Sometimes The “Best” is Not Always the Most Suitable

May 15, 2014

Recently I got a call from a potential client concerned about the accuracy and usefulness of their existing cost system. This potential client knew that there were fundamental changes in their operations that had never been reflected by changes in their cost system. Accordingly, their financial statements were materially misstated due to incorrect allocations of overhead to inventory. This meant the overall usefulness of their costing information had been severely compromised, especially since there was no relevant or useful information that the costing system could produce.

The purpose of the call was to discuss how we might help them rectify the problem. As we discussed the options, it was clear to me that this business had talked to other cost specialists about the possibility of modifying their cost system. They had been presented with a number of comprehensive solutions that would not only provide a solution to their immediate problem, but provide a warehouse of other information that would be used in the management of the company. As the potential client considered these options, he realized that a more comprehensive solution then he actually needed would be time consuming and costly. He also recognized that it was possible it would only actually provide a marginal benefit to the management of the company especially if they were unfamiliar with the reporting options that this more complicated system would offer. In the end, it may even be less valuable than the simple system he originally envisioned.

As we talked further about his proposed solution, I realized that a very simple but accurate system would clearly meet his needs and could be implemented for a very cost-effective price. Rather than direct his attention to the optimum solution available with a corresponding hefty price, it would be to his best interest for us to offer him the most cost effective solution we could. We would also provide him with a list of upgrades that would be capable of providing more information for his consideration later after the initial problems he was facing had been solved. This more inexpensive and simplified solution would provide the most logical approach to this businesses’ costing problems.

I wanted to be sure to cover the fact that I am not opposed to comprehensive multi-function solutions that bring the highest and best management reporting techniques into play, but it is in the best interest of the client to modify their solution to what is most useful and workable by a given management team. I believe, leading him to an expensive complex solution that would never be used or understood does not provide the best value to the company with the costing problem.

Categories: Cost Accounting