Decision making across the business cycle


CIMA, the Chartered Institute of Management Accountants, is the world’s leading body for management accountants. Management accountants can provide management information and insights as well as financial data to help managers make decisions.

However, CIMA qualifications are not just for professional accountants. CIMA members may work across any part of an organisation, not just in finance. CIMA training helps any worker to develop quantitative, analytical and strategic thinking and build business and management skills. These include:

  • performance management – analysing data for use in business decision making
  • cost leadership – applying accounting techniques to plan and budget as well as formulating business strategy to create wealth and shareholder value
  • project management – identifying and managing the risks of certain actions and communicating appropriate information across the organisation.

CIMA has 183,000 members and students in 168 countries with many holding senior positions in businesses around the world. However, CIMA qualifications are accessible to a wide range of people. There is no need to have a degree to start CIMA studies - you can take up studying whilst in work or after leaving school. The CIMA Certificate in Business Accounting provides a solid grounding in the basics of management accounting, business and finance, preparing members to progress to the professional qualification.

Management accountants

Management accountants are playing important roles during the difficult times which the UK economy has been experiencing. Between 2008 and 2009 there was a fall in production and consumer spending. Economic performance has continued to be poor. During these hard times it is essential to have a good understanding of how to make important decisions to get the economy growing.

Research has shown that the organisations with the best prospects of emerging successfully from a recession are those which balance cutting costs to improve operating efficiency with continuing to invest in developing their competitive position. This means understanding what drives revenue, cost and risk across the organisation’s value chain.  Financial measures alone cannot describe this adequately. To ensure the sustainability of a business, delivering financial results has to be balanced with other qualitative measures of performance.

Strategic decision making is a key role of managers. Strategic decisionshave long-term and company-wide impacts, so businesses must respond to changes in the environment in which they operate. Contingency planningcan allow firms to deal with unexpected events. Management accountants are skilled in these areas and are able to advise decision makers on how to maintain financial control and stability. They have a vital role to play in ensuring firms remain competitive, even during difficult times.

The case study illustrates how management accountants support business decision making during all the stages of the business cycle.

 The business cycle

Gross Domestic Product (GDP) is the value of all the goods and services produced in an economy over a period of time. When GDP rises, economic activity is increasing. This is called economic growth. The level of activity fluctuates over time. Periods of high growth are followed by periods of slow growth. Sometimes the economy experiences negative growth when there is a fall in GDP. These fluctuations are known as the business cycle.

There are four stages of the business cycle:

  • Boom – this is when the economy is growing quickly. Demand in the economy is high and consumer spending grows.Business production increases to keep up with the demand.
  • Downturn – growth starts to slow down. Consumer spending begins to fall and businesses invest less in capital equipment. There is uncertainty about the future of the economy.
  • Recession – a continued downturn in economic activity can lead to a recession. Demand is low and firms may struggle to survive.
  • Recovery – GDP starts to rise again as consumer spending increases and businesses produce more goods and services.


The business cycle has numerous impacts on organisations.  These include:

  • changing demand affecting profitability
  • fluctuating staffing levels requiring recruitment or redundancies
  • the need to alter production levels relative to demand
  • the capability to expand or rationalise operations as necessary.

The illustration shows economic activity in the UK between 2006 and 2010. Although the business cycle follows a pattern, the changes in activity are not regular or predictable. It is difficult to assess the duration of any part of the cycle or how extreme the booms and recessions will be. Management accountants can help organisations to develop suitable strategies to cope with the business cycle. For example, during the 2008-9 recession, CIMA evaluated the situation and warned companies against ‘knee-jerk’ reactions to problems, such as trying to manage just by cutting costs.

Management accountants are equipped to take a longer term view. They understand that some costs are necessary to support the long term growth of business. The management accountant’s role is central to understanding, managing and even anticipating the impact of the phases of the business cycle in order to manage its effects.


A boom is a sustained period of strong economic growth. During this time confidence in the market is high. This leads to high levels of demand and consumer spending. Businesses increase their output and may be working at full capacity. It is during this phase that existing businesses tend to increase their spending on new capital. Many new firms also start up.

Due to the level of business activity during a boom, employment levels are high. This makes it more difficult for companies to attract and employ staff. They may need to offer higher wages to attract quality workers.


The boom can be an exciting part of the business cycle for organisations. However, high levels of demand, plus the increasing costs faced by firms, can lead to high inflation. Inflation is the name given to the rise in the general level of prices. In addition to this, there is an increased risk of ‘overheating’. This is a situation where businesses are not able to meet the high demand for goods and services. Boom periods therefore need to be as carefully managed as the other stages in the business cycle.

CIMA encourages a balanced approach to managing the business cycle. The focus should be on long-term business growth rather than short-term profits. Management accountants can advise on how to make the most of the investment opportunities afforded by a boom, whilst assessing and managing the associated risks. In a buoyant economy there is less perceived need or incentive to control costs. However, inefficiencies can become problematic.

Management accountants will also have a role to play in ensuring the business remains efficient. For example, by keeping business processes lean, streamlined and continuously improved, costs will be controlled.

