MANAGEMENT

CONSULTANCY
Management Accounting 3
 Topic # 1
Overview of Management
Consultancy Services by
CPAs
What is a Consultant?
 is someone who has expertise in a specific area or
areas and offers unbiased opinion and advice for a
fee
the opinion or advice is rendered exclusively in the interest
of the client and can cover review, analysis,
recommendation and implementation
generally works in conjunction with the resources
and personnel of the client but uses employees,
sub-consultants or others as required for a specific
project and in accordance with an agreement
is not an employee but an independent contractor
usually self employed, contracted to perform a
short-term or long-term task and may be paid on an
hourly, daily or project basis or other fee
arrangement
Reasons for becoming consultants
The following are the most compelling reasons people
enter the consulting field:
1. Sharing their knowledge to help their client
2. Building business network and take a step up in one’s
corporate career
3. Having no boss, being independent and making their
own decisions
4. No fear of being laid off
5. Having flexible source of income
6. A means of giving back to the community by providing
expertise and assistance in community-based projects
Evolution of Management Advisory
Services
 Auditing, accounting system design & installation and
income tax work have been the traditional areas of
expertise for CPA firms
When a CPA firm during the course of an audit
engagement discovered a problem in a client’s business,
it was expected for them to make suggestions for
corrective action.
In response, the client often engaged the CPA to make a
thorough investigation of the problem and to recommend
new policies and procedures needed for a solution
Hence, accounting firms found themselves becoming
more and more involved in management consulting work.
Evolution of Management Advisory
Services
In recent years, responding to the increasing demand of
clients for outside assistance, CPA firms have created
within the firm a separate advisory service divisions which
are staffed by industrial engineers, lawyers, statisticians,
psychologists as well as accountants
The increasing complexity of conducting business, small
and medium sized entities are looking to their auditors for
help in the areas of controllership, regulatory compliance,
environmental compliance, government oversight and
others
Developing Trends
Change in management culture, growth in size and
complexity of business transactions, force companies to
re-engineer their inefficient business processes
Technological developments in areas of information
sciences and decision sciences through computer
hardware and software has change the way how we
conduct business
Globalization has an impact on business environment e.g.
telecommunication technology can now substitute
physical travel, free flow of goods and services
Internet change the way how we conduct business
Assignment # 1

What are the new trends in

management consulting
nowadays?
 The Consulting Industry in the
following areas:
• Information Technology
• Consulting and system integration
• Corporate Strategy
• Operations Management
• Human Resource Management
• Outsourcing
Types of Consultant Firms
I. IT Firms
 IT firms engaging in consultancy thru acquisition of consulting firm to
increase revenues
II. Accounting Firms offering Consultancy
 Area of service that an accounting firm can offer to its client

III. Major Consulting Only Firms

 Large firms with global reach offering a wide range of services but their
core service is consulting
IV. Independents
 Individuals having their own consulting services as sole traders offering
a range of services, often specialized
Assignment # 2
What are the career structure
in the consulting world and
what are the opportunities for
individuals
Nature of MAS by independent
Accounting Firms
Management Advisory Services by an independent
accounting firm is the function of providing professional
advisory (consulting) services, the primary purpose of
which is to improve the client’s use of its capabilities and
resources to achieve the objectives of the organization

