Question:

Lloyds Banking Group is a financial services group with millions of UK customers with a presence in nearly every community; it is familiar on the high street and with over 1 million businesses through it’s portfolio of brands.

The group’s business is focused on retail and commercial financial services. It thrives on how well it serve it’s customers; on it’s relationships within the communities it serve; and on helping Britain prosper. The annual reports of the group summarise the performance in detail.

As an expert Management Accountant, you will prepare a management report advising the Group’s Chairman on the performance as follows:

1. Review the objectives of management accounting in Lloyds Banking Group’s performance management and Management Accounting’s role as a part of a business information system.
2. What are the trends in management accounting (such as Six sigma, total quality management, etc.). Discuss the implications of any of the strategies in Lloyds Banking Group.
3. Explain the nature of information, its sources and analysis required to ensure excellent performance of Lloyds Banking Group.

Answer:

Introduction

Lloyds Banking Group is a financial services company with huge base of customers with presence all over the world. It is famous in the high street with highest business revenue. The following reports are analysing about the objective of management accounting in bank performance management.

The objective of management accounting:

The objectives of management accounting help bank in finding out the role and use of management accounting in the organization. The following objectives are significant for Lloyd bank:

Assistance in Planning and Formulation of Future Policies:

Management accounting helps Lloyd Banking Group in managing and deciding in advance about what to be done, when is to be done and many more. It involves estimating on basis of given information, defining goals, creating policies and defining the alternative course of actions and determining the activities of programmes which are to be commenced. Planning will help Lloyd group in maintaining the performance as well (Macintosh & Quattrone, 2010). The forecasting done is based on some facts as it done by making intelligent forecasts. Moreover, the facts are generated from past accounts of the company so chances of mistakes are lessened by Lloyd group of the bank. It assists bank in planning with the help of budgetary control.

Serves as methods for correspondence: Management accounting gives a method to Lloyd group of the bank for conveying administration designs upward, descending and outward through the association. At first, it implies distinguishing the achievability and consistency of the different sections of the arrangement (Hilton, 2011). At later stages, it keeps all customer of bank educated about the plans that have been settled upon and their parts in these plans.

Management accounting helps Lloyd group of the bank in communicating the financial plans and facts about the company to the desired stakeholders of the company.  It is communicated to them because they may be directed to a course of action which is to be followed by the company. The management team of Lloyd bank needs assistance for taking conclusions and for estimating performance.

Measuring performance: Management accounting practices in Lloyd measures two kinds of execution. Firstly it Lloyd assists its employee execution and the second is aptitude assessment. The actual execution is measured in terms of plans decided with the established plans and a report of deviation from the standard plans. This deviation should be tracked to the management for the successful basic control and also to show the competence of the procedures used. The two sorts of performance evaluation in management are utilized to influence corrective activities with a specific end goal to enhance execution.

Decision making:

The most significant objective of managerial accounting is to furnish administration and proprietorship with the capacity to Lloyd bank and making them settle on information-driven choices. Lloyd bank is settling on numerous choices consistently (Baldvinsdottir, Mitchell & Nørreklit, 2010). Prior to a business decision is taken by the bank, the Lloyd bank must choose what items to sell, which customers to be targeted, whether to make or purchase products and what number of individuals to contract, and other different decisions. Management accounting gives techniques to Lloyd to examine and determine standard sorts of information to inform each of these decisions. This permits management of Lloyd to give the chance to become target leaders, through which they will be considered as better basic leadership over the life of the business.

Internal reporting:

The goal of managerial accounting is to provide attention on reporting also. A goal of managerial accounting action of Lloyd bank is to make reports for inner use of the organization (Van Dooren, Bouckaert & Halligan, 2015). This is an exceedingly adjustable process. As a bank, Lloyd can realize what data is the most valuable when maintaining the business of the bank. Managerial accounting reports, for example, the balanced scorecard, enables Lloyd group of the bank to connect conventional accounting data with non-monetary data to evaluate organization’s qualities and open doors for development.

Management accounting also places importance on management audit of Lloyd bank through which the company competence and effectiveness of management policies are assessed. Management policies of the bank are revised to make an enhancement in them to attain the maximum efficiency in the organization.

Trends in management accounting:

The process which helps banks to improve the performance is six sigma approach. It is a highly controlled procedure which helps Lloyd bank in focusing on emerging and distributing perfect products and services.

