According to Investopedia, management accounting is "the process of identifying, measuring, analyzing, interpreting, and communicating information for the pursuit of an organization's goals." The essence of managerial accounting is that managers blend and merge accounting information into realistic and practical goals and objectives. Ultimately, mangers should try to incorporate the three E's of efficiency, economy and effectiveness. This essay will address three methods that attempts to address these three principles and compare them to determine which one is the most important.
One method of maximizing the use of accounting management is to become aware of the benefits of efficiency. Chandler (1977) revealed that the coordinating efforts accomplished at the managerial level can have a profound and deep impact on the efficiency of an organization. These principles are revealed in this author's five benefits discussed in his argument for the rigid coordination inherent in a staff and line organization. Efficiency is the ability to allocate the correct and appropriate effort of an organization's energy which needs a leader with vision and the ability to align corporate goals with information gathering techniques.
Efficiency is gained in an organization when the proper balances have been indentified and the mission and objectives have been disseminated and understood by all the key players involved. The staff and line model of organization places much of the leadership burdens on the executives of each department and, in turn, they place many responsibilities on their staff. To reach maximum effectiveness, all members must be dedicated to reaching the same goals and understand that the whole is perhaps greater than the sum of the parts.
Arun (2012) wrote "cost and management accountants are to businesses what structural engineers are to buildings. They produce the chunks of information that allow companies to turn in performance that fetches their top management fat bonuses, but these accountants themselves remain below the radar for the most part." The unsung hero that is the accountant is directly aimed at reducing various amounts of cost for the company. This approach addresses the second E. which is economy. The economic approach of any organization searching to increase a competitive advantage must aim at reducing costs. When managerial accounting skills are at their best, costs should plummet and new, quicker and cheaper methods should become evident and be employed at the earliest opportunity.
Effective methods are of extreme benefit to managers responsible for accounting in an organization interested in increasing a competitive advantage. Effectiveness is essentially the ability to achieve goals and objectives. Mangers may employ effective systems by benchmarking goals and measuring the staff's ability to meet those standards. Effectiveness is best exemplified in Chandler's benefit that suggests that solid accounting of information and data leads to a "more intensive use of facilities and personnel through more effective scheduling of flows of goods or services."
Profits are driven by subjective values set out by the leadership component of the managerial branches of an organization. Balancing the three aforementioned E's seem to be the best approach in which a manager can successfully integrate the multitude of information and data into a streamlined and precise tool to help increase organizational power and maintain and grow competitive advantage within the given industry.
While all of these qualities are of great importance, and deserve substantial attention, effectiveness appears to have the most importance in the ability for managers to lead their organizations to the desired location. Effective behavior tests the entirety of the team. When a unit is in harmony it delivers on its promises and demonstrates the ability to complete tasks and meet standards. It stands to reason that if an organization is effective and is not reaching its goals, that the problem is more correctable and can bring good results when that cohesive team is aligned with corporate strategy.
Eventually, managers will need to incorporate all the relative and subjective data that is not obviously displayed in normal accounting information if they are to be successful in their application of important accounting data. Balances can be struck when the human element is used in an appropriate manner, which may include intuition and reason to be included in the decision making process. Sustained advantage cannot be expected unless managers are willing to adapt to change and find new tipping points that restore the balance that is crucial in keeping a positive evolving system.
The three E's; economy, efficiency and effectiveness are useful qualities, but only when they are practically applied in a real situation can we understand how they truly work and are incorporated into the real world. The purpose of this essay is to examine the case of Rayanair and discuss who management via accounting practices may be applied to this organization. This essay will discuss ways in which accounting can be used to maximize the three E's and address reasonable concerns dealing with the labor and customer base that must be taken into consideration to implement any changes.
Ryanair, according to their website, is an airline that has been in business for nearly thirty years. They fly mostly in Europe and Northern Africa and are noted for their cheap discount fares. The company is very successful and is looking to increase their market share to 20%. Ryanair uses unique methods to save costs and maximize their profitability while attempting to increase their competitive advantage through manipulation of data and information conducted by accounting teams.
To increase the efficiency of Raynair, accounting practices need to be employed to address placing the right resources in the right place at the right time that aims to the target objectives of the larger company organization. Calder (2013) explained that Ryanair has gone to great efforts to manage the flight crews to ensure that the necessary people are in their designated places, working in harmony to create a potent team of workers all dedicated to saving costs and satisfying customers. While this move towards efficiency has no direct impact on the fuel costs that concern management so much, this effort aims to address the demand issues of the customer base and at the same time keeping the labor force aligned with the organizational objectives.
Since fuel costs are of the greatest concern in keeping a competitive advantage at Ryanair, it makes sense to address the economic issues associated with the accounting practices at this company. When crews are on time, there is less need to speed in the air and arrive at the destination on time, saving critical fuel and resources. Another economic measure that managerial accounting can address is Ryanair's policy to limit baggage and weight making the plane lighter and hence more economic on fuel consumption and spending.
According to the Ryanair Annual Report released in 2013, this company appears committed to standardizing all procedures to essentially mechanize the operation and ultimately lower costs through reliability increases in the included systems. This is an attempt by this company's management to ensure that the entire organization is performing in an effective manner. Effectiveness is the ability to achieve and maintain levels of performance that align with the desired results. This procedure of ensuring all procedures are uniform and similar requires leadership to communicate and inform all important key player of their role, and their contribution, to the larger team effort in order to become fully effective and maintain competitive advantage within a very competitive and cut throat industry that Ryanair finds itself within.
While these managerial accounting measures are all appropriate and reasonable, other considerations must be addressed. Ryanair's attempt to be thrifty may impede on their ability to keep customers safe and happy. Crew members are also extremely concerned about cutting down on costs to the point where their lives may be in danger. Cutting fuel payloads on airplanes puts that flight in risk due to…
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