. Let us move next to look at the tices and when questioning what meaning the
value of information and organizational struc- shift from financial information to the non­fi-
ture in relation to strategic management. nancial imformation has for strategic manage-
ment（Nishimura，２００５；２００８）
．
２．
２ Strategic aspect of non­financial in- It is not yet clear if“strategic management
formation accounting”in any true sense of the term is
In recent years, new types of non­financial in- actually being practiced by businesses. For ex-
formation in management accounting have ample, a survey by Guilding et al．（２０００）of
emerged. Scholars have studied cost design business in the United States, United King-
（function），quality costing, ABC（activity）
， dom, and New Zealand found that although
product life cycle costing, value chain costing, strategic uses of accounting（e.g., monitoring
and benchmarking from a strategic viewpoint locations, evaluating the performance of com-
（Drury，２００１）．These non­financial ap- petitors based on published financial state-
proaches differ from the traditional thought ments, and conducting cost evaluation of com-
since cost considerations shift from a close fo- petitors）are evident, other strategic uses of
cus on the financial effects of production and costing（e.g., quality costing, value chain cost-
cost relationships with suppliers and custom- ing, product life cycle costing, and attribute­
ers to an increased emphasis on understand- costing）are less commonly shown. Thus, they
ing physical and economic activities as a basic concluded their analysis by stating:
attribute of cost（e.g., cost drivers, product life
cycle, value analysis, value engineering, organ- “Shank and Govindarajian (1988) have sug-

6
 gested that strategic accounting will supplant As long as strategy must be forward­look-
managerial accounting as a framework for de- ing and future­oriented, information for stra- 寄
稿
cision−making. With the exception of strategic tegic management must also do the same. 論
文
pricing and some aspects of competitor ac- Even if the focus shifts from financial informa-
counting, the evidence uncovered in this study tion to non­financial information, the fact re-

Strategic
falls well short of providing vindication for mains that the information is feedback; The
（
”p．
Shank and Govindarajan’s prophesy． １２９） fact that not only financial information but
also non­financial information here is feed-

Management Accounting and Feed­forward Management: with Reference

We must recognize the whole framework of back, not feed­forward, is crucial for us to
contemporary management accounting and its consider. If we take the feed­forward stand-
relations to strategic management to clarify point and reexamine information from the per-
the central conception of strategic manage- spectives of profit opportunity３ and risk
ment accounting: its significance and charac- （Nishimura,２０１１；２０１２）
，we can open a new
teristics. way in strategic management, when we con-
sider them in combination with accounting
２．
３ A controversial point profit concept. Of course, these new methods
Neither traditional accounting nor financial in- would be most beneficial if we can recognize
formation can directly reflect the true situation and use physical and organizational activities
of business organizational activities, since they as well as accounting information from a
both have the special attributes of calculating feed­forward viewpoint. At present, because
stock and flow situations of business value or uncertainty and diversity are strongly present
profit by using particular accounting methods in business environments, strategic manage-
and concepts. In this sense, we can under- ment also cannot continue to rely only on pre-
stand that advocates of strategic management sent and past information, but must look
accounting prefer non­financial information to ahead and think more toward the future.
financial information for strategic planning and
control, because non­financial information di-
rectly reflects the actual and objective situ-
３ Roles of information
ation of business organization. However, as
and organizational

to
Drury（２００１）and Guilding et al．（２０００）sug-
efforts

the
gest, the key question is why strategic cost Another important aspect in strategic man-

Unified Management of Profit Opportunity and Risk

accounting or a hybrid accounting of physical agement is the effect of organizational struc-
and financial information cannot assume a ture and its constituent members on strategic
greater role in strategic management account- management, although having the relevant in-
ing. The point of this discussion is not to judge formation for strategic management can
whether financial or non­financial information surely stimulate organizational efforts to im-
is more useful or to think of ways to integrate plement a business vision. Even if an organiza-
both types of information, but to assess the tion has useful information for strategic man-
value of each type of information for manage- agement, it cannot be put to optimal use if the
ment needs. Therefore, points of controversy organization and its constituents are too inac-
remain as to whether traditional management tive and timid to cope with the strong uncer-
accounting can be transformed into strategic tainty and fluctuation of the contemporary
management accounting by adding supple- business environment. For this reason, re-
mentary non­financial information to account- searchers have focused their attention on the
ing systems and how non­financial informa- relations between strategy management, infor-
tion can change the fundamental framework mation, and organizational efforts. Thus, the
of traditional management accounting into a literature has discussed the penetration of
future­oriented and forward­looking one. strategic goals into organizations, which can
３
Here profit opportunity is used as an opportunity with certain objective and subjective probability that is transformed in accounting profit in
the near future（Nishimura，２０１１）and in the double­faced relation to risk.

