Today, entrepreneurs anticipate their market changes, make decisions in that direction and analyze their results, within the corporate strategy guidelines.
In such an environment, driving a company business requires an effective toolkit which provides accurate information to facilitate analysis. This is because understanding what has to be changed is needed before launching any action plan. This is the reason why ABC (Activity-Based Costing) seemed to be a promising response to the enterprise performance management needs, in the early nineties.
How does this promise stand twenty five years later? Critics have reported customers who were dissatisfied with their results from ABC. They mainly claimed that the method itself is too complex, lacks from a really efficient toolkit, and results in never-ending implementation projects.
Read more“The greatest wealth is health” (Virgil, Ancient Roman poet). There is nothing more important than taking care of ourselves and each other. However, focusing a health system on the appropriate goals in a complex political and social environment requires investment in the right combination of time, money, intellect, and creativity.
Government agencies are bringing pressure on healthcare providers, vendors, and insurance companies. For decades, our health system has been revenue driven, often with somewhat irrational pricing. Healthcare leaders must now pay closer attention to the middle line – costs – not just the top line (revenues) when working to improve the bottom line (profits).
The only financial value a healthcare facility will ever create for its stakeholders is the value it derives from its patients — its current patients and new ones to be served in the future. Healthcare organizations should view patients similarly to how commercial companies view existing and prospective customers. To remain competitive, healthcare facilities must determine how to keep patients and their families coming back to satisfy medical needs throughout their lifespan and to serve them more efficiently. To do this, they must maintain a high level of quality and patient satisfaction, while growing revenue and controlling costs.
Read moreA debate has been going on for years about which method of activity-based costing (ABC) is better to use for assigning costs: Time-Driven or Driver Rate-Based. The answer: It depends on the circumstances. There’s a great deal of confusion regarding which one to use and around terms such as “push” vs. “pull” and “top-down” vs. “bottom-up” in which the latter perspective of both terms is one where a product isn’t consuming all of the supplied capacity expenses, and the former perspective is one where the capacity expense, including unused or idle capacity, is being fully traced into the product, thus overcosting products. This raises several questions: How are the approaches similar? How are they different? Is one method superior to the other? Can a company start with the former method and transition to the latter method as informational needs increase? What are the conditions when one or the other method might suffice?
To discuss the merits, we need a starting point to establish clarification. It’s an incorrect simplification to refer to Time-Driven ABC (TDABC) as the “pull” basis and its predecessor, the conventional Driver Rate-Based ABC (DRBABC), as
Read moreSome organizations have strict rules to determine the acceptance for proposals to invest and spend money on equipment or projects. Sometimes the administration of these is called the capital investment justification process. Senior management may not authorize any spending unless the business proposal exceeds a certain return on investment (ROI) level – often referred to as the hurdle rate. Management wants to assure itself that any money re-invested in itself will greatly exceed the level of return that its shareholders could achieve in other investments.
Organizations that are skeptical of activity-base costing (ABC) regularly ask, “What is the ROI from ABC?” My blunt reply from what I have learned is that calculating ROI on ABC/M is not possible to do. Here is why.
Read moreA 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:
Read moreThe objective of sales and marketing is no longer about growing market share and sales, but rather it is about growing profitable sales. Accountants must accurately measure the ‘middle line’ to subtract from the ‘top line’ because the ‘bottom line’ – profits – is a derivative from both of them. And to use large aggregated indirect expense cost pools with a non-causal allocation factor (e.g., sales amounts, number of labour/machine input hours, number of units produced or services delivered, number of employees in a department, square feet or meter) to allocate costs is irresponsible. The results are distorted, flawed, and misleading. FP&A analysts and accountants should know better.
When the consultant advised his inquiring company that their competitors are not using ABC, then it is a case of the blind leading the blind. And, remember, that in the land of the blind the one-eyed man is king.
Read moreUsually I am fairly rational and do not let my personal emotions interfere with how I interact with others. However, as the readers of my blogs and articles may have detected, my more recent writings increasingly reflect my frustrations with old school accountants. I cannot disguise my irritation and annoyance with accountants who refuse to be progressive.
Read moreMartin Luther King, Jr. said that “the arc of history is long, but it bends toward justice.”
The problem begins with the imbalance of emphasis of external statutory and compliance financial reporting for government regulatory agencies (e.g., the USA’s SEC) dominating over internal management accounting.
The word “justice” is in the quote above and the title of this article. Synonyms for justice are fairness, honesty, and righteousness. My message here is that an organizations executives and line managers (e.g., sales, marketing, operations, supply chain) deserve much better financial information from their accountants.
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