Six Sigma approach:

“Sigma” is a term from measurements. It is a measure of deviation for Lloyd bank from a standard. On account of generation administration, the “standard” is flawlessness. With Six Sigma, the Lloyd bank can track and monitors flaws in a procedure (Preston, Cooper & Coombs, 1992). At that point, techniques are looked to methodically eliminate out the chances for such imperfections. The objective of Lloyd bank through sigma approach is to accomplish “zero imperfections.” This approach follows up will lead Lloyd bank to have just lesser flaws for all transactions completed (Knippenberg, Soucat & Vanlerberghe, 2003).

Six Sigma approach revolves around the explanation, estimation, and investigation of flaws in any organization. The management accounting team will be intensely engaged with this procedure in Lloyd bank. It is the regular management accounting unit’s obligation to propose upgrades and give controls important to drive an association toward the almost zero deformity objective. Lloyd bank has discovered that quality imperfections are expensive (Gruman & Saks, 2011). The costs happen specifically in terms of the restorative activities like guarantee work, and in a roundabout way through lost consumer loyalty that can unfavourably affect future deals. Huge funds are acknowledged by means of the diminishment in the cost of low-quality services by the bank.

Total quality management:

Total quality management is a managerial accounting concept through which Lloyd bank can make every effort to develop superior products with few loopholes or defects after it is being used by customers (Biron, Farndale & Paauwe, 2011). Total quality management is a practice generally connected with regular enhancement, just in time inventory and many more concerns. The total quality management involves Lloyd group management team and various department as well as employees of the organization. Under TQM the staffs of bank is motivated to drive higher results through efforts (Moynihan & Pandey, 2010). This approach also emphasis team and employees to find out the defects and mistakes during the services of the bank to the customer. Management encourages everyone in the bank to make the policies and ways of the bank more effective in continuous improvement and enhancement.

TQM has many elements some of those are:

Customer involvement – Excellence is characterized by the customers, not by the Lloyd bank. To be quality focussed, it is necessary to discover what the client needs and effort to convey this in a profitable way. This includes taking out things that are not esteemed and focusing on those that are.

Develop supplier relationships – TQM, on one level, looks past the organization, yet additionally, expects the bank to look in reverse also. To make a quality item requires quality information sources of Lloyd bank and this is helped through close working with suppliers. This will be including suppliers to execute TQM in their own companies, creating a distinguishing way of saving money.

Empowering employees – TQM requires a culture change in numerous Western organizations, where the representatives are given extensive power and authority. Lloyd bank depends individually on their own quality controllers and gives them the capacity to stop disbursement of products if an issue emerges – this requires trust. Quality circles are framed, where groups of workers are given the opportunity to discover answers for issues and to provide their own particular techniques.

Fundamentally, the total quality management idea takes an observation at all parts of the business and tries to enhance productivity and take out inefficient spending. TQM even tries to enhance impalpable resources like a Lloyd bank picture and brand. In the event that Lloyd bank can perform public service or increment publicizing endeavours to enhance its open observation, the aggregate quality administration framework would support that.

 Nature of management accounting:

1. Providing Accounting Information: Management accounting information basically extracted from financial records of the company. The assortment and diversification of data is the fundamental function performed by the accounting department. This aids Lloyd bank in finding out the performance achieved till now (Puxty & Lyall, 1989). This helps in getting information regarding on which areas inside the organization they need to work upon. The facts and figures collected from accounting help Lloyd bank management team in taking the policy decision. Management accounting includes the demonstration of data in a method which fulfils the requirement of Lloyd bank. The accounting information collected is used for revising various policy decisions which ultimately enhances the performance of the bank. Management accounting also serves as services through which necessary data and facts are provided to different levels of bank and management.
2. Cause and effect analysis: Financial accounting is restricted to the preparation of trading account and discovering a definitive outcome, i.e., benefit or loss but management accounting goes beyond the financial information. According to Alam & Lawrence, (1994) the cause and effect’ relationship is communicated in management accounting. Moreover, if there is a loss, the explanations behind the loss are evaluated to know the reason behind. And if there is a profit, the various components of the performance is measured like expenditure, current resources, interest payables, share capital, and many more.
3. Use of Special Techniques and concepts: Management accounting uses distinct methods and perceptions to develop accounting data more fruitful which helps Lloyd bank in evaluating performance and improving it timely (Zimmerman & Yahya-Zadeh, 2011). The methods preferred are financial planning and analysis, standard costing, budgetary control, marginal costing, and many more. The types of methods are used by the bank in according to necessity and situation.
4. Supplies Information and not the decision: The administration bookkeeper supplies data to the administration. The decisions are to be taken by the best administration in the interest of Lloyd bank (Heath, 1995). The data is grouped in the way in which it is required by the administration. Management accounting in Lloyd bank is just to manage and not to supply choices. ‘How is the information to be used’ will rely on the capability and productivity of the management of Lloyd bank to enhance the performance of the bank in the market.

