What Type of CFO/Controller Are You?

Apr 24, 2015

Over the last few years, I have worked on a large number of costing assignments and spoke with many CFOs, controllers, and cost managers of medium to large sized companies about their costing issues. As I think about these events, it seems to me that they fall into one of two general categories. The first general category relates to financial executives which have a good understanding and adequate control over their product cost. The second is made up of financial executives who really have little understanding of their cost information.

Group two is unfortunately subjected to radical, unpleasant surprises, which could have easily been anticipated had they had a complete knowledge of their costing issues. In many cases, executives from group two believe costing is easy and simple; and therefore, can be delegated to a clerical function. These executives believe the results are easy to understand and not worth any effort to completely analyze and review.

Business_DirectionThe executives in category two are a much larger group than those in category one and generally have some recent woe associated with their finances. Many times these issues, I believe, can be traced back to inadequate or nonexistent product costing. Often these errors are unanticipated and then uncovered in unusual ways. Unfortunately, in many cases the errors are material to the overall financial results of the company and often times are so large they threaten the future of the company.

Most often, warning signs were present. Ones that an experienced cost manager would have recognized as an impending problem. A member of group one certainly would have taken action to prevent a much larger problem from appearing. However, for a member of group two, this unforeseen issue would have been masked for years because the manager responsible for overseeing the cost information and understanding the relationships was either asleep at the switch or did not understand the implications of all of the warning signs that were popping up.

In a recent conversation I had with a CFO whose experience and background puts him in category one, he said “it’s not a problem until it’s a problem and then it’s too late”. As I thought about that quote I realized that it is a good summary as to the kinds of issues I have seen in my manufacturing clients. Many times we don’t get called until it has reached the “too” late stage and at that point there is little that we can do to fix the cost system because the financial problems created is far too deep.

My message is if you believe your costing system and the related information it is producing is simple and not worth the time to analyze, or that it is not a cost effective management tool, I would urge to think twice. My experience suggests those conclusions are erroneous. A significant amount of valuable information can be derived from your existing cost system which is critical in preventing a much larger surprise from popping up in the future. If you are in group two, jump ship to group one today!

Categories: Cost Accounting