7
 result from a combination of top­down deci- of management accounting in relation to non­
sion making and bottom­up learning, organ- financial information. Such novel methods as
izational vitality, and the integration of finan- ABC and BSC have certainly contributed to
cial measurers and the non­financial measur- making management accounting relevant to
ers. practical organizational needs.
BSC is a balance between the external and
３．
１ Balanced Scorecard approach and internal measures which derive from an or-
organizational mobility for strategy ganization s strategy and vision. This balance
Kaplan s works are representative of those of measures can be impossible without incor-
who advocate strategic management account- porating financial and non­financial informa-
ing. His researches, including ABC and BSC tion into the practices of constituent members
approach, are noteworthy in the accounting throughout an organization. As a result, BSC
literature in that they relate traditional man- provides a practical foundation for developing
agement accounting to strategic management. strategy based on business environmental
Kaplan and Norton（１９９６）systematically ana- measures（customer and shareholder informa-
lyze the activities that generate costs and em- tion）and internal business activities（learning
phasize the balancing of external and internal and growth, and internal business processes）
．
measures from the viewpoint of business Simultaneously, the approach not only pro-
strategy. They recommend the“change of vides balance in the present, but also the abil-
strategy into action”where strategy is formed ity to balance future­oriented information in-
by the whole organization and made to perme- volving durable growth that adjusts with
ate its entirety. They argue that, in the BSC, change, or opportunities and threats. In order
financial and non­financial measures must be to actualize the balance of external and inter-
part of the information system for employees nal information, a single loop feedback process,
at all levels of the organization. Not only must or the linear process of establishing a vision
the front­line employees understand the fi- and strategy which is implemented by tradi-
nancial consequences of their decisions and ac- tional top down command­and­control model,
tions, but senior executives must also under- must shift to a double­loop learning process
stand the drivers of long­term financial suc- in which the strategy is revised to confront
cess, or non­financial information: changes. BSC is a future­oriented system that
uses a double­loop learning（feedback）process
“The objectives and the measures for the Bal- to reactively grapple with the continual
ance Scorecard are more than just a somewhat changes of environmental and internal factors
ad hoc collection of financial and non−finan- （Kaplan and Norton，１９９６，
pp．
１６−１７）
．
cial performance measurers. [−−−] The Bal-
anced Scorecard should translate a business ３．
２ Controversial points
unit s mission and strategy into tangible objec- In the strong uncertainty and increasing di-
”（Kaplan and Nor-
tives and measures． versity of the current global economy, we
ton，１９９６，
pp．
９−１０） should once more reexamine the framework
of BSC from the feed­forward, not feedback,
Kaplan and Norton（１９９６）deem a vision or viewpoint. First, regarding the new apprecia-
strategy to be a core component of company tion of non­financial information, BSC incorpo-
management. A business strategic system rates this information, as well as financial in-
containing financial and non­financial informa- formation, into each constituent part of an or-
tion that accounts for customers, business in- ganization to urge attention to company finan-
ternal processes, learning and growth, and fi- cial targets by both lower and mid­level em-
nancial goals is necessary to change business ployees during front­line activities and super-
strategy into action in every section of the or- vision. Thus, all activities throughout the or-
ganization. As a result, accounting information ganization related to scorecard measures can
is situated in the relative, not absolute, place be ultimately linked with financial perform-

8
ance. This is in striking contrast to the tradi- adaptable in a rapidly changing environment.
tional model in which the financial information There remains an important concern: For 寄
稿
of senior managers is completely separate management in the information and global in- 論
文
from the physical and non­financial informa- novation age, has the extension of traditional
tion of the lower and mid­level employees at management accounting to non­financial in-

Strategic
local sites. In contrast, a new concept of cost formation and double­loop feedback or learn-
in the case of ABC is created as a result of in- ing processes become an effective tool? Ac-
tegrating financial information with non­finan- cording to them, low­level feedback manage-

