IMA releases guidance on revenue mgmt., profitability analytics

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The Institute of Management Accountants has released a pair of reports on revenue management and profitability analytics, as companies increasingly rely on their CFOs and accounting departments to help them survive beyond the coronavirus pandemic.

The IMA’s "Revenue Management Fundamentals" offers a foundation for understanding revenue management and includes a descriptive framework for identifying opportunities in an organization’s current practices. "The Profitability Analytics Framework" introduces the Profitability Analytics Framework, which classifies how management accountants can use the framework and technology to become more effective business partners and actively participate in their organization’s strategy development and execution.

“Throughout the profession, we talk about the role of the management accountant evolving to be a strategic business partner working with others within the organization to enhance organizational profitability,” said Raef Lawson, vice president of research and publications at the IMA. “When you think about that, what does that entail? We talk about cost management and cost controls in the overall framework of strategy management, but that possibility has two sides to it. One is cost management, but the other side is revenue management, and the management accounting profession as a whole gives way too little consideration to revenue management."

"Really, they are two sides of the same profitability coin," Lawson continued, "so the goal of ['Revenue Management Fundamentals'] is really to raise awareness in the management accounting profession that we need to be partnering with the rest of the management team, including, for example, marketing to help devise strategies and implement the strategies that enhance organizational profitability. We talk about different aspects of revenue management and also about identifying revenue drivers. In the profession we talk about cost drivers, but there are also revenue drivers which are actually also cost drivers. You can’t just manage costs, but you also need to look at the impact on revenues.”

The Profitability Analytics Framework offers guidance on approaching the new world of analytics for internal decision support beyond GAAP and financial accounting systems that support regulated financial reporting. It includes modern revenue management techniques, modern costing focused on internal decision support, and a view of investments as both tangible and intangible.

It includes three main elements: strategy formulation, strategy validation and strategy execution. “The PA Framework provides management accountants a guide to becoming more effective business partners and participate more comprehensively in the organization’s strategy development and the optimal execution of the developed strategy,” said Larry White, executive director of the Resource Consumption Accounting Institute and a former IMA global chair, in a statement Monday. “The PA Framework provides a roadmap to make management accounting more valuable and advance the accounting profession.”

The coronavirus pandemic has made it more important for management accountants to help their organizations with revenue management. While many companies have seen their revenues go down this year, particularly in industries such as leisure and hospitality and airlines, some, such as Amazon and Zoom, have seen their revenues go up.

“There are a variety of aspects to revenue management,” said Lawson. “One of those is inventory allocation. How do you allocate your products to your customers? If you’re pushing PPE, for instance, your organization is going to have discussions around that. Pricing of your products is another aspect of revenue management. ... If your demand has collapsed, you need to look at what steps you can take to better manage your revenue. Organizations in the current pandemic environment need to clearly manage costs and conserve cash, but you also need to talk about how they can manage their revenue. There’s hope that vaccines are around the corner and hopefully the economy will recover. You can’t cut your costs to success. You have to grow your organization, and you do that by following effective revenue management practices.”

The CFO and the finance team need to partner with the rest of the organization to assess business opportunities. “You just need to make sure that your CFO has a broader view of their remit and responsibilities and doesn’t just focus on their traditional responsibilities,” said Lawson. “Look to get involved in emerging responsibilities of strategic management and risk management.”

Lawson sees controlling costs and conserving cash as important ways for businesses to get through the pandemic. “You see organizations that are being created and bringing new ways to generate revenue and cash in order to survive,” he said. “Finance needs to have a holistic view of the organization and what makes it profitable. The CFO is in a key position to be able to assess where the organization can make money, generate cash and survive.”

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