Management via Accounting - Essay Example

? Management via Accounting Introduction The modern firm is faced with so many challenges which threaten to bring it to a halt. This has left the modern manager with the very important and daunting role of making sure that the organisation stays on course and that all dangers are put at bay. The modern organisation has therefore been able to come up with very useful management principles that help in making sure that they can survive in a very competitive market without having to worry about failure. One of these management tools is the management-via-accounting strategy which allows the managers and the organisation as a whole to relate with the market in a more competitive way. Question 1 A modern firm is a learning firm which learns from history and plans for the future (Campbell and Huffington, 2008). This is where management via accounting comes in as a way to learn. Accounting processes gather and organises information which can then be used to identify trends in the market (Bhimani and Bromwich, 2009). Just like humans look at past trends and predict the future, organisations can look at these trends in the past and know what the future will be. The modern organisation has not only learnt how to predict the future, it has also learnt how to change the future and determine what the future will be. According to Chandler (1977), this ability of the organisation to not only know and predict the future, but also change the future and determine what will happen with a high precision is what makes the modern organisation so different from the enterprises of earlier days. Chandler looks at the modern organisation not only as a person, but as a society of people. As he says, instead of the earlier model of organisation which used to be run as stand alone unitary organisation, the modern organisation is a network of sub divisions, each of which are sophisticated enough to be run on their own. In other words, these subdivisions within the organisation are like organisations on their own, only that they are run under a bigger umbrella organization. When an organisation is made of a network of organisations, sharing of information between these units in order to make sure that processes among these organisations are carried out efficiently becomes critical (Hoskin and Macve, 1990). This is because this leads to the following important factors; Increased efficiency Increased efficiency in an organisation is important as it does not only reduce costs but also makes it possible for the organisation to be able to access the market in an easier way (Freeman, 2010). For instance, if the marketing department in an organisation is able to share accurate information about the market with the manufacturing department, it becomes easier for the manufacturing department to plan their manufacturing processes. This makes it possible for the manufacturing department in such an organisation to plan for labour, raw materials and storage facilities thus saving on costs and also being able to deliver the products to the market at the right time. Management via accounting only helps an organisation to achieve efficiencies if the organisation acts like a society of people which can learn from each other and make the society better. Modern organisation therefore use management via accounting like a mind that is always learning to be better and to perform better as times passes along. Cash Flow Predictability Organisations can easily predict and plan for cash flow processes. If the organisation can easily know when the demand will rise in the market, they are better prepared to know when to produce, when to hire more labour, when to do marketing and when to borrow money. This is only achieved through sharing of management information within the organisation and thus making it easy for the firm to know when it will receive the money and when to get external funding (Bardoliwalla, Buscemi and Broady, 2009). Furthermore, when an organisation has this kind of information, they are able to have better relationships with its stakeholders such as the customers. In such a case, the customers can pay in advance and this streamlines the cash flow in the organisation. Lowering Internal Transaction Costs through intensive use of facilities and personnel through more effective scheduling of flows This is also very important in that it helps the organisation to streamline all processes and achieve cost efficiencies. With management via accounting, not only are each department in the organisation able to learn from each other, but also individual staff members of teams are able to learn from historic data and be able to make decisions which will help in reducing costs (Koenig, 1998). This is especially so for a manufacturing firm because they have so many opportunities for reducing cost. Manufacturing firms have very many areas where inefficiencies can occur. These inefficiencies, such as ordering too much or too little raw materials, are always very expensive to the firm. By the use of management via accounting techniques, it is possible to overcome these inefficiencies and help the organisation to manage costs. This can only be achieved when the organisation is able to use managerial information in order to make sure that everything is well coordinated and that any inefficiency are eliminated. Yet this is only possible when both the departments and the staff in these departments are able to learn from the historical managerial data so as to plan for the future. Of the above, lowering internal transaction costs through intensive use of facilities and personnel through more effective scheduling of flows is the most important as it helps the organisation to act as one