Management Accounting and Feed­forward Management: with Reference

cial information. This concept not only repre- ment first begins with cost controls, budget-
sents economic resources spent on manufac- ary controls and market forecasting, and is a
tured goods, but also reflects and measures reflective and reactive process that is re-
physical information and activities related to peated through learning. However, more im-
each product, which can facilitate the profit- portant is high­level feedback management
ability management of products: distinguishing that closely relates to strategic goals or vision.
value­creative activity from the non­value Feedback systems are interconnected with
added. BSC spreads the use of non­financial one another from low to high levels. Such a
information to the whole organization, while loop makes organizational energy vital
ABC creates a new model of costing by incor- through the sharing of financial and non­fi-
porating non­financial information into tradi- nancial information. In contrast to the single­
tional costing. The issue that we must con- loop feedback, which may be adequate in sta-
sider next is that neither of the two ap- ble economic environments, the double­loop
proaches is based on feed­forward thought. feedback process speculates on the informa-
Second, Kaplan and Norton（１９９６）advocate tion that managers need to receive about in-
a double­loop feedback and learning process, creasingly complicated strategies in continu-
in which the four actions of“clarifying and ally changing environments. Kaplan and Coo-
translating the vision and strategy, communi- per（１９９８）suggest that cost management and
cating and linking, planning and target setting, performance evaluation can function ade-
and strategic feedback and learning”are circu- quately in a feed­forward system if they are
１１）
lated（p． ，in order to achieve a balance be- integrated with an organizational reporting

to
tween strategies and other management fac- system and are prominently built into the

the
tors or measures. They emphasize that a com- structure of the management process. How-

Unified Management of Profit Opportunity and Risk

parison of desired performance goals with cur- ever, the application of feed­forward system
rent levels identifies the existence of any per- is still in controversy.
formance gap, and hold that strategic initia- Third, Kaplan and Norton（１９９６）also argue
tives can be designed to close the gap. Thus, that business enterprises should balance ex-
according to them，
“the Balanced Scorecard pected returns management against risk man-
not only measures change; it fosters change” agement, although they are not specific on ex-
１６）
（p． ．This change results from the learn- actly how to achieve the required balance. Be-
ing and communication that occurs in the dou- cause this point is also related to the feed­for-
ble­loop feedback process. In such cases, or- ward aspect of strategic management ac-
ganizational consensus plays an important role counting systems, it is important to examine
in this double­loop feedback process. This the structure of multiple­loop feed­forward
feedback process is a necessary component processes and the integrated management of
for any strategy to spread into all the levels of profit opportunity and risk. Thus, the question
a business organization and enhance their mu- now arises: What relationship does profit op-
tual understanding, if the strategy is to engen- portunity or risk management have with stra-
der a consistent, high degree of motivation tegic management? Are ABC and BSC useful
and morale among personnel and thus in- enough for controlling the serious uncertainty?
crease the probability that the organization At the same time, we should meditate on
becomes or remains efficient, profitable and what IFAC（２００４）points out as follows:

9
 “We also concluded that the balanced score- among members of an organization and their
card, which is a respected performance man- vital and human relations within the organiza-
agement tool, could not be used to fill the stra- tion where they can measure themselves with
tegic oversight gap. Although it is invaluable in “opportunity space”are important factors in
helping business to translate agreed strategy strategic management. Considered from this
into action and /or to bring non−financial key viewpoint, until recently management account-
performance indicators into better focus, it is ing has been challenged by some gaps be-
less successful in addressing the ambiguous, un- tween information value and organizational
certain, complex decisions required to formu- needs（strategic control under uncertainty）
．
late the strategy at times of transformational
”（p．
change． ６）
４ Opportunity space or
We have discussed the meaning of informa-
risk thought and
tion and the strategic energy or efforts of or-
strategic management
ganizations in regards to implementing strate- ４．
１ Opportunity or risk management
gic management accounting and have pointed and new gaps
out some key points of dispute in contempo- It is plain from the discussion above that both
rary management accounting. The paper will the BSC and ABC approaches are essentially
look more carefully into multiple­loop feed­ based on feedback thought. In contrast, Si-
forward management from the angle of profit mons（１９９５）advocates“four levers of control”
opportunity and risk management in Section５ from the viewpoint of“opportunity space”in
３）
（see also Fig． ． order to spur the strategic energy of organiza-
There is one further point that we must not tions. Because strategy is future­oriented and
ignore. Regarding the relationships between forward­looking, opportunity space is where
organization and profit opportunity or risk organizational power and attention must con-
management, we should more deeply look at nect with the future direction of the organiza-
the meanings of organization. The relationship tion in order to create business value. Simons
between the organization and individuals is refers to the combination of organizational
very complicated. Any organization is itself a power, attention, and direction as“return­on­
form of authority and has the power of si- management”（ROM）
．His“four levers of
lence. Some persons can use the organization control”is based on feed­forward and proac-
to restrict other members’benefits and fur- tive and preventive standpoint. This stand-
ther their own interests, while others strive to point not only focuses on the future­oriented
make the most of organizational opportunities aspect of strategy, but also considers the
to enhance both organizational and individual “space”in which organizational opportunity is
benefits at the same time. Therefore, only as joined with individual opportunity. Within the
（Simons，１９９５）
long as“opportunity space” opportunity space, the “four levers of control”
is made to be a human space with organiza- can fulfill their strategic function throughout
tional and individual opportunities, it can pro- the whole organization.
mote promising and durable growth. Arro- According to him, an organization and its
gance and sycophancy are not traits confined members use their attention to define the
only to individuals, but can also be negative boundary of unlimited opportunity space: its
characteristics of the organization, which subset or specific domain. Their attention to
weakens overall organizational energy and vi- ideas triggers problems for whose solution in-
tality‘risk
: space’
．Any organization in which novation is created and developed. Opportu-
arrogance and sycophancy are prevalent will nity­seeking is also limited by defined busi-
break down eventually, whether sooner or ness risk as a boundary system. This balanced
later （ Nishimura ，２０１１； Collins ，２００９； In- activities between core value（opportunity
grassia，２０１０）
．In this sense, the common space）and boundary system（risks to be
recognition of profit opportunity and risk avoided）leads to maximizing ROM.

