A primary purpose of this Profitability Analytics Center of Excellence (PACE) website and its associated LinkedIn group is to advocate that CFOs and accountants get out of the 1960s and into the 21st century by applying progressive management accounting methods and systems.
One of the debates that the four PACE Directors, including me, have is whether to nudge and persuade CFOs and accountants to adopt progressive management accounting methods with a carrot or a stick. Here are the debate positions:
… Carrot – Educate accountants and the managers in their organizations, who they serve by providing information, with descriptions and explanations about the various progressive methods. Inspire the accountants to add value to their organization by facilitating better decisions to improve their organization’s performance.
… Stick – Criticize CFOs and accountants for being reluctant to be progressive and continuing to apply stale and arcane management accounting methods. That is, shame them for being irresponsible in their duty to provide reasonably accurate cost and its derived profit information with transparency and visibility. Some of the progressive methods, such as driver-based budgeting, have existed for decades.
An Example – Activity-based costing (ABC)
I do not need to explain activity-based costing (ABC) in this article. Just view many of the other posted articles in this PACE Forum. If you need an additional explanation of ABC, consider viewing the slides that I created in this link to a pdf file titled “Why Use ABC?”:
In slide #3 in the file I wrote this:
“When CFOs ‘allocate’ indirect expenses (i.e., overhead) to products and standard service-lines, they spread it like ‘butter across bread’. CFOs violate cost accounting’s universal ‘causality principle.’
Activity-based costing (ABC) resolves this by ‘tracing and assigning’ expenses based on cause-and-effect relationships for how products and service-lines consume work activities, which in turn consume the expenses.
I subtitled this article “If it were only that simple.” This is because the vast majority of CFOs and accountants have the misperception that ABC is so complex and unmaintainable that its benefits do not exceed the effort to implement ABC. They are misguided. A “right-sized” ABC system can be implemented in three weeks, not taking many months. See slide #s 20 and 21 describing a proven way to do this.
Carrot or Stick?
So, what do you believe is the more effective way to motivate CFOs and accountants to adopt progressive management accounting methods? A carrot or a stick?
Gary … Gary Cokins … gcokins@garycokins.com