Management Consulting is described as an

independent and objective advisory service provided by
qualified persons to client in order to help them identify
and analyze management problems or opportunities
through consultation and engagement
CONSULTATION
consist of providing advice and information during a short
time frame
the advice/information is provided orally during one or
more discussions with the client
the advice/information will be definitive when the
consultant is fully aware of the situation and possess
sufficient expertise to require more intensive study or
investigation
 the advice/information will be qualified by stated
limitations due to lack of first hand observations of the
problem situation or lack of familiarity
ENGAGEMENT
Consist of that form of management advisory or
consulting service in which an analytical approach and
process is applied in a study or project involving the
following:
i. Ascertaining the pertinent facts and circumstances
ii. Seeking and identifying objectives
iii. Defining the problem or opportunity for improvement
iv. Evaluating and determining possible solutions
v. Presenting findings and recommendations
vi. Implementing the solution if appropriate
Rationale for Using Management
Consultant
I. Independent viewpoint
• A consultant is considered independent, objective and detach to the
problems faced by the organization thus he see the nature of the
problem and distinguish between feasible and infallible solution
• The consultant is not involved in the internal policies of the
organization hence his suggestions tend t be accepted as unbiased.
II. Professional advisor and counselor
• An experienced management consultant possesses special
knowledge, skills and a variety of personal attributes that make him
the most desirable candidate to undertake an engagement involving
his area of expertise
• An experienced consultant can introduce new ideas into the
organization that were gleamed from other engagements
Rationale for Using Management
Consultant
III. Temporary professional service
• Less expensive to the company than hiring new managers or
employees to provide professional advisory services
• Clients supplement skills in their organizations by hiring trained,
proven, motivated consultants on a short term or long term basis
• Clients do not have to contend with the training, instruction and long
term commitment for salaries and fringe benefits entailed in hiring
skilled employee
• Lesser recruitment cost
IV. Agent of change
• Consultant act as catalyst for change and stimulating ideas in highly
structured organization that otherwise might be resistant to change
due to its size, bureaucracy and institutionalized nature to assist
managers in the administration of organization
 Independent Accounting Firm’s Role in
MAS
“ To provide advice an
technical assistance which
should provide for client
participation in the
analytical approach and
process. Specifying this as
the proper role recognizes
both the appropriate place
of MAS and the realities of
practice. This is the only
basis on which the work
should permit it to be done”
• A consultant is not in a
position to carry out his
recommendations since he
has no authority over his
clients resources and to
make decisions. Should he
attempt to do so then
ceases to be a consultant
• An accounting firm should
avoid making management
decision or taking position
that might impair the firm’s
objectivity
CPA’s Objective in engaging in MAS
“To utilize the Essential Qualifications:
essential i. Technical competence
ii. Familiarity with the
qualifications it client’s finance and
has available to control systems and
provide advice and his business problems
technical iii. Analytical ability and
experience in problem
assistance which solution
will enable client iv. Professional
management to independence,
objectivity and integrity
conduct its affairs
more effectively”
 Topic # 2
Areas of Management
Advisory Services
 MAS engagement classifications
according to its dimensions:
I. NATURE OF THE PROBLEM
II. SERVICE DELIVERY AREAS
III. PHASES OF THE ANALYTIC PROCESS
IV. TECHNIQUES AND METHODOLOGIES
APPLIED
V. INDUSTRY ( or nature of organization) TO
WHICH THE CLIENT BELONGS
VI. GEOGRAPHICAL AREA(s) WHERE THE
ENGAGEMENT TAKE PLACE
I. NATURE OF THE PROBLEM
Classification of problems according to their
situation:
i. Corrective
ii. Progressive
iii. Opportunistic
NATURE OF THE PROBLEM -
Corrective
Corrective Problem
Involves a situation in which conditions have worsened.
It arises suddenly and demands urgent action
Defining the problem is often much less difficult than
determining the preferable course of action
Example:
• Sudden drop in productivity within a critical department
Action to be taken by the consultant
• Suggest corrective actions that will return the situation to
its previous state
NATURE OF THE PROBLEM -
Progressive
Progressive Problem
Involves an existing situation that can be
improved
Example
• A firm that may have been acquired by the firm’s
competitor but the firm’s procedure have remain
unchanged
• The firm has continued to employ old procedures in
spite of continued growth in transactions and
development in computer technology
Action that can be taken by the consultant
• To suggest that computer based transaction processing
system should be implemented to improve the situation
NATURE OF THE PROBLEM -
Progressive
Opportunistic Problem
Involves a situation in which a future opportunity exists.
Opportunistic problem are likely to lead to more risky as
well as more potentially rewarding courses of action
than are corrective and progressive problems
Example
• Firm’s excessive cash and cash equivalents available hence not
earning the desirable rate of return
Consultant’s responsibility
• Recommend opportunities for more effective use of funds
II. SERVICE DELIVERY AREAS - the functions or
activities in which the problem situation exists
Classification (Groupings) Narrower areas according to
groupings
i. General Management
iv.a General Accounting
ii. Manufacturing
iv.b Cost Accounting
iii. Personnel
iv.c Short-term planning,
iv. Finance and Accounting budgeting and control
v. Marketing iv.d Credit and collections
vi. Procurement iv.e Financial Planning
vii. Research and iv.f Capital Investment
Development iv.g Marginal income analysis
viii. Packaging iv.h Valuation and appraisal
ix. Administration iv.i Taxes
x. International Operations iv.j Financial Information
III. PHASES OF THE ANALYTIC PROCESS
i. Identify the objectives
ii. Defining the problem
iii. Finding out the facts
iv. Developing the solution
v. Implementing the solution