10
 In contrast to such focus on opportunity strategic decision making, enterprises were
space, Smith and Merritt（２００２）focus on risk first compelled to cope with uncertainty by 寄
稿
management as a fundamental concept of pro- means of risk management. As the gap in- 論
文
ject management and use it to effectively con- creases between traditional management ac-
trol uncertainty. They grasp risk in the dual counting and the strategic opportunity or risk

Strategic
sense of‘a potential for loss’and‘an opportu- management, management accounting also in-
nity for gain’and emphasize the loss aspect to clines toward feed­forward and began to be
‘eliminate the surprises that go with such reconstructed in the framework of risk man-

Management Accounting and Feed­forward Management: with Reference

１８２）
losses’（p． ．Positively, the comparison of agement.
net expected loss among projects is also useful However, in the financial crisis of ２００８−９,
for better decision making. Therefore, they such piece­meal risk management has been
also consider risk an essential characteristic of criticized on the grounds that it depended too
４）
product innovation（p． ， upon quantitative and unpractical measure-
Simons as well as Smith and Merritt empha- ment to operate well for the control of global
sizes the proactive concept of opportunity or uncertainty and the corporate governance
risk, not planned profit and loss based on ex- that tried to cure managers of unjust and un-
perience, to plan and carry out a strategy un- lawful activities in larger companies（Richard-
der uncertainty, differently from Johnson and son ，２０１０； Mikes ，２０１１）． Company ­ cen-
Kaplan（１９８７）
．This situation forces manage- tered viewpoint begins to shift to the holistic
ment accounting into recognizing a gap be- and social one, where risk is simultaneously
tween its traditional feedback system and the managed with profit opportunity to proac-
new feed­forward that weaves opportunity or tively and synthetically control uncertainty
risk into accounting planning and evaluation through comprehensive risk management and
system. enhance corporate governance through the
As discussed above, at the start, risk man- transparency and controllability of risk man-
agement did not take a synthesized and com- agement. As a result, the more comprehensive
prehensive form in which risk management and trustworthy risk management has been
was carried in harmony with profit opportu- advocated, in which risk management is incor-
nity management by using probability porated in corporate governance and internal

to
thought, because risk was also understood and control and keeps step with profit opportunity

the
managed disconnectedly with opportunity. management to simultaneously control uncer-

Unified Management of Profit Opportunity and Risk

This piece­meal and specialized approach to tainty and strategically create enterprise
risk was caused under the situation where for value （ COSO ，２００４； Power ，２００７）． The

Table １ Profit opportunity and risk in the innovations

Innovation Exploitation of profit opportunity Minimization of risk
Internal innovation
（e. By developing the specific production and Through no­inventory system，pull method
g., Toyota system） management methods： JIT， cost design， and make­to­order method
Kaizen，cooperation through visible manage- Problem：sluggish response to changing mar-
ment，and the integration of high quality ket demand
and low cost

External innovation（e. By building market ­ oriented supply chain : Dispersion of risks among suppliers，saving
g., agile supply chain） flexible and speedy response to changing facility through standardization and normali-
market demand ， and standardization of zation，and sharing target and information
parts among them
Problem：balance of optimization between the
whole and the parts
Global innovation（ e. By opening innovation to society ， or free Invisible individuals and firms bearing a
g., social innovation participation of citizens and other firms in company s risk
innovation and connecting innovation with Problem：lay the risks the company on indi-
charitable and environmental undertakings viduals and society
Source： Nishimura，２０１２

