Luận văn Thạc sĩ Quản trị tài chính: Cost management in Bamboo Airways status and solution for the development

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In term of practice: The study is conducted as an actual survey on cost management at Bamboo Airways Joint Stock Company and from which solutions will be proposed to improve the cost management of Bamboo Airways.

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ĐẠI HỌC QUỐC GIA HÀ NỘI KHOA QUỐC TẾ ***************** VÕ THỊ DIỆP ANH COST MANAGEMENT IN BAMBOO AIRWAYS STATUS AND SOLUTION FOR THE DEVELOPMENT QUẢN TRỊ CHI PHÍ TẠI CÔNG TY CỔ PHẦN HÀNG KHÔNG TRE VIỆT, THỰC TRẠNG VÀ GIẢI PHÁP HOÀN THIỆN LUẬN VĂN THẠC SĨ Hà Nội - 2020
ĐẠI HỌC QUỐC GIA HÀ NỘI KHOA QUỐC TẾ ***************** VÕ THỊ DIỆP ANH COST MANAGEMENT IN BAMBOO AIRWAYS STATUS AND SOLUTION FOR THE DEVELOPMENT QUẢN TRỊ CHI PHÍ TẠI CÔNG TY CỔ PHẦN HÀNG KHÔNG TRE VIỆT, THỰC TRẠNG VÀ GIẢI PHÁP HOÀN THIỆN Chuyên ngành: QUẢN TRỊ TÀI CHÍNH Mã số: 8340202.01QTD LUẬN VĂN THẠC SĨ Người hướng dẫn khoa học: PGS. TS. Nguyễn Văn Định Hà Nội - 2020
ACKNOWLEDGEMENT I declare that this master’s thesis is my own research and the data and the material used in this thesis have clear sources and references to all the sources. The result of this thesis is honest and derived from the actual situation of the organization. In order to complete this master’s thesis, I owe a lot of people many thanks for their supporting. First of all, I would like to express my endless thanks and gratefulness to my supervisor Assoc. Prof. Dr. Nguyen Van Dinh. His kindly support and continuous advices went through the process of completion of my thesis. Without his assistance the thesis would not have been done effectively. So far, I would like to thank all the lectures and staffs of International school – Vietnam National University Hanoi and International Faculty for their teaching and supporting me to achieve knowledge and experience. My special thanks to all staffs and management’s branch of Bamboo Airways for their kind assistances and support in providing me data and advices to complete the research. Thank you! 1
ABSTRACT Under the global trend of economic integration, cost management is playing an extremely important role in business. As a result, cost management has become a matter of special concern for any enterprise. The dissertation with title: “Cost management in Bamboo Airways, status and solution for the development”, is conducted with a focus on clarifying the following matters: - The dissertation has presented, analyzed, and clarified key contents of cost management at Bamboo Airways Joint Stock Company. - By analyzing facts at Bamboo Airways Joint Stock Company, the dissertation presents an overview picture of actual cost management practices at Bamboo Airways. - By conducting a field survey on actual cost management at Bamboo Airways Joint Stock Company, the dissertation has identified the limitations in the organization of cost management practices. This is an important foundation for developing a complete cost management plan. - The dissertation discusses the necessity and practical significance of the organization of cost management at Bamboo Airways Joint Stock Company. - It proposes a plan to improve cost management at Bamboo Airways Joint Stock Company from two perspectives: The State and Bamboo Airways Joint Stock Company. In general, cost management and business performance are relatively wide and complex issues and Bamboo Airways Joint Stock Company has experienced certain obstacles in dealing with these issues. Therefore, the author wants to learn more about current state of cost management at Bamboo Airways Joint Stock Company to help remove these obstacles. 2
TABLE OF CONTENTS ACKNOWLEDGEMENT ................................................................................................. 1 ABSTRACT ...................................................................................................................... 2 LIST OF FIGURES ........................................................................................................... 5 LIST OF TABLES............................................................................................................. 6 LIST OF ABBREVIATIONS ........................................................................................... 7 CHAPTER 1: INTRODUCTION ...................................................................................... 8 1. The necessity of the research ......................................................................................... 8 2. Research objectives ....................................................................................................... 9 3. Research Scope .............................................................................................................. 9 4. Research methodology ................................................................................................ 10 5. Structure of the thesis .................................................................................................. 10 CHAPTER 2: THEORETICAL BACKGROUND AND LITERATURE REVIEW OF COST MANAGEMENT ................................................................................................. 11 2.1 Theoretical background of cost and cost management in business ........................... 11 2.1.1 Definition of cost management in business ............................................................ 11 2.1.2 Contents of cost management in business .............................................................. 15 2.1.3 Cost management in aviation company .................................................................. 