Michael Tan is a Supply Chain Operations Director for Agilent Technologies in Malaysia. His business grounding with CIMA has allowed him to focus on achieving greater efficiency in the company. His efforts have reduced lead times by 32% over the last year.

 Downturn and recession

A downturn is a slowdown in economic activity. High levels of inflation in a boom can lead to businesses becoming uncompetitive. Inflation increases uncertainty as rising costs and prices are difficult to predict. In order to try to control demand when inflation is high, the government can increase taxes. In addition to this, the Bank of England can raise interest rates. These actions encourage saving and discourage spending. The result is that economic activity begins to decline.


A downturn can lead to a recession which is defined as when there are two successive quarters of negative economic growth. During a recession, demand in the economy is low and markets shrink. There are pressures for businesses to reduce costs, which can lead to increased unemployment as companies lay off workers. The resulting higher unemployment means people have less money to spend, thus contributing to the downturn in the economy. Some businesses may have to close down. In 2009 a number of well known businesses closed in the UK, for example, Woolworths. Other businesses reduced the number of outlets or stores they operated.


During a recession, the Board of Directors of a company needs to consider various options of managing lower revenues and therefore profits. In most businesses there are inefficiencies and instances where the costs of unprofitable customers or products are covered by other profitable ones. Management accountants can provide analysis to help focus on core profitable activities and identify where costs can be cut. They may provide detailed figures relating to options such as making redundancies, closing offices, shrinking capacity or even selling off assets like machinery and buildings.

Evaluating the outcomes of these different sorts of analysis could include:

  • comparing different degrees of activity, e.g. to cut costs by 10% or 20%
  • analysing the benefits or impacts of various options, e.g. what is the effect on profits of cutting back costs? How much cost saving would result from losing 5% of employees?
  • assessing impacts on stakeholders, e.g. how will customers feel if the range of products is reduced or delivery times affected?

However, the problem in making cutbacks is that it reduces the ability of a business to respond when the economy takes an upturn. The company may then have to invest in new machinery and equipment or try to regain skilled employees.

Management accountants may also help identify opportunities for immediate or future growth during a recession. Good deals may be available at this time. Investment in equipment or acquiring another business during a recession is likely to be cheaper than during a boom. This can put a company in a strong position to deal with increasing demand when the economy begins to recover.

CIMA Professional Qualification


Matthew Parker works for Topshop/Topman which is part of the Arcadia Group. He has completed the CIMA Professional Qualification. He describes his CIMA qualification as a commercial toolkit that enables him to break information down and make the most profitable investment decisions. By comparing the likely costs and revenues of different activities and products, Matthew is able to identify ones that are most likely to lead to higher and sustainable profits.

Scott Egan is the Commercial Director at Norwich Union Insurance. He is responsible for identifying new business areas which may be important to the business in the future. He also drives mergers and acquisitions in order to continue Norwich Union”s growth.

Management accountants are able to explore every way to reduce the impact of a recession, without resorting to impulsive decisions which may harm recovery. For example, they might consider particular human resource strategies. The introduction of flexible working or reduced hours can ensure skilled staff are still available for the recovery. The CIMA Professional Qualification provides skills and support for human resourcesspecialists.


The term 'green shoots' is used to refer to the first signs of economic recovery. During a recession, businesses and consumers lose confidence. 'Green shoots' appear when consumers start to spend a little bit more. Businesses respond perhaps after a short time lag by producing more goods and services. They will start to invest in new machinery. More jobs will be created or reinstated. Unemployment will start to fall.


The cause of recovery may be due to government actions such as reducing taxes, increasing investment in the economy or perhaps by improving infrastructure.

For example, in 2008 the government temporarily reduced VAT from 17.5% to 15% to encourage greater consumer spending. Increased investment, either from within the UK or from other countries, can also prompt recovery. A rising confidence in the economy leads to increased business activity and more spending by consumers.

Although some uncertainty will undoubtedly remain, businesses are more likely to consider investment at this time. During the downturn, a company may develop new ideas but be reluctant to put them into practice because of the falling level of expenditure in the economy. Once the recovery starts, it is time to try out these ideas.

Management accountants can provide an assessment of what the expected returns might be on these new ideas. For example, they can use investment appraisal tools to:

  • determine how long it will take to pay back the cost of setting up a new production line
  • analyse which opportunities will yield the best results
  • consider which ideas have most strategic long-term value.

Rhiannon Rymer is a CIMA-qualified Strategy Analyst at Lloyds TSB. Her work focuses on evaluating data to assess where income will come from now and in the future. She looks for opportunities during all stages of the business cycle, including recessions, to identify where Lloyds TSB has the potential to grow income.


The CIMA Professional Qualification is relevant to many different industries. It covers key skills not just for management accountants, but for managers at all levels working across a company.

CIMA training enables management accountants and managers to make sound strategic decisions. This understanding and skill helps managers to work effectively in complex times across the whole business cycle, managing through boom, downturn, recession and recovery.

CIMA qualifications are particularly attractive for young people entering the workplace for the first time. This is because they provide highly respected training that can lead to jobs with real prospects in many sectors. A CIMA qualification encourages learners to think strategically. CIMA-trained management accountants can make a real contribution to a business.