What They Forgot to Teach Management Accountants in School
Profitability Analytics Center of Excellence
A non-profit community of professionals helping companies use analytical models to enhance organizational value.
By Raef Lawson, Executive Director, PACE
To many people, management accounting is almost synonymous with cost accounting. Yet management accounting can, and should be, so much more. Management accountants aspiring to become business partners with others in their organizations need to focus on all the factors affecting profitability – costs, revenues, and investment. Yet revenue management is not a central focus for management accounting systems in most organizations. Traditionally, corporate finance has focused too much on cost management and investment management at the expense of revenue management. Management accounting needs to get past its traditional supply-side dominant view where revenue management takes second place to cost management.
A key change required in management accounting thinking is an understanding that the main reason resources are acquired and employed by organizations is to acquire revenue, either in the form of sales or valued service (e.g. public service or charities). This in turn requires a greater focus on client needs and recognition of variations in the needs of different clients. Segmenting clients into groups based around need is of course market segmentation but the missing link is the coupling of resource use with each group.
Client segmentation is not the sole prerogative of marketing but also affects service / product design, production, and delivery, involving all activities and resources within an organization. Understanding how servicing different client groups drives revenues must also encompass how different client groups drive costs; typically the same driver applies to both. Revenue and cost management are two sides of the same coin: neglect of one will hinder the other.
To be sure, revenue management doesn’t go without attention in most organizations. However, too often that attention is in the hands of professionals without the full-throated support and expertise of management accountants and financial analysts. That gap presents a competitive opportunity for organizations and professionals to invest in rigorous causal modeling, analytics, and systematic support of revenue drivers that can dramatically move forward value creation. Revenue management work is taking place, but management accountants need to strengthen and accelerate that work.
Revenue management models, often described as yield management models, have been established and applied in organizations for many years. However, these models are limited to particular types of organization structures operating in specific types of markets. Here at PACE we are working on developing a descriptive framework for revenue management that can be applied across all types of competitive organizations and industries. How are you addressing the need for advancing revenue management practices in your organization (or at your clients)?
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Business Accountant | Big-picture Evaluator | Impact-driven mindset | Microsoft Excel (IF Statements, XLOOKUP, Pivot Tables)
8 个月Profitability Analytics Center of Excellence, I am of the opinion that cost accounting is a subset of management accounting. Management accounting goes much broader and it should look at both internal and external stakeholders. There is the #BalancedScorecard phenomenon coined by Kaplan and Norton (1992). That’s what management accounting should be about - looking at all the four organisational pillars and ensuring that none of these stray from the strategic objectives and future prospects. Cost accounting merely looks at the financial aspects, which is one of the four pillars.
Operating at the intersection of the economy and the environment. Helping organizations transition to a greener business model and reduce emissions in a financially sustainable way.
2 年From our experience in the Higher Ed world, we definitely include revenue in the models, particularly where institutions receive very large chunks of revenue from Government into a central account which needs to be allocated to the individual programs and courses for detailed margin and break even analysis.
Associate Professor Of Accounting at Eastern Kentucky University
2 年There is so much more that management accountants do beyond cost accounting and so much more that we need to be doing and value we can be adding. Yes, accounting programs need to be enhancing and expanding what is taught, but more acknowledgement and engagement of where the discipline is headed and needs to go needs to happen within the profession and especially in professional organizations.
Accounting and Finance must think outside their box. Revenue management is a primary example of the opportunity to engage more creatively and effectively in the organization's value creation. The same applies to many other areas Profitability Analytics addresses.
Independent Director | Certified Advisor | Chartered Accountant | Sustainability | Trainer & Mentor
2 年Very often, when organisations are uncertain of its strategic direction in winning in the market & to increase revenues, the very first action was to cut costs and that itself has negative impact on the ability to rebound on productivity, efficiency, innovation, marketing, customers retention, and so on.