Sources of information:

Internal sources:

Accounting records are a prime data of internal information. They point out the transactions of the business done by bank in past (for instance setting up a finance-related spending plan or appropriation). Everyday books, for example, deals day book, buy day book and cashbook can give helpful data to management of Lloyd bank to evaluate the performance.

The accounting records are basically used to record what happens to the money related transaction in a bank (Garrison, et al., 2010). For instance, how money is bought and invested; how resources are obtained; which benefits or mistakes are made on the activities of the business and many more.

Nonetheless, bookkeeping records can give considerably more than money related data. For e.g., subtle elements of the items fabricated and conveyed from a production line can give valuable data about whether quality benchmarks are being met.

External sources:

This is data that is acquired from outside the business. Such outer data has a tendency to be more pertinent to key and tactical decisions rather than to operational decisions.

• Government publication, for example, financial and monetary arrangements.
• Press release, for example, daily papers, specialized magazines, diaries which give data about offer price of products, innovative advancements and data on competitors and their products.
• Financial statement of different organizations gives valuable data to the Lloyd bank.
• Correspondence got from suppliers, clients and tax authority and many more.
• Internet sites, long-range informal communication locales, discussions and many more.
• Databases held by open bodies and organizations means providing information on the website on money-related interest rates (Hall, 2010).
• Data warehouses which contain information from both inside and outer sources. They store present and additionally authentic information and are utilized for making trending reports for senior administration detailing, for example, yearly and quarterly examinations.

References:

Alam, M., & Lawrence, S. (1994). A new era in costing and budgeting: implications of health sector reform in New Zealand. International Journal of Public Sector Management, 7(6), 41- 51.

Baldvinsdottir, G., Mitchell, F. and Nørreklit, H., 2010. Issues in the relationship between theory and practice in management accounting. Management Accounting Research, 21(2), pp.79-82.

Biron, M., Farndale, E. and Paauwe, J., 2011. Performance management effectiveness: lessons from world-leading firms. The International Journal of Human Resource Management, 22(06), pp.1294-1311.

Garrison, R.H., Noreen, E.W., Brewer, P.C. and McGowan, A., 2010. Managerial accounting. Issues in Accounting Education, 25(4), pp.792-793.

Gruman, J.A. and Saks, A.M., 2011. Performance management and employee engagement. Human Resource Management Review, 21(2), pp.123-136.

Hall, M., 2010. Accounting information and managerial work. Accounting, Organizations and Society, 35(3), pp.301-315.

Heath, C. (1995). Escalation and de-escalation of commitment in response to sunk costs: The role of budgeting in mental accounting. Organizational Behavior and Human Decision Processes, 62(1), 38-54.

Hilton, R. W. (2011). Managerial accounting. London: McGraw-Hill.

Knippenberg, R., Soucat, A., & Vanlerberghe, W. (2003). Marginal Budgeting for Bottlenecks: A tool for performance based planning of health and nutrition services for achieving Millennium Development Goals. World Bank, UNICEF, WHO.

Macintosh, N.B. and Quattrone, P., 2010. Management accounting and control systems: An organizational and sociological approach. John Wiley & Sons.

Moynihan, D.P. and Pandey, S.K., 2010. The big question for performance management: Why do managers use performance information?. Journal of public administration research and theory, 20(4), pp.849-866.

Preston, A. M., Cooper, D. J., & Coombs, R. W. (1992). Fabricating budgets: a study of the production of management budgeting in the National Health Service. Accounting, Organizations and Society, 17(6), 561- 593.

Puxty, A. G., & Lyall, D. (1989). Cost Control into the 1990s: A survey of standard costing and budgeting practices in the UK (pp. 44-45). Chartered Institute of Management Accountants.

Van Dooren, W., Bouckaert, G. and Halligan, J., 2015. Performance management in the public sector. Routledge.

Zimmerman, J.L. and Yahya-Zadeh, M., 2011. Accounting for decision making and control. Issues in Accounting Education, 26(1), pp.258-259.