Embracing Costing Innovation & Change

May 11, 2015

This past week, I spoke to a number of people about costing. They all felt quite confident about their costs based solely on the fact that it is the way in which they have ALWAYS determined costs!

When did we become so confident in methods that have not been updated? We would not be confident in our electronics, our car, or our appliances if they were still made in the same manner as they were fifty years ago. We are a society that is consumed by advance technology and the products offered by such forward-thinking. However, when it comes to calculating our costs, we fear advancement and innovation and instead cling to we know. I hope even if you are one of those clinging to the past, you recognize the irony.

I’m not trying to say it must be wrong if you’re doing it the way it’s been done for 20 years, but I am not agreeing that it may be the right way. Change and innovation should be embraced. We should always strive to better our cost system and look for methods to update to ensure our numbers are accurate.

Don’t you strive for accuracy? Why are you determining your costs the way you are? A valid answer is not because this is how we’ve always done it. An accurate answer is ‘xyz’ is a valid cost driver since it directly impacts the activity. A valid answer is we know these are our direct costs and these are our indirect costs. We know we have to cover ‘abc’ and we feel our standards are accurate. We have variances, but we are reasonably able to explain our variances. And on and on…

So why is your cost system the best and most accurate system? I hope if have considered the way you have ALWAYS calculated your costs as the answer that you have stopped to re-evaluate your process. It is time embrace innovation and change. Take the time to review your process and how you determine your costs. Accuracy in your numbers can only positively impact the future of your business.

Categories: Cost Accounting