11
 comprehensive risk management connected to to organizational needs and for whose regain
profit opportunity management has taken an ABC and BSC were addressed by many case
important part in corporate governance, stra- studies. The second gap is the disconnection
tegic innovation, and organizational manage- between feedback information and the proac-
ment. At the same time, the strategic innova- tive and preventive opportunity or risk recog-
tion has also made managers and researchers nition to mitigate uncertainty as effectively as
formulate the concept of profit opportunity or possible or to maxmize profit opportunity. The
risk and shift the risk management movement third gap is between existing management ac-
to the comprehensive risk management. counting and the corporate governance（social
As for profit opportunity or risk, three inno- responsibility）that unites with the comprehen-
vations are specially noteworthy in the recent sive risk management. All enterprises should
development of global economy: internal inno- exert themselves to establish accounting
vation such as Toyota production system, ex- measurement and evaluation models which
ternal innovation such as agile supply chain, not only clarify profit opportunity and risk and
and global innovation. As shown in Table１， enhance the strategic energy and vitality of
each innovation essentially aims to find and organizations, but also make senior managers
exploit large profit opportunity. However, it strongly conscious about social responsibility
cannot also avoid risks because of close con- of environment, safety, and stability in an era
nection with this profit opportunity. The de- of global innovation and the unstable financial
velopment process of the three innovation world（see Nishimura，２０１１；２０１２）
．
types also represent the extension of risk In relation to corporate governance and in-
management from the piece­meal standpoint ternal control, contemporary management ac-
disjoined with profit opportunity to the holistic counting takes an integrated form of holistic
and comprehensive one. risk management and social responsibility,
It follows from what has been said that which is called enterprise risk management,
there are three gaps between information and or the comprehensive risk management. This
organizational needs（managerial directions）
， paper inquiries more closely into the role of
１．
as indicated in Fig． The first gap is“rele- management accounting in the unified man-
”which Kaplan and Johnson（１９８７）
vance lost， agement of profit opportunity and risk rather
proposed in terms of informational irrelevance than the comprehensive risk management, be-

Fig．１ Gaps between management accounting and environment or organization

12
cause the above unified management is more Risk is a particular probability of a phe-
general in every firms and a fundamental nomenon occurring that is contrary to one s 寄
稿
structure which lies at the root of the compre- wishes, or in other words, the expected loss in 論
文
hensive management. This inquiry may be business. This expected loss or the level of
useful for clarifying a holistic meaning of the risk is calculated by multiplying the probabil-

Strategic
comprehensive risk management. Next, we ity of the risk event and the probability of im-
shall focus our attention on feed­forward pact（risk likelihood）by the total amount of the
management accounting in the unified man- loss at the occurrence of the risk（Smith and

Management Accounting and Feed­forward Management: with Reference

agement. Merritt，２００２）
．Therefore, risk management
must gather feed­forward information and
４．
２ Comprehensive risk management execute proactive and preventive manage-
and feed­forward management ac- ment to minimize the expected loss. Risk man-
counting agement not only makes use of superior com-
When considering business strategy, manag- puter hardware but also organizational soft-
ers must compete with rivals in the develop- ware that sensitively perceives the up­ and
ment and creation of new product models and downstream risks of an organization. At pre-
technology. Enterprises that fail to compete sent, it is more important to transform risks
are forced out of markets. However, while the into profit opportunity than simply to avoid
profit opportunity from innovation may be them. As a result, risk management combines
enormous, the risks and potential losses are with profit opportunity management. Profit
large as well. In the current economy, the opportunity management directly and posi-
globalization of businesses that seek increased tively binds strategic innovation together with
profit opportunity enhances risks, particularly risk management. Thus, the contemporary
country risk（e.g., overseas riots, labor dis- strategic management, in which profit oppor-
putes, and sudden changes in regulations）
， tunity management is combined as one body
since business expands to subcontracting sys- with the risk one, has a more positive mean-
tems, supply chain, and overseas factories. ing than minimizing opportunity cost and risk
Therefore, existing information systems in probability, or its object is to maximize net
management accounting are also inadequate profit opportunity for business value creation

to
to deal with the need for the reliable forecasts （see Fig．
２ and Fig．
３）．Therefore, man-

the
of profit opportunities and risks that are pro- agement accounting needs to develop methods

