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Frustrations of a Mover and Shaker for Managerial Accounting


Many who just read “managerial accounting” in this blog’s title are not bothering to read this. Why? They do not care. They only care about external financial reporting for regulatory agencies, bankers, and investors. This frustrates me because I interpret this as their not caring about managers and employees who need better internal managerial accounting information for insights and foresight to make better decisions compared to what they are currently provided by their CFO’s function.



Gary Cokins
Gary Cokins
Should I laugh or cry?

Allow me to share with you some examples of what frustrates me related to this topic.

In a recent discussion thread in the website of the Institute of Management Accountants (IMA) there was a post that described how to calculate product and standard service-line costs. The writer meticulously listed the steps. In the final instruction they wrote to “allocate” the indirect and shared support expenses one should use broadly-averaged basis like the number of direct labor input hours, headcount, or square feet. I did not know whether I should laugh or cry! Where have they been the last few decades?

This primitive cost allocation method totally violates the costing principle of a cause-and-effect relationship between changes in the amount of workload and the products and services that consume those expenses. Activity-based costing (ABC) resolves this. ABC has been researched and promoted since the 1980s. (I was trained in 1988 by ABC’s lead promoter, Harvard Business School’s Professor Robert S. Kaplan. I subsequently wrote several books on ABC.) After implementing my first ABC system, the company was shocked by how different the product costs and profit margins were compared to their existing “cost peanut butter spreading” method. They were exact in total, but not with the parts. I then thought the practice of ABC would take off like a rocket. It hasn’t, but its acceptance continues with a slow but increasing pace. Too slow for me.

But wait. There is more!

This blog may now appear to be like a television Ginza knives commercial. There is more!

I am involved with five university faculty to author a report for the American Accounting Association on reforms for university accounting course curriculums to shift the emphasis of teaching topics from financial to managerial accounting methods. It is a noble effort. What concerns me is how sensitive my co-writers are to the resistance from accounting faculty that this shift would be different from what accounting professors already teach. We will never move finance and accounting professionals from “bean counters to bean growers” if we continue with traditional practices.

Another example of my frustration involves adversarial competition for managerial accounting practices. Often driven by self-serving consultants, they advocate managerial accounting methods that only serve their interest. The late Theory of Constraints (TOC) guru Eli Goldratt proclaimed, “Cost accounting is enemy number one of productivity.” He proposed the throughput accounting method, which with investigation only applies under very special conditions of a 24 / 7 / 365 existence of a physical bottleneck like a heat treat oven in a foundry. Some lean accounting advocates slam ABC as being misguided. Both of these methods, if exclusively used, deny strategic analysts understanding of the profit margins of products, services, channels, and customers.

Cutting through the Clutter

I participated on a task force that recently published a report for the IMA titled “The Conceptual Framework for Managerial Accounting.” It is an exposure draft that anyone interested in it can review and comment on. Our task force’s mission was to determine key accounting principles to reflect economic reality that any managerial accounting system should comply with.

Many organization’s existing practices would fail compliance with the report’s framework. With financial accounting, if the CFO gets the numbers wrong, they can go to jail! But when they get the managerial accounting information, they don’t go to jail. Nor should they. But at least CFOs should feel embarrassed and irresponsible that they are performing a disservice to their organization’s workforce who increasingly needs much better management accounting information from which to further apply business analytics.

Am I a mover and shaker I note in this blog’s title to shift emphasis from financial accounting to managerial accounting? I try to be. And I am not alone. If I have inspired you, see my website at www.garycokins.com where I am providing many free articles that “champions” in organizations can leverage to educate others. Better management accounting is needed for good decision making.

In the land of the blind, the one-eyed man is king.



Gary Cokins, CPIM
(gary.cokins@sas.com; phone: 919-531-2012)
blogs.sas.com/content/cokins

Gary Cokins (Cornell University BS IE/OR, 1971; Northwestern University Kellogg MBA 1974) is an internationally recognized expert, speaker, and author in advanced cost management and enterprise performance and risk management systems. He is a Principal in business consulting involved with analytics-based enterprise performance management solutions with SAS, a global leader in business intelligence and analytics software. He began his career in industry with a Fortune 100 company in CFO and operations roles. He then worked 15 years in consulting with Deloitte, KPMG, and EDS. His two most recent books are Performance Management: Finding the Missing Pieces to Close the Intelligence Gap (ISBN 0-471-57690-5) and Performance Management: Integrating Strategy Execution, Methodologies, Risk, and Analytics (ISBN 978-0-470-44998-1). Mr. Cokins can be contacted at gary.
cokins@sas.com
123 words.

Jeudi 15 Novembre 2012
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