Management Accounting - Barclays Bank - Case Study Example

Management accounting Introduction Due to the cutthroat competition in the market environments, this has seen rapid upheavals in the 21st century and the consistent shifts by organizations from focusing too much on products and market share, to focusing on customer shares and what their needs, hopes and expectations. Organization management is finding it necessary to rely on management or managerial accounting.1 Management accounting refers to providing organization managers with accounting data, in order for them to make informed choices, business decisions, thus, helping them accomplish their administrative and management duties.2 Management accountants carry out the function of management accounting.3 Therefore, this report will highlight the management accounting, Barclays Bank and its information needs, and management accounting techniques that should be, used. In addition, the report will review the nature and function of management accounting and the strengths and weaknesses of the report’s analysis of management accounting techniques recommended for Barclays Bank. Barclays Bank Background Barclays Bank is an international financial institution that offers financial products and services, whose headquarters is in London, UK.4 Currently, the bank is, ranked the 10th, 21st, in terms of its broad banking, and monetary services and organization respectively. The bank has spread its operations and wings across all major global continents namely Europe, Africa, Asia, South, and North America. The company boosts of not less than 50 million customers globally. It has segregated its business operations into Global Retail Banking unit and Corporate & Investment Banking and Wealth Management unit, with the latter, consisting of investment banking - where customers are, advised on vital issues such as mergers, initial public offers, and equity and loan origination services, purchases among others, commercial banking, and wealth management.5 The former consists of provision of credit card and loan offering, United Kingdom Retail banking, Barclays Africa and Western Europe Retail Banking. The bank is an active participant in h New York and London Stock Exchange. In the year 2009, the financial institution recorded an operating income of more than four billion pounds, private equity revenue amounting to 30 billion pounds, and a net income of more than 3.5 billion pounds. Moreover, the bank had total assets equivalent to 1.4 trillion pounds with a total equity of not less than 47 billion pounds. As of the year 2010, the bank had a workforce of more than 144, 000 staff. The Barclays Bank’s product and services integrated within Global Retail Banking unit and Corporate & Investment Banking and Wealth Management unit include specialist industry information and advice, business finance, consumer banking products and services such as insurance, saving and banking services, underwriting mortgages, online banking and savings, and employee banking among others.6 There are also priority banking services and products which include priority benefits and solutions, SME banking which entails cash management, trade finance, SME treasury services among others and wholesale banking which includes transaction banking, financial trading and markets, corporate and principal finance among others services.7 The main competitors of Barclays Bank are Bank of America, Standard Chattered Bank, The Hong Kong and Shanghai Banking Corporation (HSBC), Citigroup, JP Morgan Chase Bank (JPM) and the Royal Bank of Scotland (RBS). Their policies are offering customer friendly services, and integrating employee, customer, organization and stakeholders’ objectives and goals into production of their goods and services.8 Additional informational needs for Barclays Bank are information regarding measures to induce internal and external cultural change, the need to develop, acquire and utilize new technological solutions and the need to make effective strategic planning by analyzing its strengths, weaknesses, threats and opportunities, thus devising ways to improve on the Bank’s competitiveness and innovativeness.9 Financial and management expenses and profits are, monitored by writing annual budgets, and consulting internal and external auditors who present the bank with financial statements.10 Nature and role of management accounting Management accounting entails monitoring, recording, and analyzing costs related to product, services, and business actions taken by an organization.11 Unlike financial accounting, which follows generally accepted guidelines of accounting, an organization can choose to conduct management accounting or choose not to, though the benefits of conducting it are many.12 The main concepts and ways in which management accounting is facilitated is through standard managerial accounting, thought-out managerial accounting, activity based managerial costing and marginal costing.13 The role of management accounting is to help the organization management to establish its financial and economic performance, help the management to make timely decisions on when to control or minimize costs, and allow for easy analysis of the costs of products and services.14 Management accounting aids in selecting the best time and help in understanding how and when to endorse, alter and postpone a business plan or action.15 The nature of management accounting is that, much focus is, given on resolutions that influence the future of the business, the information needs to be timely, and reports on external and internal forces of an organization are needed.16 The information content gathered during management accounting is essential for the internal stakeholders to facilitate planning, supervision, team building, motivating, performance appraisal and managing business operations, work processes and developing strategic plans and structures.17 The key techniques used in management accounting includes the make or buy decisions, budgeting, activity-based costing18 linear costing/ programming, Just In Time, inventory management, variance analysis, and cost volume and profit analysis.19 Analysis of Barclay’s Bank’s recommended management accounting techniques Management accounting is fundamental in evaluating the management efficiency and effectiveness in attaining the organization’s goals and objectives, and in analyzing whether the implemented strategies are giving the organization its worth and value