25 2.2 Literature Review ...................................................................................................... 32 CHAPTER 3: RESEARCH METHODOLOGY ............................................................. 34 3.1 Secondary data collection method ............................................................................. 34 3.2 Data processing method ............................................................................................ 34 CHAPTER 4: COST MANAGEMENT AT BAMBOO AIRWAYS JOINT STOCK COMPANY ..................................................................................................................... 35 4.1 General Introduction to Bamboo Airways Joint Stock Company. ............................ 35 4.1.1 Overview of Bamboo Airways Joint Stock Company ........................................... 35 4.1.2 Characteristics of organizational management structure........................................ 36 4.1.3 Business performance of Bamboo Airways from 2017-2019 ................................ 36 4.2 Cost management at Bamboo Airways Joint Stock Company .................................. 38 4.2.1 Cost management Organization ............................................................................ 38 3
4.2.2. Cost management at Bamboo Airways Joint Stock Company .............................. 40 4.3 Evaluation of cost management at Bamboo Airways Joint Stock Company ............ 51 4.3.1 Achievements ......................................................................................................... 51 4.3.2 Limitations and reasons .......................................................................................... 52 4.4 Solutions for development of cost management at Bamboo Airways Joint Stock Company .......................................................................................................................... 54 4.4.1 Complete the classification method of costs .......................................................... 54 4.4.2 Development of cost estimation ............................................................................. 55 4.4.3 Implementation of cost management information .................................................. 56 4.4.4 Improvement of analysis and provision of cost information .................................. 57 4.4.5 Improvement of cost control .................................................................................. 61 4.4.6 Other improvement solutions ................................................................................. 62 CHAPTER 5: CONCLUSION ........................................................................................ 68 LIST OF REFERENCES................................................................................................. 69 4
LIST OF FIGURES Figure 1.1 Workflow of collect cost management information ........................................21 Figure 3. 1 Company Organization chart ..........................................................................36 Figure 3. 2 Organization chart of Financial and Accounting Division ............................. 39 Figure 3. 3 Cost structure of Bamboo Airways .................................................................41 Figure 3. 4 Chart of fuel prices in 2018-2019 ...................................................................42 Figure 3. 5 Chart of Maintenance repair and overhaul expense in 2019........................... 44 Figure 3. 6 Chart of Ground handling Expense in 2019 ................................................... 45 Figure 3. 7 Chart of Aircraft rental expense in 2019 ......................................................... 46 Figure 3. 8 Integration flow of information.......................................................................50 5
LIST OF TABLES Table 1. 1 Structure of operating cost ...............................................................................26 Table 1. 2 Daily flight schedule ....................................................................................... 30 Table 1. 3 Cost estimation method for flight ....................................................................31 Table 3. 1 Business performance of Bamboo Airways from 2017-2019 .......................... 37 Table 4. 1 Cost estimation for flight- Financial Department ............................................49 Table 4. 2 Budget implementation report ..........................................................................59 Table 4. 3 Monthly Cost management report ....................................................................60 Table 4. 4 Cost management report by routing .................................................................60 6
LIST OF ABBREVIATIONS AIMS Airplane Information Management Systems AMOS Airline Maintenance and Operating Systems Company/BAMBOO Bamboo Airways Joint Stock Company (BAMBOO AIRWAYS AIRWAYS) FIN & ACC Financial and Accounting Department FO Flight Operation Division GO Ground handling service Division HR Human resource Department IT Information and Technology Department JSC Joint Stock company MAR Marketing Department MEDIA Internal and Social media Department OFFIC Office Department PLANNING Planning Department PROC Procurement Division SAP Accounting system SQA Safety Quality Assurance Department TECH Technical and Maintenance Division TRC Training Center VND Vietnam Dong 7
