Same Problems, a New Year!

Jan 13, 2014

Finance executives were asked to rank in order of importance their top priorities for 2014. There were five different categories with several details within each category. The first two categories, financial transactions and financial analysis were the two in which I was most interested. Financial transactions listed 24 different priorities (click on download report to view) to rank. As I glanced through the results, I was reminded of the movie “Groundhog Day”.

Groundhog-Day-Movie-82159For all companies, the overall results indicated that out of the 24 process capabilities, variance analysis came in at number 9 on the priority list, cost allocations number 12, standard costing number 17, and activity based costing number 23, almost dead last. The results varied somewhat when looking at large Companies, and strangely enough, activity based costing in comparison was one of the only two of 24 that is actually “Low Priority,”ranking right alongside payroll processing!!!!

Considering that variance analysis is a natural by-product of standard costing, I would think they would be pretty close together. I am not surprised at all that cost allocations was rank in the top 50% because we have seen from many other surveys before that this is a pressing topic for Companies. I know from personal experience that CFO’s and Controller’s struggle with this issue continuously. I am also not surprised that standard costing is still on the list, as again, I have seen and other surveys have reported that standard cost is still widely used by many companies

What I was most startled by was the ranking of activity based costing as a “low priority”. I have advocated for many years that your costing model does not have to “fit within the box” for it to be correct and effective. As a matter of fact, I have argued the complete opposite that your costing model has to reflect the patterns and consumption of your business in the manufacturing process. I am curious if it is just a lack of knowledge as to what ABC is that caused the low priority, or  is it that respondents still did not have any intention of moving away from standard cost to a more detailed and comprehensive method of costing.

The second category of financial analysis was a NO BRAINER. The number one priority was strategic planning, hands down. ONLY those businesses that have a strategic plan know where they are going and how to pull it all together to get there. The items that followed for ranking were reporting issues,  profitability by product, geographic location, and customer. These are requests we are receiving from our client base on a daily basis. They want the information, they just don’t know how to harvest it, pull it together, or what to do with it. This is especially true for companies in the middle range. The cost of being able to get the information can be prohibitive to companies of that size, so they are left with nothing.

As a matter of fact, the Institute Of Management Accountants updated their 1993 Survey in the fall of 2012, and even then the number one priority for implementation was Business Intelligence. A year and a half later, Companies are still struggling with it. (The Role of the Management Accountant: 2003-2012)

This Protiviti report provides support for what I already know and experience daily. Executives are still struggling with cost cutting measures to maximize profitability but need to manage their COSTS with a system that is likely out of date and inaccurate. CFO’s are struggling to provide business intelligence to the executives and often providing reports (if any) that do not provide the information the executives need to make strategic decisions.

Are you reliving Groundhog Day? If you are still experiencing the same issues year after year, do something about it!!!

Categories: Cost Accounting