strong organisation despite the fact that the modern organisation is made of many departments. Lowering internal costs makes it possible for an organisation to minimize its costs and this makes it possible for the organisation o affect demand. This is because in many cases, the demand for manufactured products is usually elastic. Question 2 Ryan air management via accounting With regard to Ryan air, management via accounting will help the organisation to be able to manage efficiencies by looking at past data and knowing what works and what does not work. The firm is interested in knowing what level of fuel load will produce the most efficient outcome with regard to the ratio of fuel consumption needed to complete a flight, without necessarily having to carry too much fuel. Fuel on an aeroplane also acts as a load which minimises the efficiency of the firm. What an airline like Ryanair needs to know is what the minimum amount of fuel that every bus needed to complete a successful flight is. This should be easy to achieve for an airline as big as Ryanair because it has so much data which can be looked to determine what the efficient amount of fuel to have on board is. Ryanair operates so many buses all of which are of the same model and size. It also operates on more than a thousand and six hundred routes, reaching to tens of destination. This provides enough data which can be then analysed and used for management via accounting purposes. Through this data, the management for the firm are able to know the optimum fuel load which will be efficient for the firm without having to compromise on the safety of the plane (Barnhart and Smith, 2011). In this regard, it is necessary to note that the amount of fuel used by the plane is dependent on the total load the plane is carrying which includes the weight of the passengers, the cabin crew, the luggage and the fuel itself. Knowing how to strike the right balance for all these factors is something that the human managers may not be able to do. However, with regard to the management via accounting data, Ryanair will be able to come up with accurate data which will provide the right communication of these factors which will be useful in terms of making sure that the most efficient loading had been achieved. This information can be shared by the various departments within Ryanair and this would help each department to know what they are supposed to do. For instance, the department responsible for scheduling and bookings can use this data to know how many customers to be placed on which planes etc. It would also be possible to look at the ways in which to optimise the flights in order to make sure that the best conditions are achieved. The weight of the load is not the only factor that affects fuel consumption of the plane. Other factors such as the speed of the plane, the direction of wind etc are also important in determining the amount of fuelled used by plane (Belobaba, Odoni and Barnhart, 2009). It is possible for the management of have all the historic data about these factors and this would help in making sure that they can make decisions which will help in achieving the highest achievements. With regard to safety issues, it is necessary to note that management via accounting strategies will also have taken care of this because the more efficient a plane is, the safer it is. In this regard, there is not need to worry this because the human mind cannot handle as much data as provided by the information systems. Conclusion Managers can use the management via accounting strategy as a way to increase efficiencies in the organisation and as a way to help the organisation to travel through time in a more confident way without having to worry about future uncertainties (Robert, Austin and Soule, 2008). In this regard, organisations which are able to use the management via accounting in a more accurate way are more able to survive in a market which is full of competition. A good example of this is Ryanair which, despite being a low cost airline, has been able to remain profitable while other big airlines such as Virgin Atlantic are recording losses year after year. However, management via accounting is not just about theoretical techniques; it is about attitude of both the employees and the departments in which they work within the organisation. This combination makes an organisation to be able to work like a human mind that is able to learn slowly by slowly to find the best way to solve a problem. Reference list: Bardoliwalla, N. (2009). Driven to Perform: Risk-aware Performance Management from Strategy Through Execution. Cambridge: Evolved Technologist Press. Barnhart, C. & Smith, B. (2011). Quantitative Problem Solving Methods in the Airline Industry: A Modeling Methodology Handbook. Berlin: Springer. Belobaba, P. (2009). The Global Airline Industry Volume 23 of Aerospace Series. Hoboken, NJ: John Wiley & Sons. Bhimani, A. and Bromwich, M. (2009). Management Accounting: Retrospect and prospect. Amsterdam: Elsevier. Campbell, D. and Huffington, C. (2008). Organizations Connected: A Handbook of Systemic Consultation. London, UK: Karnac Books. Chandler, A. (1977). The Visible Hand: The Managerial Revolution in American Business. Cambridge, MA: Harvard University Press. Freeman, E. (2010). Strategic Management: A Stakeholder Approach. Cambridge, UK: Cambridge University Press. Hoskin, K. & Macve, R. (1990). Understanding Modem Management. BUSINESS & ECONOMICS Review Vol 5 , P. 18. Koenig, M. (1998). Information Driven Management Concepts and Themes: A Toolkit for Librarians. Berlin: Walter de Gruyter. Robert, R. (2008). Corporate Information Strategy and Management: Text and Cases. New York, NY: McGraw-Hill Higher Education Read More