Unified Management of Profit Opportunity and Risk

duced through global research and develop- to measure and control opportunity cost and
ment activity and growing business. Managers expected risk.
will be required to adopt new philosophies and Risk management is closely related to profit
use more dynamic management styles than at opportunity management（Nishimura，２０１１）
present, and must pay attention not only to in either case of the unified or the comprehen-
profit opportunities that are produced by good sive management and these profit opportunity
strategies, but also the risks that accompany and risk management systems exist both in
them. As Borge（２００１）puts it: front of and behind strategic management in
the process of business value creation
“[­­­] the world is getting more competi- （ IFAC ，２００４）． At present, enterprises
tive, interconnected, and complex. Events seem should pay more attention to feed­forward in-
more unpredictable and are moving with formation and management in formatting
greater speed and force. Many of the old safety their strategy rather than looking to the past.
nets enjoyed by organizations and individuals In particular，“opportunity space”should ulti-
are badly frayed or gone altogether. The level mately result in the creation of“profit opportu-
and nature of risks in the world are constantly nity space”in business enterprises that not
changing. Those without access to good risk only provides organizational and individual
management are in greater danger than be- benefits, but also has a high confidence of
fore． ２２５）
”（p． probability in terms of risks. Consequently,

13
 managers can compare profit opportunities profit opportunities and risks assumes more
with risks and estimate net profit opportunity. importance under the present unstable and
Thus, businesses should also strive to discover uncertain conditions and is an essential part of
and exploit net profit opportunity（by deduct- what should be termed“strategic management
ing risks from profit opportunities）and devote accounting”
．
their attention and evaluation to the“net profit ２，
As shown in Fig． risk management and
opportunity space．
” profit opportunity management exist in both
To date, however, most management ac- sides of the contemporary strategic manage-
counting theories have focused on either ac- ment for business value creation. In order to
counting profit（return）or risk for strategic turn the risks associated with credit, interest
decision­making. Contemporary management rates, currency, commodities, stocks, opera-
accounting should deeply pursue future­ori- tions, and asset liquidity into profit opportuni-
ented or feed­forward information and inte- ties, managers must quantitatively measure
grate all the information on both profit oppor- and rank their risks under uncertainty. Both
tunities and risks, although indeed it is difficult business and financial risks are important, and
to envision an integrated system for measur- Borge（２００１）states:
ing risk and profit opportunity as a probability
simultaneously, since the level of risk and “At a strategic level, we know that a firm is
profit opportunity is normally too wide and a complex of business and financial risks.
vague to be grasped easily by basic feedback The results from this aggregate portfolio de-
control. As Culp（２００１）stated, in the past, man- termine the success or failure of the com-
agers could run stable and profitable busi- pany. The top management of the firm, espe-
nesses when confronted by risks, since they cially the CEO, can view and manage this
could allocate the requisite resources, and ex- portfolio as a whole, trading off one risk
ert sufficient control, either to avoid or mini- against another, reducing risks that are pe-
mize the risks. Now, as risks are entangled ripheral to the company’s long−term strategy,
with strategies under the striking change and or adding risks（and opportunities）that are
growing complexity of business environment, central to that strategy. Strategic risk man-
they cannot be controlled without the holistic agement can help a business achieve its pri-
and comprehensive management systems: for mary business goals without endangering its
example, Strategic Scorecard that is aligned ”（p．
financial stability． ２３０）
with risk management（IFAC，２００４）
．Only
managers who better understand the tangled Regarding profit management, accountants
relationship between risks and profit opportu- have long recognized opportunity cost as a
nities may expect to gain a competitive advan- benchmark measurement（Samuels，１９６５；
tage. Thus, an integrated system of controlling Demski，１９６７；１９６８；１９６９）．According to

Fig．
２ The Structure of the unified management of profit opportunity and risk
（See Nishimura，２００７，p． ８３）

14
Demsk s model（ex post system）
，forecast standard of specification, equal the cost of
profit variance is measured by a comparison non­conformance of internal and external fail- 寄
稿
of ex ante（forecast profit）and ex post profits ure. If costing systems of this type are used 論
文
（the optimal profit in the current situation）
， for making quality improvement decisions, the
and as a result, the planning ability of a man- optimum point will be recognized only after

Strategic
ager can be evaluated. These concepts can be products are in the market. The present ob-
expressed in the following equations: ject is not to pursue optimum after the fact,
but to control risk and profit opportunity be-

