Accounting: Emirates Group - Assignment Example

Emirates Group - Case study Task Introduction Emirates Group is an airline company having its headquarters in Dubai, United Arabs Emirates. The company provides airline services to 142 cities in 80 nations. Emirates Group is considered to be operating the largest fleets of Airbus, Boeing 777 and Airbus A380 in the whole world. Therefore, the company’s main activity is the provision of airline transportation for commercial purposes. Dnata on the other hand, specifies in the provision of information technology, travel services, catering, cargo and ground handling services. The two companies operate independently, but are under one management. This assignment seeks to present analyses of various managerial issues on the company as done below. (1): The primary objective of Emirates Group is to go further by demonstrating agility and “going the extra mile”. The critical success factors are investments in people, infrastructure, in the technology and in the products. The company’s success is heavily dependent upon the four factors. The feedback system can be used to get information from the company’s employees, customers among others. The company’s efficiency report could provide information used to monitor the level of investment in the company’s infrastructure, technology and products (Emirates Group: annual report 2014). (2): the internet is easily accessible and at affordable costs. It also is a medium that serves for communication purpose. Emirates group, as a corporation that provides airline services to different countries, has customers and other important stakeholders in those countries (Emirates Group: annual report 2014). Therefore, the internet has been very useful by providing the following: a communication platform, an operating medium. First, Emirates group has a lot of stakeholders with various information needs. The company’s stakeholders are the customers, employees, the government, suppliers, creditors and the investors. They are interested in the company’s financial information for different reasons as follows: The first category of people who use financial information is investors. Investors who provide capital to a company are concerned about the levels of risk, and return from their investments. They need financial information to help them decide whether they should buy or sell shares of a particular company. (Lasher 2008). Second, Emirates group has implemented the internet airline booking strategy, which is cost effective and fast. The strategy has simplified seat-booking and payment processes. The service is available on the internet and significantly reduces the company’s cost of operation (Emirates Group: annual report 2014). (3): the following are the purposes of preparing a budget: for coordination, communication, control, motivation, and planning. First, the budget can be used as a control tool. The Emirate Group’s management team can use a budget to measure the organization’s actual performance against the planned performance (budget). In addition, a budget is majorly used to detect variances and formulate the most suitable corrective measures depending on the situation. For example, the company could target a 10% increase in revenue, in 2015, up from the year 2014 figure of AED 80,717 millions. The budget would then form a platform for monitoring the sources of deviations, thereafter, devises an appropriate approach (de Waal 2005). Second, budgeting aids the process of planning. Planning is defined as the process of setting objectives and goals and the course of actions to be taken in order to ensure the achievement of the goals. Third, the budgeting process enhances effective communication between various levels of management and between different functional departments within the Emirates Group. The enhancement of communication is achieved because the process involves association and discussion and consultation among all management levels. This ensures a proper coordination of activities in the company (de Waal 2005). Fourth, budgets act as a motivator. The budget spells out the courses of action to facilitate the achievement of goals within a time frame. Managers are thereafter stimulated to utilize the allocated resources to meet the organization’s objectives. Managers are more motivated in instances where feasible goals are set. However, during instances where the budget presents a seemingly infeasible goal, the company’s management becomes demotivated. Fifth, coordination among the functional departments within an organization is necessary. The budgetary process is not complete without the inclusion of the monetary value of activities in each functional department within an organization. The process may require the cross checking of data between functional department within the organization, thus increase member-coordination between various functional departments within the company (de Waal 2005). (4): the following are among the advantages of budgeting: first, it maintains control over the company. Emirates Group is an international organization that experiences substantial cash flows on a daily basis. Similarly, the level of capital expenditures is high. Therefore, a budget is necessary to control and monitor the movement of resources in and out of the company. In case of any unexpected result, the budget can facilitate the restoration of the original plan. Second, change is inevitable in the business environment due to risks. Being that Emirates operates in the international market; the level of business risk inherent is high. For instance, changes in airline routes, plane crashes and other unforeseen risks disorganize the company’s plans. However, a budget facilitates the process of change since the budget contents would simply be adjusted to fit the prevailing situation (Barrett 2005). Third, the budget increases the utilization rate of a company’s resources. The budget focuses the company’s funds and the employee skills toward a specific goal. Therefore, it reduces both mis-allocation and misappropriation of funds (Barrett 2005). Fourth, a budget facilitates the achievement of the company’s goals. Emirates objective is to go further through investments in people, technology, infrastructure and products. A budget will ensure that the mentioned investments are made in order to make objectives achievement a reality (Barrett 2005). On the other hand, the following are among the limitations of budgeting: First, excessive reliance on a budget may cause rigidity thus impede change. Second, it is not easy to set feasible targets, thus causing the demotivation of the management. Third, opposition arises when excessive pressure is caused by a budget. Fourth, the actual results cannot be accurately determined specifically regarding sales and profitability; only the approximations are being used for budgetary purpose. Last, budgeting is too expensive and takes a