CHAPTER 1 INTRODUCTION 1. The necessity of the research In order to survive and grow in today’s increasingly competitive market economy, each enterprise must take its best efforts to find its own effective cost management way to not only maximize operating costs, enhance the quality of services and products, but also help the managers make the best and appropriate decisions in a sound and informed manner to increase their competitiveness in the market. Cost is always one of crucial concerns to corporate managers in the governance of their business operations. Effective cost management is one of key elements that decides the success of any enterprise. To perform their cost planning and management functions well, it is essential that the managers should have the knowledge of cost information from administration division. As a result, cost information is an essential input to the managers. The topic of cost management has received an increasing interest among Vietnamese enterprises. Having the knowledge of cost information in a timely and accurate manner is one of decisive factors to the success of the enterprise. Having such a knowledge and understanding the nature of each cost will enable the managers easily derive useful information and help make informed and sound business decisions. Thus, timely developing a complete and effective cost management system is an urgent and essential task of today’s enterprises. Profit maximization is the top goal of any business in the economy. In addition to finding the markets, boosting production capacity, and improving product quality, cost and cost management are also very important to business managers. Today, in addition to the tasks of collecting, processing, reflecting, and recording economic transactions, administration department is also required to analyze financial situation and business costs so that it may promptly give advice to the board of management. This need seems to be indispensable for management purpose. In the world, cost management has evolved over a long period consisting of four stages, including costing and financial control, information planning and management, and reduction of waste resources in business 8
processes and until creation of value through efficient use of resources. In Vietnam, cost management has only received attention for the last 30 years, but still that attention is still inadequate. Although cost management is not required for all types of companies, the insights derived from cost management will provide corporate managers valuable and meaningful foundation for making short, medium, and long-term decisions. Such information is helpful to corporate administrators as they will have a comprehensive, specific, and detailed perspective to meet the requirements and objectives of their companies. Bamboo Airways operates as an independent enterprise and its main business is transporting passengers and commodities by air. Like many other service businesses, cost management and analysis are a very important factor for the company to increase its competitiveness in the market. In the meanwhile, the departments entrusted with the task of cost management have not provided necessary information to meet the requirements of the Board of Directors yet. Recognizing those limitations, the author chooses the topic” Cost management in Bamboo Airways, status and solution for the development” as the subject matter of this study. 2. Research objectives + In term of theory: The study is conducted to investigate the theories and theoretical issues on cost management in service enterprises. + In term of practice: The study is conducted as an actual survey on cost management at Bamboo Airways Joint Stock Company and from which solutions will be proposed to improve the cost management of Bamboo Airways. 3. Research Scope + Scope of content: The topic focuses on cost management practices at Bamboo Airways Joint Stock Company. + Scope of time: The study is conducted to investigate current state of cost management at Bamboo Airways Joint Stock Company in 2019. + Scope of place: Bamboo Airways Joint Stock Company. 9
4. Research methodology The topic uses a variety of research methods to take advantage of each methodology as well as analyze the data more effectively, including Statistical method, analysis method, comparative methods, and summarization method. Moreover, the data collected in the topic is mainly secondary data from various sources, such as financial statements, business operation result statements, documents and policies of Bamboo Airways, research works, reference books, journals and legal policies of the Government related to cost management. 5. Structure of the thesis In addition to the Introduction, Conclusion, List of References, Tables and Figures, and Appendixes, this thesis is structured of 5 chapters as follow: Chapter 1: Introduction Chapter 2: Theoretical background and literature review of cost and cost management Chapter 3: Research methodology Chapter 4: Cost management at Bamboo Airways Joint Stock Company Chapter 5: Conclusion 10
CHAPTER 2 THEORETICAL BACKGROUND AND LITERATURE REVIEW OF COST MANAGEMENT 2.1 Theoretical background of cost and cost management in business 2.1.1 Definition of cost management in business 2.1.1.1 Definition cost management in business Cost management is a new entrant in the terminology of management and is widely used these days in business world. In the word of Horngren, cost management is used “to described the approaches and activities of managers in the short-term and long-term planning and control decision that increase values for customers and lowers cost of products and services”. According to Hansen and Moven, “Cost management identifies, collects, measures, classified, and reports information that is useful to manager in costing, planning, controlling and decision making”. According to Kumar and Sreekantha, “Cost management is the system of allocating costs to production/ service, thereby enabling and achieving cost control and cost reduction”. From the perspective of financial accounting, cost accounting department has the tasks of calculating