These phases represent the dynamic aspects of

an engagement and are employed in every
engagement.
IV. TECHNIQUES AND
METHODOLOGIES APPLIED
Most engagements can be aided by technical models or
methodologies
Examples:
• Capital investment planning can be aided by discounted cash flow
model such as PV method or IRR Model.
• Information system planning and design can be aided by structured
methodology
V. INDUSTRY ( or nature of organization) TO
WHICH THE CLIENT BELONGS

A client who is the subject of an

engagement may be privately owned
business firm, a government agency, or
not-for-profit nongovernmental
organization, a professional association
or some other type of organization.
VI. GEOGRAPHICAL AREA(s) WHERE
THE ENGAGEMENT TAKE PLACE
A consulting engagement may be
restricted t a single location such as the
home office of the client. It may also
involve multiple locations such as the
several production plants and
warehouses of a large manufacturing
firm. It may even involve locations in
foreign country.
CHARACTERISTICS OF MAS
i. Services are rendered for the management
ii. Involves problem solving
iii. Relates to the future
iv. Broad in scope
v. Involves varied assignments
vi. Engagements are usually non-recurring
vii. Engagements require highly qualified staff
viii. Human relations play a vital role in each
engagement
SCOPE OF MAS
MAS are usually related to the services rendered by
CPAs in the areas of audit, accounting & tax and may
involve activities such as:
Counseling management in its analysis, planning,
organizing and controlling functions
Reviewing and suggesting improvement of policies,
procedures, systems, methods and organizational
relationships
Introducing new ideas, concepts and methods to
management
Conducting special studies, proposing plans and
programs and providing guidance and technical
assistance in their implementation
BROAD AREAS OF MAS
A. Areas which are normally related to
the accounting and finance functions
B. Areas which are not normally related
to the accounting and finance
functions
AREAS WHICH ARE NORMALLY RELATED TO
THE ACCOUNTING AND FINANCE FUNCTIONS
1. Financial Accounting Systems Design and Development
2. Management Accounting Systems Design and
Development
3. Development and Establishment of Budgetary Controls
The field covers the following:
1. Financial Management 2. Cost Accounting
a. Establishment of capital budgeting a. Development of
procedure cost system
b. Study of the cost of capital and b. Cost analysis and
cost of debt control
c. Financial analysis for project c. Variance analysis
studies
d. Establishment of operating and cash budgets
e. Valuation of CS for purposes of mergers and sale
Areas which are not normally related to the
accounting and finance functions
1. General Management Consultation
i. Management or Operations Audit
ii. Measurement of Operating Performance
iii. Mergers and acquisition studies
iv. Development of Compensation Programs
v. Pension Plan Review
vi. Special Studies on industry potential
vii. Long range planning

2. Project Feasibility Studies

 Involves financial, technical, and marketing evaluation of proposed projects
Areas which are not normally related to the
accounting and finance functions
3. Organization and Personnel
i. Review of existing organizational structure
ii. Organization and Administrative manual preparation
iii. Job evaluation and salary administration
iv. Development of personnel rating program
v. Retirement plan studies
vi. Studies of office cost reduction systems
vii. Determining cost of alternatives in collective bargaining agreements
4. Industrial Engineering
i. Production, Planning, Scheduling and control
ii. Plant layout studies
iii. Inventory management studies
iv. Materials control system design and development
v. Preventive maintenance system design and development
vi. Development of work standards
Areas which are not normally related to the
accounting and finance functions
5. Marketing
i. Product profitability Analysis
ii. Pricing policy determination
iii. Market forecasting
iv. Distribution cost analysis
v. Salesmen’s incentive compensation evaluation