lot of managers’ time due to constant adjustments made on the figures (Barrett 2005). (5): an organization has various activities ranging from the purchase of raw materials and other products necessary in the production process of selling the output (product). That is, a lot of activities are undertaken, between the production and selling of a product. Thus, every activity should be undertaken based on a plan (budget) to boost the effectiveness and optimal use of the resources. A master budget is made up of both production and non- production budget. Production budgets are a sales budget, finished good budget, material budget, labor budgets and overhead budgets. On the other hand, the non-productive budget includes selling and distribution, the administrative budget, cash budget, and research and development budget. Therefore, the idea that only cash budget is important, is misplaced. (6): Cost allocation is a concept that refers to the determination of the expenses incurred to produce goods. Activity Based Costing recognizes the fact that, during a production process, not all costs are attributed to the volume of products and services produced. Therefore, Activity Based Costing determines the cost drivers associated with the customers, batches, products and administration-related costs directly connected to the units produced. Being that ABC system has widely been adopted in the manufacturing industry, its application in the service industry has been doubted. Nevertheless, the rate of resource consumption between services differs. Thus the allocation of cost to cost objects is possible. This facilitates the determination of accurate costs attributed to the production of services thus, aids accurate pricing (Chea 2011). (7): information and technology is a critical discipline to the success of organizations. The rate at which the world is experiencing technological advancements is constantly increasing. Organizations, both in the service and manufacturing industry are in a midst the sea of new ideas and systems and methods. Emirates Group, being a service provider, is at risk due to the rapid advancement in the information and technology. The company’s primary objective is to go further and become a world class airline company. This objective can hardly be achieved without technological advancements. On that note, embracing new technology has, in part, improved the quality of services the company delivers to its customers. First, Emirates Group was the first airline to authorize the use of mobile phone devices, by the passengers, during a flight. According to the company (2014), since the usage of the phone was authorized, millions of calls and over thirteen million text messages have been exchanged (Emirates Group: annual report 2014). Second, the company has launched television channels in order to keep customers informed about the developments and events taking place 30,000 feet below. The company has also installed a faster internet connection device to increase browsing speed. The mentioned strategies have been implemented with the sole purpose of providing not just a transportation service but a great travelling experience. The strategies have created a distinction between the company’s products and those of the competitors. A distinct strategy creates an advantage over the rivals. The company has been able to attract and new customers and maintain the existing due, in part, to the incorporation of technology in the company’s operations (Emirates Group: annual report 2014). (8): travelers are the company’s customers. They are interested in assessing the long or short-term survival of the company. Loyal customers to the company are attached to the services and the experience offered by the Emirates airline. Therefore, they would be interested to determine the capability of the company to continue offering quality services. Secondly, they could be interested in evaluating the likely hood of the company to introduce more products (Lasher 2008). Employees are interested in assessing the capability of the employer to promptly pay salaries. In addition, they use this data to evaluate the employer’s ability to implement a fair remuneration package, provide retirement benefits and be able to offer more employment chances. The competitors are mainly interested in the revenue levels, levels of costs, the profitability level and the trend of those items for the previous years. They could also examine the assets, debt and equity level. This information would help competitors formulate a superior financial strategy (Lasher 2008). (9): at the tactical level, such as in cargo management, planning for flight period and other critical functions, information is heavily is heavily relied on to make appropriate choices. In fact, every activity in the company is undertaken based on some information. As a result, it is of great importance for the company’s information to be reliable, valid, timely, relevant, accessible, and understandable. First, at the tactical level, the information is reliable; information can be leaned on to make a critical decision. Second, the information is valid (substantiated) and trusted to guide decision making. Third, at the tactical level, the data is timely. The available data is for both current and past periods. Fourth, the data at the tactical level is relevant. Data is available to meet various decision needs. Fifth, the data is accessible. It can easily be obtained by users when required. Sixth, the data is understandable and can easily be interpreted to aid critical decision making (Post, Kagan & Lau 1995). The company heavily depends on the data to make critical decisions such as the purchase of more aircraft to increase the carrying capacity in case demand is determined to increase. Purchase of more aircraft is part of investing in the company’s products, thus improves the efficiency of the operations. Consequently, the company’s competitive position is strengthened (Post, Kagan & Lau 1995). List of References Barrett, R. 2005, "Predictive planning: the next step in the planning and budgeting revolution", Measuring Business Excellence, vol. 9, no. 1, pp. 56-63. Chea, A.C. 2011, "Activity-Based Costing System in the Service Sector: A Strategic Approach for Enhancing Managerial Decision Making and Competitiveness", International Journal of Business and Management, vol. 6, no. 11, pp. 3-10. de Waal, A.,A. 2005, "Is your organization ready for beyond budgeting?", Measuring Business Excellence, vol. 9, no. 2, pp. 56-67. Emirates Group: annual report 2014, Viewed 26 November 2014, http://www.theemiratesgroup.com/english/facts-figures/annual-report.aspx Lasher, W 2008, Practical financial management, Thomson South-Western, Mason, OH. Post, G.V., Kagan, A. & Lau, K. 1995, "A modeling approach to evaluating strategic uses of information technology", Journal of Management Information Systems, vol. 12, no. 2, pp. 161. Read More