Management Accounting and Feed­forward Management: with Reference

Ex ante profit­ex post profit = forecast variance forehand. Multiple­loop feed­forward controls
Ex post profit­actual profit = opportunity cost in strategic management accounting systems
are necessary for this purpose. Such elements
Managers have incentives to precisely fore- in an accounting system are suggested by the
cast profits in future periods through variance approach of‘proactively manufacturing cost and
analysis between ex ante profit and ex post quality’in Japanese Genka Kikaku（cost de-
profit. Next, organizations attempt to use op- sign ）（ Nishimura ， １９９６ ； ２００１ ； ２００３ ；
portunity cost variance information by com- Tanaka １９９５）
，which embodies feed­forward
paring ex post profit with the observed profits control and are very important for proactive
and to generate business value through effi- and preventive project management. The mul-
cient activities and a high degree of capacity tiple­loop model of feed­forward accounting
utilization in the next period. As a result of ３．
control is shown in Fig．
such analyses, they can also foresee the na-
ture of risks and subsequently adopt methods
to mitigate them. Currently, such a model as
５ Moving towards feed­
this is usually considered to be mainly of theo-
forward management
retical interest, although many managers
accounting in the unified
probably already informally control opportu-
management of profit
nity in this manner, even though the analyses
opportunity and risk
may not be conducted in a systematic way. The application of feed­forward information
The ex post system described above relies to management accounting has been discussed

to
on feedback control, as does the BSC ap- elsewhere（Nishimura，２００３；２０１１）
．This pa-

the
proach. The variances of opportunity cost are per therefore focuses on the multiple­loop

Unified Management of Profit Opportunity and Risk

recognized after the event. Furthermore, the feed­forward information on target profit and
ex post system advocates a single loop feed- costs, as embodied in a strategic viewpoint.
back that contrasts with the double­loop feed- The cost design which Japanese enterprises
back of BSC. In order to develop proactive created in the １９７０s made it possible to de-
profit opportunity and risk management as velop feed­forward control thought in ac-
part of a systematic approach to strategic ３，
counting. As shown in Fig． which extends
management accounting, it is necessary to this framework, this feed­forward approach is
adopt a“multiple loop system of feed­forward not designed to reactively reflect on profit and
control”．Risk must be proactively and pre- loss after they occur, but to accumulate long­
ventively controlled before the event. In the and short­run information on the business en-
words of Borge（２００１）
，“The purpose of risk vironment and to synthesize this information
management is to improve the future, not to when possible. Information gathered in such a
６）
explain the past”（p． ．For instance, quality way is connected to multi­dimensional,
costing searches for the optimum point where planned values（expected and strategic profits,
the total costs of prevention, appraisal and fail- target and estimated costs, or profit opportu-
ure are a minimum, or alternately, where the nity and risk）that reflect long­term strategic
cost of conformance of prevention and ap- and short­range competitive plans, and busi-
praisal, or the cost to preventively and proac- ness can proactively adopt the most suitable
tively conform the quality of a product to the methods to realize practical target values.

15
 ３ Strategic management and management accounting process
Fig．

１ Long­term NPO is forecasted through examining profit opportunity and risk under long­
term strategy；２ Short­term NPO is forecasted through examining profit opportunity and
risk under short­term strategy；３ Expected profit is estimated on the basis of long­term
NPO and sustainable growth expectation in the light of past results； ４ Strategic profit is
estimated under the condition of present competitive strategy； ５ Allowable cost is calcu-
lated in relation to expected profit；６ Estimated cost is calculated in the relation to strate-
gic profit； ７ Target profit is planned through considering strategic profit and forecast
profit variance in the light of past results；８ target cost is calculated in relation to target
profit
Source： see Nishimura，２０１２，p． ８８．

Senior managers can thus compare an ex- opportunity and short­term profit opportu-
pected profit on the basis of long­run strat- nity．
In this way, proactively variance analysis
egy with strateic profit based on actual com- and evaluation methods can be used to miti-
petition, through proactive variance analysis, gate risk and enhance profit opportunity. Ad-
and adopt proactive and preventive methods ditionally, attention should be paid to the fact
to better ensure that a satisfactory profit is that all the variances in this model are meas-
realized. At the net profit opportunity fore- ured in relation to profit opportunity and risk
casting stage ， complementarily ， to effec- and that the model also evaluates and controls
tively control risk in detail，they could also activities and resources to proactively im-
compare long ­ term risk avoidance with prove net profit opportunity.
short­term risk avoidance at the same time The system of feed­forward control brings
as the comparison between long­term profit profit opportunity and risk management to-

16
gether. Profit opportunity and risks are as- agement accounting systems have recently be-
sessed and recognized in relation to informa- gun incorporating this idea into profit opportu- 寄
稿
tion on the business environment and organ- nity or risk idea through the cost design and 論
文
izational structure. Effective and efficient cost improvement techniques established by
methods are implemented in regards to com- Japanese enterprises and partly thorough the

Strategic
parisons of multi­dimensional planned values, ABC and BSC approaches developed by inno-
and all activities are controlled and evaluated vators in strategic management accounting.
by using practical targets. The possibility of applying feed­forward infor-

