Driving Strategic Risk Planning With Predictive Modelling For Managerial Accounting: A Stochastic Simulation Approach

Steen Nielsen, Iens Christian Pontoppidan

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    Abstract

    Currently, risk management in management/managerial accounting is treated as deterministic. Although it is well-known that risk estimates are necessarily uncertain or stochastic, until recently the methodology required to handle stochastic risk-based elements appear to be impractical and too mathematical. The ultimate purpose of this paper is to “make the risk concept procedural and analytical” and to argue that accountants should now include stochastic risk management as a standard tool. Drawing on mathematical modelling and statistics, this paper methodically develops risk analysis approach for managerial accounting and shows how it can be used to determine the impact of different types of risk assessment input parameters on the variability of important outcome measures. The purpose is to: (i) point out the theoretical necessity of a stochastic risk framework; (ii) present a stochastic framework for modelling and computing stochastic input variables; and (iii) illustrate how currently available technology has made this stochastic framework easier. The Global Financial Crisis of the last couple of years has re-accentuated the relevance of a concept of risk, and the need for coherence and interrelations between risk theory and areas within management control. Our results show that – evaluated from four simulation scenarios – a company may benefit by developing different optimal risk strategies and then focusing on a few risk performance measures that can be used for decision making.
    OriginalsprogEngelsk
    Publikationsdato2012
    Antal sider28
    StatusUdgivet - 2012
    Begivenhedeea 35th Annual Congress - Ljubljana, Slovenien
    Varighed: 9 maj 201211 maj 2012
    Konferencens nummer: 35

    Konference

    Konferenceeea 35th Annual Congress
    Nummer35
    Land/OmrådeSlovenien
    ByLjubljana
    Periode09/05/201211/05/2012

    Emneord

    • Management control
    • risk
    • CIMA
    • experimental path
    • computational thinking
    • Monte Carlo simulation
    • structural equation modelling

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