Read an Excerpt
Sometimes luck beats planning. I have been fortunate in my professional career, a career that began in 1973 as an accountant and continued into operations management and management consulting. Without realizing it--through a series of different jobs and management consulting assignments--I somehow earned a reputation as an internationally recognized expert in activity-based cost management (ABC/M). In truth, I am always learning new things about how to build and use managerial accounting systems. I'm not sure that any expert in ABC/M exists. I'm just fortunate to have been formally working with ABC/M since 1988 when I was introduced to it.
I have already written two books about ABC/M, so why would I want to write a so why would I want to write another? There are several reasons.
- Since I wrote my last ABC/M book five years ago, a great deal of progress has occurred in the field. There has been a marked increase in the growth, acceptance, and successes with ABC/M implementation by organizations of all sizes and in all industries and in most countries as well as in government and the public sector. As evidence, the attendance at ABC/M software companies" customer conferences is almost exceeding the capacity of the largest hotel conference centers. They will need to be held at city convention centers.
- There is an increasing understanding that ABC/M provides information that integrates with a broad number of applications and decisions. ABC/M in isolation is not an improvement program--it is an enabler for other managerial methods and approaches to be effective. In some cases ABC/M data allow processes to be better performed and decisions to be better made. In other cases, they make decisions possible that were not before.
- I have personally recognized that the impediments that have been preventing ABC/M from exploding faster in the growth and acceptance are the misconceptions about it. They range from false beliefs that ABC/M is monstrously large and complicated to misperceptions that it takes forever to implement. These falsehoods must be replaced with the evidence that quickly implemented, non-complex ABC/M models ignite the best results. (The discussion on ABC/M Rapid Prototyping in Chapter 9 will reinforce my observations.)
- Poor ABC/M model design and architecture will inevitably lead to poor results. Unfortunately, large ABC/M systems are sometimes flawed right from the beginning design steps. Hence, ABC/M regularly gets an undeserved black eye. Well, there is nothing wrong with ABC/M--the problem is with the improperly designed structures. I believe that ABC/M is a craft--and I hope my book provides guidance to those wiworthraftsman-like minds. Some accountants may have problems with this.
- The advanced and more mature users of ABC/M--those who have been re-calculating their ABC/M autopsy data (i.e., historical expenses) for several years--have pushed the ABC/M methodology to be applied to the future. These advanced companies want to gauge the consequences of their decisions and scenarios. They want to know what will change based on pursuing alternatives available to them. This introduces the topics of predictive costing and cost estimating. That may not sound exciting to some, but as the Internet spawns more e-trading market exchanges with auctions and bidding, rule-based decision making relying on ABC/M may become mission-critical for suppliers and service-providers in an e-commerce digital economy.
- Finally, I am writing another book because it is in me to do it. have learned a lot since my last book was published. Some readers may dismiss some writers as simply displaying ego rather than being being ofpracticall use. I'd like to think that my contribution to the field of managerial accounting originates from a sense of duty rather than ambition. I have now seen many ABC/M systems and have been comparing them. In short, I'd like to make a difference.
I enjoy constructing computer figures that illustrate the points I write about. (Actually, it usually happens in reverse. I firstcreatet the diagram, then compose text for the picture that I drew.) My gift for visualizing and illustrating has apparently made my prior ABC/M books popular.
As you wander into my book, I want one key message, which may get muddled, to be stated up front so you can watch for it. That message is that managerial accounting is now transitioning into managerial economics. Many of those fuzzy questions about marginal costs, profits, and economics can finally begin to be answered using valid data with credible assumptions. And computer software and data are no longer the inhibitors to calculating results that they were in the 1990s. The technology problem has been solved. The major obstacle is not producing the cost math--it is in people's thinking. It is how they frame a problem, make assumptions, and consider what they are really trying to do or solve with their cost information.
I begin this book by first discussing why there is an increasing interest in ABC/M (Chapter 1), immediately followed by some fundamental explanation of how one constructs an ABC/M Cost Assignment Network that models an organization and becomes its repeatable reporting system (Chapter 2).
The expansion of costing beyond just products and base services into channels, distribution, and customers enables customer contribution profit margins to be calculated and made visible. The managerial movement to manage profit margins is addressed in Chapter 3. The Internet introduces newirreversibleons, particularly the irreversibl shift of power from sellers tobuyerr. Chapter 4 discusses applying ABC/M across an entire supply chain of trading partners to improve profits and remove excess costs.
The output of an ABC/M calculation system is always an input into something else. Chapters 5, 6, and 7 discuss the popular uses and applications of ABC/M data, including for balanced scorecard performance measurements, shared services management, unused capacity management, project management, and quality management. In short, ABC/M supports better decision making.
Chapter 8 gives a preview of where ABC/M is headed--its use as a predictive costing tool. In this chapter, I reconcile ABC/M with the Theory of Constraints throughput accounting method. ABC/M is also revealed as the foundation for activity-based budgeting, a budgeting approach that is superior to today's highly "political" approach.
Chapters 9 and 10 deal with the myths and misconceptions about ABC/M. Chapter 9 describes a popular solution to implementing ABC/M in days, not months, that removes most of the mysteries: ABC/M Rapid Prototyping. It quickly produces results in contrast to long drawn-out ABC/Mimplementationss.
Chapter 11 concludes my book with a crystal ball look that suggests that managerial accounting is evolving into managerial economics. And the force making this possible is not so much the high-speed computing horsepower of laptops and servers as much as it is better thinking about the dynamics and properties of cost behavior made more understandable by ABC/M.
I write this book to focus the managerial accounting community's attention on thethinkingg rather than the math. The margin of error for organizations is continuously narrowing, so I want ABC/M data and their uses to help people and organizations make better decisions and perform better and more in alignment with their defined strategy.
I am forever grateful to my wife, Pam Tower, who for the year I was writing this book allowed me to balance--and occasionally mis-balance--my job and family.
Gary Cokins
Garyfarms@aol.com (I welcome your e-mail)