Management Accounting and Feed­forward Management: with Reference

After the target and strategic profits are mation extends not only to cost management,
determined, this approach then considers cost but also to profit opportunity and risk man-
design and cost improvement issues. All firm agement.
personnel are then directed to achieving tar- This paper has reexamined the value of in-
get costs in each division and department. formation and organizational efforts, based on
Standard costing also fulfills its function in the existing literature on strategic manage-
connection with profit opportunity and risk ment, and addressed feed­forward manage-
avoidance. As feed­forward management is ment in regards to cost design in Japanese
implemented, the whole system becomes auto companies. Cost design is also addressed
multi­looped. As a result, a cooperative, vol- in terms of“the second or third gap，”which
untary type of organizational culture is en- reveals its limitations in globalized markets
couraged in human resources management by and in an increasing uncertain and diverse en-
using the feed­forward approach. The forma- vironment（see Nishimura ２０１１; ２０１２）
．Enter-
tion of strategy and the recognition of profit prises have developed agile supply chain and
opportunity and risk at every level of the or- global innovation instead of Japanese type of
ganization help to reduce the possibility of management to globally discover and exploit
management over­confidence and reliance on profit opportunities. On the basis of these ex-
habit, although a vibrant atmosphere within periences and practices, management account-
the organization based on mutual reliance and ing must take a more firmly future­oriented
shared benefit must be established for this to and forward ­ looking form. Researchers
occur. Present management accounting prac- should clarify the limitations of planning for

to
tices are only distantly connected to these and controlling global business by using feed-

the
strategic developments. The realization of a back information and control methods, and

Unified Management of Profit Opportunity and Risk

strategic management accounting system will should establish a new feed­forward strategic
become more of a reality when profits oppor- management accounting system to relevantly
tunity and risk avoidance are connected using respond to contemporary business needs.
the multiple­loop feed forward accounting This paper gives only a framework for cop-
control system described above. Variance ing with the current issues in management ac-
analysis must be proactively and preventively counting. Others, such as Falta et al．（２００６）
implemented at the level of profit opportunity and Kumarasinghe and Willett（２０１０）
，have
and risk management, not just cost manage- used mathematical, statistical, and empirical
ment, and also occur in relation to assessment approaches to analyze these new contempo-
and evaluation of the innovation process（see rary issues in business enterprises. These ef-
Nishimura，２０１１）
． forts to establish proactive and preventive
management accounting will unite together
and open up new ways to establish new stra-
６ Conclusion tegic management accounting. When Monden
Although the idea of feed­forward control has （１９９４）introduced the Toyota production and
long been discussed in the fields of business management systems, the former Vice­Presi-
management and management accounting, it dent of Toyota Motor Corporation, Taichi Ono
has not yet taken a definite form in account- expected the system would lead to advances
ing systems generally. The traditional man- in strategic management accounting. It is not

17
 yet clear whether this expectation has been that extends management accounting informa-
met. Although Japanese­style management tion and control from feedback standpoint to
accounting has been considered by many at the feed­forward. In this case, managers plan
times to be more strategic than its Western for and control profit opportunity or risk pro-
counterparts, the nature of the relation be- actively for enterprise value creation; Cost de-
tween management accounting and strategy sign or the comprehensive risk management
remains unresolved. It is interesting to con- is the application of this idea to the contempo-
sider whether it may be possible to better de- rary strategic management. However, it is an
velop strategic management accounting by unsettled question to clarify what part man-
clarifying the fundamental framework of agement accounting plays in the comprehen-
feed­forward cost control that Japanese en- sive risk management.
terprises have created. The evolution of cur- Environmentally conscious cost design
rent practices requires us to resolve more （Nishimura，２０１４）
，as well as the holistic
troublesome problems and establish a new re- and comprehensive risk management in inter-
search outcome. It is most important to inte- nal control, is developed from the socio­eco-
grate existing and growing ideas into a scien- nomic point of view, according to which corpo-
tific framework, or a fundamental concept. In rate profitability strategy and sustainable busi-
this sense, the study of Japanese­style man- ness growth are combined with corporate re-
agement accounting, international comparative sponsibility and consciousness of social issues
studies of management accounting practices （e.g., environmental protection, safety, and
and theories, and the study of the relations be- social welfare）
．As regards the comprehen-
tween these cognate disciplines from the sive risk management accounting, much still
viewpoint of feed­forward thought and an in- remains how to strengthen the transparency
tegrated viewpoint of feedback and feed­for- and accountability of risk management from
ward controls may play an important role in the socio­economic viewpoint as well as how
clarifying the strategic nature of management to effectively control uncertainty by means of
accounting. risk management and its related accounting.

Discussion for further References

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This paper discussed the feature and struc- （２００９）
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19