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)?