and measuring the costs incurred in enterprises in accordance with accounting principles to provide information on production costs, costs of goods sold, and operating costs as stated on the income statement in relation to value of inventories on the Balance Sheet. From the perspective of international economy, cost accounting department has the tasks of measuring, analyzing current state of production and business costs, and measuring the profitability of each product, service, activities, and each department of businesses to improve the efficiency of business activities In general, the nature of cost management is an integral part of the enterprise accounting system and an important tool to provide timely, appropriate, and necessary cost information measures for administrative activities. In addition to past information, cost information derived from cost management practices should be oriented (for planning and estimation purposes), associated with targets, departments, units and 11
individuals (i.e. cost centers)) to enable the analysis, evaluation, and support in the development of cost control measures. Currently, there have also been many studies and perspectives on cost management in Vietnam, which have outlined basic contents of cost management. For example, according to Nguyen Thi Mai Anh (2014), basic contents of cost management includes 5 components: Classifications of costs for managers’ use and their intended uses; Development and estimation of cost norms for purposes of controlling and monitoring classified costs to comply with managers’ requirements; Definition of costs by subject to determine accurate costs for each specific subject; Analysis of fluctuations to control costs; Analysis of information on costs to support the manager’s decision-making process. In the meanwhile, in Le Thi Minh Hue (2014), content of cost management is defined to include following components: Cost identification, development of cost norms and estimation of costs; allocation and definition of costs; analysis of costs for corporate management purpose; Cost administration reporting system, etc. Cost management is the process of analyzing necessary information related to financial information for business management. This includes financial information (revenue and costs), non-financial information (productivity, quality) and other factors of the business. Cost management helps businesses focus its capacities on developing its strengths and identifying important business opportunities or issues. In addition, cost management can help businesses improve the quality of its services without changing costs, helping business leaders and strategic decision makers identify the least expensive resources in the supply of goods and services, thereby improving its business performance. 2.1.1.2 Characteristics and role of cost management in business According to Le The Anh (2017), from the perspectives and studies on cost management, we can recognize following basic characteristics: Firstly, cost management emphasizes the provision of data for internal use to administrators through the use of initial accounting information, processing, analysis, and provision of economic and financial information as required for corporate administration. Those that use information on cost management are managers who directly run daily 12
business activities of enterprises and they usually have to make different decisions related to business performance in both short term and long term. Cost management provides internal financial information that are significant to the measurement and monitoring of business performance and provision of information for management decisions. Secondly, cost management is primarily focused on the future, which is established by information requirement in strategic planning and business operations. In a market economy, as it is required to to be sensitive and quickly capture business opportunities, cost management provides information to administrators that demand the flexibility, speed, and appropriateness for each decision whenever the managers may require. As a result, financial information is highly volatile as it does not require the compliance with accounting laws. Thirdly, cost management is flexible and suitable for information needs as represented in the form of material value and reported in details with an in-depth focus on each activity area. Cost management is based upon collecting, processing, and analyzing information by using a mixture of historical data, current data, estimated data, and future projects. In cost management, data source is the corporate accounting data system along with other sources of information such as those on industrial development trends, competition, market fluctuations, interest rates, exchange rate, and so on. Fourthly, cost management is not required by laws in order to comply with general accounting standards. Enterprises can define their own basic principles and necessary books and records in accordance with management practices without being restricted by requirements of state management agencies This is true because the main goal of cost Management is to provide internal information for managers to make sound business management decisions. To achieve the goals of operating and managing business activities as a part of corporate governance, it requires a lot of information of various types. The first type is information on the planning and supervision of daily business operations. These helps corporate administrators recognize what is going on in their businesses and how the goals are being implemented. Second type includes the information that is essential for 13