6. Operation research
 involves the use of mathematical techniques such as linear
programming, PERT/CPM, queueing theory, simulation to solve
operational problems
Additional Notes: Engagement - Analytical
approach and process
3 Broad Stages
1. Analysis Stage – consists of ascertaining the pertinent
facts and circumstances, seeking and identifying
objectives and defining the problem or opportunity for
improvement
2. Design Stage – consists of evaluating and determining
possible solutions and presenting findings and
recommendations
3. Implementation Stage – consist of planning and
scheduling actions and advising and providing technical
assistance in implementing
Topic # 3

Professional Attributes of
Management Consultants
Broad areas of skills
1. Technical Skills
 Understanding and experience in a technical discipline such as
information technology, marketing, engineering and organizational
behavior
2. Interpersonal Skills
 Personal attributes that make an individual amiable among people and
effective in accomplishing desirable objectives through people
3. Consulting Process Skills
 Includes the ability to understand and use the following approach in
solving business problems:
i. Identify the cause of problems and inefficiencies
ii. Identify alternative solutions
iii. Select the most desirable alternatives
iv. Implement the chosen solution
Technical Skills
Educational Requirements – The education required
to obtain the necessary technical skills for
management consulting depends on the area of
specialization.
A. Technical Training
a. Length of Education
A bachelor’s degree is a prerequisite. Most management consultant
today have multiple degrees. Undergraduate programs teach the “how”
rather than the “why”. Graduate programs help develop tolerance for
the uncertainty and ambiguity inherent in business problems
b. Type of Education
Educational program usually include a technical degree and a general
degree. E.g. Bachelor’s degree is Computer Science than the Master’s
degree is Information Technology
Technical Skills
B. Common Core Requirement
Regardless of a person’s area of specialization, the following common
core courses should be included in the educational program:
i. Communication
ii. Mathematics and Statistics
iii. Computer data procesing
Interpersonal Skills
In addition to education and experience, the following
personal attributes are critical fort he success of
management consultant:
1. Intelligence or capacity for logical thinking and
reasoning – This refers to the degree of consultant’s
degree of mental and development that enable him to
absorb and relate facts in a logical and orderly fashion
and to reason inductively and deductively.
2. Integrity – Pertains to moral and ethical soundness,
fairness, equity, ability to distinguish between right and
wrong, honesty, dependability, freedom from corrupting
influence or practice and strictness in fulfilling both the
letter and spirit of agreements
Interpersonal Skills
3. Objectivity – Consultant must have the ability to grasp
and to represent facts, unbiased by prejudice. They have to
be independent
4. Understanding of people (Human relations, empathy)
– Consultant must have the ability to anticipate human
reactions to differing situation; to establish and maintain
friendly relations and mutual confidence with people at all
levels; and to recognize and respect the rights of others
5. Judgement – Refers to management consultant’s ability
and reasoning power to arrive at a wise decision, a course
of action or a conclusion, especially when only meager or
confused facts are available.
Interpersonal Skills
6. Courage – Refers to the consultant’s strength of mind
and character that enables him to encounter disagreement,
difficulties and obstruction with firmness of spirit and
determination, and to consider them as challenges rather
than something to be avoided or feared; the ability to stand
by one’s convictions regardless of pressure
7. Ambition – A management consultant must have the
desire and motivation to earn and obtain full recognition for
the attainment of professional status.
8. Psychological maturity – Consultant’s ability to view
situation in perspective and to take action needed on a
calm and controlled basis without being diverted from a
sound, logical, and ethical course by outside pressure
Interpersonal Skills
9. Physiological Equilibrium – Consultant need high-
energy level to:
i. Support his intellectual and emotional activities
ii. Enable him to withstand pressure and frustration
iii. Avoid physical illness
10. Relationship building skills
a. Ability to build rapport and trust with the client – Rapport is hard
to define but easy to recognize. Having a trust and a commitment to
each other
b. Ability to question effectively – Questioning is a fundamental
communication skill. It is a way to get information, build rapport and
to control the direction of a conversation.
c. Ability to communicate ideas succinctly and precisely – Ideas
must be related in a way that is clear and understandable in the
clients level of understanding.
Interpersonal Skills
• 10. Relationship building skills
d. Ability to negotiate objectives and outccomes- The consultant
and client do not always agree on the obejcives and outcomes
because of the following:
 Clients may not have a clear idea of what is wanted for the
business.
 Consultants may not be convinced that what the client is
demanding as an outcome is aboslutely right for the business.
The client and cosultant must have the clear expectations as to what
will result from the consulting exercise and what the responsibility of
both parties will be in achieving them

