Barriers to Transitioning Your Cost System?

Mar 06, 2014

A frequent topic in today’s business news relates to current management’s unwillingness to accept new and more robust cost systems and how the delay in adopting a new cost system is expensive to American businesses in both time and money. Many proponents of the a newer cost system point to the benefits and discuss how its solutions are far more superior to many of the older systems. It leaves the author and reader pondering why there hasn’t been a more universal adoption of these new methods by American business leaders. This is especially true since most often these methods promote, ease of conversion, flexibility, and high accuracy.

As I think about this dilemma and my daily experience working in the cost arena, I am struck by several reoccurring situations.

In the first case, today’s business leaders aren’t using their existing, although antiquated, cost system anywhere near the possible level of activity that it is capable of producing. Many business leaders allow their cost systems to become hopelessly outdated with financial information that is years old, as well as, obsolete work standards and production processes. Often times these things have long since been replaced or improved, but the costing program continues to rely on the information without much concern towards their ultimate accuracy and flexibility.

I believe in the above case, those business leaders are unwilling to make any investment in time and money into a new system since they are not even fully utilizing their current system. They figure why waste the money! Also, since that is a job that can be easily put off, it is sometimes ignored for years on end. Repeatedly it’s simply because the resources needed to make that conversion are not readily available, nor is management willing to portion any.

Further, I see that the transparency of the system is of utmost importance to senior business managers. Their willingness to put into place what seems like a more complex and less transparent system when they’re already struggling with an older system that seems complex and lacks transparency is very low on their list of important projects to be completed.

I believe today’s business leaders are simply saying let’s not start down the path of implementing a new system when we aren’t even using our existing system properly. If they were using their existing system to its full capability, I actually think owners would consider making the investment of financial and human capital necessary. They may then see their goal of implementing a new and more accurate system, which would hopefully no longer be offset by a fear of further lack of understanding and transparency in addition to a significant investment of capital.

Categories: Cost Accounting