governance purpose in long-term planning. Cost management provides information for making decisions on the corporate business plans. Firstly, it provides information for planning purpose. To develop a plan, managers are often required to give prediction and judgment of the outcome of economic indicators based on available scientific facts. In doing so, managers often have to link economic indicators together to clearly see the causes and results that will be materialized in the future. First of all, cost managers have to prepare estimates, set up a system of indicators, open up accounts and books to systematically record production and business activities of the enterprise. Developing an indicator system and setting up accounts must be based on the needs to use information and characteristics of production and business activities, and only then newly derived information will be effective in all respects. For example, by classifying raw materials by product to record and specify liabilities by due date and subject, it is possible to accurately reflect costs by product and take appropriate debt recovery measures. Secondly, cost management provides cost information for the organization and conduct of business operations. This function is intended to convey the planned indicators of costs so established to relevant departments in the enterprise and organize the operations of departments in a planned manner. Also, it requires the managers to link different departments together and use reasonable personnel resources to maximize potential resources for production purpose to achieve the planned targets. In this period, cost managers reflect accounting information onto accounts and records that they have designed for different levels of administration. Based on such information, cost managers calculate indicators as required for internal administration and summarize them into reports for different levels. Cost managers must know how to summarize and use information from different departments in the enterprise, combine internal and external, qualitative and quantitative information to make forecasts and develop the plans. This is the most crucial stage as business decisions must be very flexible and adapted to production factors to achieve the objectives in the best manner. Thirdly, cost management provides information on costs for checking and evaluating business performance. Based on indicators of business performance, the 14
managers may compare them against planned targets to check and evaluate the performance as well as current state. Then, they analyze and collect information for proceeding with further businesses. In fact, they are doing a comparison of the differences from the established plan and identifying the causes thereto so that they may make appropriate adjustments to each individual and department to achieve the optimal targets. Internal control system is adopted in place by means of assignment and decentralization of authorities based on financial management regime and responsibilities of individuals and departments in a specific organization. Fourthly, cost management provides information on decision making process. This is the most basic and common function of cost management. Decision making is usually performed by managers that have influence on ultimate outcomes of any business. Typically, a decision is made on the basis of information collected from different sources, in which information from management accounting plays a crucial and highly trusted role. The managers are usually facing a lot of different business options. Cost management is conducted in order to check information on analysis reports and assessment of business performance, and is intended to support the managers in making sound decisions. Fifthly, cost management helps businesses focus its capacities on developing its strengths and identifying important business production opportunities or issues. Sixthly, cost management helps enterprises improve the quality of their services and products without changing the costs thereof. Seventhly, cost management helps the decision makers realize the existence of resources at lowest costs in the production and provision of products and services. 2.1.2 Contents of cost management in business 2.1.2.1 Identification costs According to Dang Thi Hoa (2006): Cost is one of important factors that have an impact on profits, assets, as well as the survival and development of businesses. Therefore, managers at all levels should understand the concept, nature, and content of costs in order to perform their administration functions appropriately. 15
According to international accounting standards (i.e. IAS 27), cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition or construction, or, when applicable, the amount attributed to that asset when initially recognized in accordance with the specific requirements of other IFRS, e.g. IFRS 2. According to Vietnamese Accounting Standards - Standard No. 01 (VAS 01), Costs are the total value of amounts which reduce economic benefits in the accounting period in the forms of amounts spent, asset depreciation amounts, or give rise to liabilities leading to a decrease in the owners’ equity, excluding amounts distributed to shareholders or owners. From the perspective of financial accounting, costs are considered as actual expenses incurred in connection with production activities of the enterprise, including expenses incurred in the normal course of business and production, as well as and other expenses to produce a certain type of product or service, or to achieve a specific purpose of business. Expenses are quantified and expressed in value as the amount of money spent, property depreciation, service debt, reduction of owner's equity of enterprise, etc. From the perspective of cost management: As the purpose of cost management is to provide appropriate, useful, and timely information for decision-making process of the managers, costs as defined from the perspective of identifying information to serve decision making process comprise of actual costs incurred in production and business activities, which are summarized by division and cost center, and used to determine the value of inventory in each stage of production and consumption process. Costs can be classified into fixed and variable costs, so that cost estimation equations can be developed at different levels of activity. Costs can comprise of estimated or expected costs in order to carry out a business operation, an economic contract, etc. Therefore, for recognition of costs as a part of cost management, attention should be paid to the choice and comparison of purposes of use and business decisions rather than focusing only on supporting documents to ensure the validity as in financial accounting. Definitions may be different in terms of expression or level of generality, but they all represent the nature of costs as the expenditure spent in return of material, quantifiable benefits, such as a number of delivered products or rendered services. 16
2.1.2.2 Classification of costs  Classification of costs by cost behavior Under this classification method, total costs of an enterprise are classified into: - Variable costs: The costs that are varied by a proportion to the change of business activity level. Nevertheless, there are variable costs that are in direct proportion to the levels of activities such as costs of direct materials, costs of direct labor, etc. as well as variable costs that are only varied by the magnitude and clarity of change in activity level, for example costs of indirect labor or costs of equipment maintenance, etc. - Fixed costs: Total amount of which are unchanged when there is a change in activity level, while the average cost of an unit of activity may be varied in a negative proportion to the change in activity level. Fixed costs are unchanged in term of absolute total amount within a reasonable scope of activity, but when that reasonable scope is exceeded, depreciation costs of machines and equipment will be increased due to additional investment in production machines and equipment. - Mixed costs: The type of costs that consist of both variable and fixed costs. At the fundamental level of activity, mixed costs demonstrate the characteristics of fixed costs, and beyond that level, mixed costs demonstrate the characteristics of variable costs, while at another certain level of activity, mixed costs may reflect both fixed and variable costs, such as telephone costs, rental costs, etc. Mixed costs are very important as they are common in business activities of any enterprise. Fixed component in mixed costs reflect the fundamental, minimum costs to remain to be active in business, while variable component reflects the level activity beyond fundamental level. Therefore, in order to control and regulate mixed costs, the managers must classify these costs into fixed and variable components. The classification of costs into variable, fixed, or mixed costs will depend on each manager’s perspective and specific purpose of use. Costs are not classified in this manner under the perspective of financial accounting, but this is essential to help the managers have a method to recognize costs, production, and profit to make reasonable managerial decisions.  Classification of costs by the relationship with performance period. Under this method, costs are classified into product costs and period costs. 17
- Product costs are costs associated with the production process or procurement of products for resales. Product costs are always associated with the products and can only be recovered when the products are consumed. When they are not consumed yet, product costs are included in products in stock. In manufacturing enterprises, product costs are costs closely associated with production process, including: Costs of direct materials, costs of direct labor, and general production costs. When products are consumed, these costs will be included in the costs of goods sold - Period costs: These are costs that are incurred during the accounting period and directly decrease the returns in the incurring period. Period costs include selling expenses and general and administration costs. So, product costs are only charged to the period when the products are consumed while period costs are charged to the period when they are incurred and they have a direct influence on the returns in that period.  Classification of costs by intended use: Costs are classified by their intended use into two following types: production costs and non-production costs. Production costs of an enterprise comprise of all costs of living labor and material labor incurred during the production and composition of cost prices of the products. Production costs comprise of three items: costs of direct materials, costs of direct labor, and general production costs. These are costs comprising the cost of goods sold of finished products for consumption. Non-production costs are costs incurred outside production processes and not related to the consumption of products or intended for general management practices. Non-production costs include: selling expenses, general and administration costs, financial costs, and other costs. General and administration costs include all of costs for the organization and management of business production in general. These items include such costs are office costs, salary and salary deductions for business managers, depreciation of fixed assets for business management, and costs of other external services. 18