e. Ability to convince through verbal, written and visual

mediums- Ideas must be communicated in a way that convince
people they are good and worth implementing, thus it is important in
comunicating to use the right language, right length and adopts a
proper style
Interpersonal Skills
10. Relationship building skills
f. Ability to use information to make a case for a particular
course of action- Comunication of ideas must be backed up with
information. Whwn to use a particular information and how to use
it to convince is an important communication skill for the
consultant’s ideas are likely to be under close scrunity by the client
and those of the internal managers of the client’s business

g. Ability to develop selling strategies- Consultants must sell

themselves and their own organization as providers of ideas.
Consultancy as a product does not respond to a hard sell
approach. A selling strategy should be formulated that aims to
communicate with prospective client its services to build a long
term, mutually rewarding relationship
Interpersonal Skills
10. Relationship building skills
h. Ability to work effectively as member of a team-The
consulatnat and the client shoud work together. Good team
working is essential. Team work demands a willngness to align the
interests of the individuals who make up the team with the overall
task the team must address. This requires an ability to advocate
individual interest and yet to compromise individual concern for the
interest of the group when necessary.

i. Ability to listen effectively- As an active part of

communication, listening represents a skill. Listening effectively
will enhance your ability to prepare responses positively that is
relevant to the other speaker.
Interpersonal Skills
10. Relationship building skills

j. Ability to demonstrate leadership- Leadership is an ability to

focus and direct the individuals in an organization in a way that
brings the whole organization benefits. It drrws together a variety of
relationship skill into a coherent behavioral strategy.
Common Barriers to Effective Communication
Between the Client and the Consultant
1. Know it all attitude and/or prejudice of some
personnel of the client – The consultant should develop
a cooperative and supportive climate and should appraoch
a “ know it all person” from his own perspective. Use well
thought action and logical reasoning that leads up to a
particular action. Disagree if necessary but do not
denounce overtly the position of the individual
2. Inability to understand tchnical language – This may
arise when the consulatnt interacts with a non expert client
and employees who are unable to understand technical
language. In this case the consultant should exercise care
when using words that may be understood by the client.
Common Barriers to Effective Communication
Between the Client and the Consultant
3. Inadequate background or knowledge – Closely related
to the technical language barrier are background or
knowledge difference. The consulatnt after audience analysis
have been made is expected to have patience and empathy to
the client. He should provide additional information for
clarification and to explain more thoroughly the matters that
are raised.

4. Resistance to Change – Managers, workers and

individuals of clients have the tendency to resist change when
it is precieved as threat to their work. This can be a barrier to
communication. Consultants should explain in a positive
manner in order to reduce anxities. Being open and encouring
participation will provides a better environment for
implementing change.
Common Barriers to Effective Communication
Between the Client and the Consultant
5. Information Overload – An individual has a limit when
dealing with information and exceeding this information can
hamper effective communication. Consulatnts should try to
guide their clients by helping them manage their time, set
priorities and delgate work responsibilities to others. If an
individual appear to be loveloaded with work, consulatnts
try not to give addiionation assignments or tasks
Interpersonal Skills
11. Project Management Skills
a. An ability to define objectives and outcomes – A plan of action
inorder to achieve a certain objective. Critical aspects of planning are
the following:
 Defining tasks and ordering them
 Understanding the resource implications of the task squence
 Identifying who will be responsible for carrying the tasks
 Formulating the financial implications of their activities

b. An ability to develop formal plans – Prioritization must be

undertaken both by individuals and between ndividuals on the project
team. A project in which task order and priority have been well defined
will be delivered in a shorter time period and at a lower cost.