for money.20 The main reason why an organization would invest in management accounting is to be able to make productive and sustainable decisions that will strategically place the organization in a good position financially in the future, consistent with its mission and objectives. This promotes discussions hence interactive communication.21 The management accounting proposed for Barclays Bank entails recognizing, quantifying, evaluating, and interpreting information in regards to costs of products and services the bank offer, and analyzing risks, which may impede achievement of the bank’s goals and objectives.22 As a management consultant, I correspond with board of directors on the best management accounting techniques and approaches to manage and avert costs and risks. As a management consultant, I propose the make or buy decision technique of management accounting for Barclays in its recruitment, selection, and training of their employees. This is when the organization contemplates whether it will be economically viable to make the product or service internally, or source it from an external supplier. By using recruiting agencies to recruit personnel, the bank uses many finances as compared if it were to employ directly.23 Employees recruited by agencies are less motivated as compared with those employed directly, since portion of their salaries is cut to cater for agency’ charges.24 Unmotivated employees lead to low production hence decreased performance and increased costs for the Bank. Moreover, it would cost less for the bank to produce internally the Barclay cards. However, the bank has reaped greatly with acquisition of Citibank’s Italian credit card and buying of Citibank’s credit card trade in Portugal. The next technique I would propose the Bank to use since it is what they have been doing is the budgeting technique. This is especially very important especially in forecasting how much it would cost the bank to implement new technological solutions which will play a great role in promoting the bank’s innovativeness in terms of products, services and how it transact businesses and increasing its competitiveness.25 Through budgeting, the management will be able to make key decisions on the effective methods of resource allocations, strategically positioning the bank for the future, effectively co-coordinating plans and the bank will be able to reveal potential risks and threats. The use of Activity based costing technique will be useful for the bank in equipping the management with cost information necessarily for making critical decisions especially those that have the potential to influence capacity of the bank, and consequently the bank’s fixed assets.26 Finally yet importantly, is the use of linear programming technique, which will assist in creation of production and operation program that will not only feed future demands, but also will reduce the total production and operational and other costs.27 Linear programming is essential for Barclays bank in helping its management choose appropriate operational mixes that allow best use of resources, labor within required working hours and in making long-term decisions. This allows satisfying the Bank’s informational need to alter its internal and external cultures. The techniques that I do not propose for use in Barclays Bank is the cost-volume-profit analysis and marginal costing since, this technique are preferable for temporary decision-making.28 The techniques assume that entity variables prices and entity revenues are constant. Strengths and weaknesses of the analysis This report has highlighted important issues in regards to management accounting techniques that would influence greatly on the decision-making processes at Barclays Bank. Its strengths lies in the ability of the bank to determine where the institution is at presently and understand how and when it can make a move to take the organization to the next level. The timeliness and the long term planning associated with the chosen techniques helps the Bank attain its goals with minimum costs and being able to foresee risks and know how to budget and manage them. However, the analysis is not as conclusive as it is supposed to be, since information available for analysis is quite extensive and majority of it may be irrelevant to management accounting practice at Barclays Bank. This is an impediment to quick management accounting process since superfluity of irrelevant data is as bad as being short of relevant information.29 Conclusion Through management accounting, the fundamental elements and aspects within which the variable concentrates on improving on is the strategic aspect where the management accountant becomes a strategic associate to the organization. Furthermore, the management accountant is able to make informed decisions and ensure effective management of organization’s work processes, resources, operations, and hence influence high performance and in ensuring the management accountant effectively and efficiently recognize, quantify, control and avert risks and threats, to help attain the set goals and objectives. Management accounting allows management accountants to alter distribution chains into cost-effective values. By so doing, the management is able to cut excessive costs and hence improve on its productivity. References Ackrill, M & Hannah, L. Barclays: the business of banking, 1690-1996. Cambridge University Press, Cambridge, 2001. Carruth, B, Consulting, P & Institute of Chartered Accountants of New Zealand. Management Accounting Techniques: What is New? Wellington, New Zealand Institute of Chartered Accountants, Wellington, 2004. Coombs, H Malcolm, H David, H & Jenkins, E Management Accounting: Principles and Applications. SAGE, London, 2005. Heidmann, M The Role of Management Accounting Systems in Strategic Sense making. DUV, Sydney, 2008. Jawaharlal, S Cost Accounting, Tata McGraw-Hill, New York City, 2002. Lucey, T Management Accounting. Continuum, London, 2003. McIntosh, M Barclays Bank: Global Companies in the Twentieth Century. Taylor and Francis, New Jersey, 2001. Steffan, B Essential Management Accounting: How to Maximize Profit and Boost Financial Performance. Kogan Page Publishers, London, 2008. Weetman, P Management Accounting: An Introduction. Financial Times Prentice Hall, London, 2002. Young, D Techniques of Management Accounting: An Essential Guide for Managers and Financial Professionals. McGraw-Hill Professional, New York City, 2003. Read More