c. An ability to sequence and prioritize tasks – All management

activity demands that money must be spent. Expected expenditures
(budgets) must be set before the project starts so that resource
requirements may be put up. Developing an awareness of budget
management issues and recognizing the skills necessary for
managing them are valuable in consulting profession.
Interpersonal Skills
11. Project Management Skills
d. An ability to manage the financial resources that are to be
invested in the consulting project – Management activities
demand money to be spent. Profiles of expecte expenditures
(budget) must be set before the project starts so that resource
requirements may be understood by the team. Awareness of
budget management issues and recognizing skills necessary for
managing them are valuable part of consulting profession
e. An ability to reognize the human expertise necessary to
deliver the project – Recognizing the human expertise
necessary to deliver a project is to understand how the various
members of the consulting team can specialize their roles. They
must work as a team to deliver the objectives of their
enagement.
f. An ability to manage personal time – Personal time
management allows individual time to be used productively to
avoid last minute panicks thus reducing stress
 Interpersonal Skills
12. Analysis Skills

a. An ability to identify what information is available in a particular

situation – Decision makers demand information. A good decision
maker is active in auditing the information that is available to be used
in a decision making situation.
b. An ability to identify what information is needed in a particular
situation – Having identified what information is available in a
situation a consultant must decide whih information is pertinent to the
decision at hand distguishing those relevant information from
distraction.
c. An ability to process that information to identify the important
relationships within it – Information on its own is not much use. It
must be processed in order to identify the relationships with it e.g.
linkages that connect the businesss, their customer and their
environment.
d. An ability to draw meaning from that information and use it to
support decision making – Once connections have been made and
conclusions have been drawn it is necessary to identify the impact of
those conclusions on the curses of action open to the client business
and their significance to the consulting engagements
Interpersonal Skills
12. Analysis Skill
e. An ability to recognize the business’s profit profile of
strengths, weaknesses and capabilities – All businesses are
different. They have their own strength and weaknesses. A variety of
conceptual frameworks are available to consultants to guide them in
the evaluation of the strengths, capabilities and weaknesses of their
business clients

f. An ability to recognize the opportunities and challenges the

environment offers the business – An ability to evaluate
opportunities and threats its markets offer the business is a
fundamental prerequisite to devising rewarding consulting projects
and defining their objectives

g. An ability to assess the business’s financial situation – an

analysis of the company’s financial situation offers a route to
understanding its performance in it marketplace, the risks to which it
is expose and the resources it has available to invest in the future.
The consultant’s role is to analyze its financial capability through the
application of financial analysis concept
Interpersonal Skills
12. Analysis Skill
h. An ability to evaluate the business’s markets and how they are
developing – The growth of the business is sensitive to the development of its
market. An analysis of this development in the business’s markets, combined
with the frim’s acapabilities should be used to define consulting project
outcomes that make a real contribution to the business’s development.
i. An ability to assess the business’s internal conditions - The business
have the following internal conditions:
i. Flexible and responsive to new possibilities
ii. Have the resources needed to innovate in an appropriate way
iii. Capacity to grow in response in situations
iv. Able to hold resources it will need to invest in growth
The consultant’s role is to assess this conditions in order to assist the client to
effectively manage its business

j, An ability to analyze the way in which decision-making occurs within

the business – A consultant must convince the client that what he is
suggesting is opportunities for improvements. Inorder to do this, an effective
consultant must understand decision making process. This demand knowing
who is involved in the decision making process and the roles they play because
this build relationship.
CONSULTING PROCESS SKILLS
Most engagements undertaken by consultants will involve
the solution of problems. The consultant should have the
ability to apply the analytical approach and process in this
problem solving exercise. This process consists of four
areas:

1. Problem definition phase

2. Identification of alternative solutions
3. Selection of the most desirable alternative
4. Presentation
5. Implementation Phase
CONSULTING PROCESS SKILLS
1. Problem definition phase
 The purpose of this phase is to fully describe the underlying
problem by initially recogninzing the symptom pointing to the
problem and ends with complete description of the problem
2. Identification of alternative solutions
 Fact finding and analysis pahse which involves the gathering of
facts needed to solve the problem and analyzing these facts in
order to clarify the requirements of the best solution
3. Selection of the most desirable outcome
 Otherwise known as solution development phase that involves the
selectoon of the optimal solution to the problem and developing a
detailed plan of action
4. Presentation
5. Implementation phase
 Putting the detailed plan into operation and should be the least
difficult to do if the previous phases have been performed well.