Top Trends in Management Accounting and Enterprise Performance

Transcription

Top Trends in Management
Accounting and Enterprise
Performance Management
(EPM) Methods
Gary Cokins, CPIM
Analytics-Based Performance Management LLC
Cary, North Carolina USA
www.garycokins.com
919 720 2718
[email protected]
SAP Switzerland
March 18, 2014
Geneva, Switzerland
Copyright 2013 www.garycokins.com
Copyright © 2010 SAS Institute Inc. All rights reserved.
1
About Gary Cokins
Founder, Analytics-Based Performance Management LLC
B.S. Industrial Engineering & Operations Research; Cornell
University, 1971
M.B.A. Finance & Accounting; Northwestern University,
Kellogg Graduate School of Management, 1974
Previous Associations:
- FMC Corporation
- Consultant with: Deloitte,
KPMG Peat Marwick,
Electronic Data Systems [EDS, now HP]
- SAS
2
Who will benefit from this presentation?
Managers who have previously struggled at
promoting FP&A, enterprise performance
management (EPM) and integrating business
analytics (BA) into their decision support systems.
Managers who intend to “champion” any or all EPM
and BA improvement techniques and need a
compelling call to action.
3
Key questions
What? So what? Then what?
4
Drowning in data but starving for information.
5
AGENDA
 Eras of management accounting and cost model
stages of maturity
Top Trends:
1.
2.
3.
4.
5.
6.
7.
The expansion from product to channel and customer profitability analysis.
Integration of mgmt. accounting with EPM / CPM.
The shift from historic to predictive accounting.
Imbedding analytics into mgmt. accounting and EPM
Debates over costing methods (e.g., lean, TDABC)
Managing IT as a business (chargebacks, SLAs).
Recognition that “change management” is critical.
 #7 Why is the adoption rate for EPM so slow?
6
Six Eras of Managerial Accounting
The USA’s
Great
Depression
resulted in
regulatory
reforms to
protect
investors
(1930s).
“Causal” cost
tracing of
increasingly
diverse types
of products,
services,
channels and
customers
standard cost
accounting (to
precious metal reflect
Frederick
and paper
Winslow
money piles,
Taylor’s
ultimately
manufacturing
leading to
Consumer
scientific
double-entry
methods, 1910)
bookkeeping
Regulatory
(Luca Pacioli,
Compliance
1496).
Era
Of
Costing
Maturity
Predictive
Analytics
A shift of
emphasis from
a historical to a
predictive view
of strategy and
operations
Industrial
Rocks and
stone piles.
Medieval
Stone
Age
20,000 BC
1492
1910
1930
1980
2015
7
AGENDA
stages of maturity
Top Trends:
1.
2.
3.
4.
5.
6.
7.
Integration of MA with EPM / CPM.
Imbedding analytics into MA and EPM
 Why is the adoption rate for EPM so slow?
8
BIG TREND #1:
The shift from product-centric to customercentric profitability analysis.
Products and standard service-lines are not the only
thing for which accountants should compute costs.
What about costs that have nothing to do with products
and standard service-lines?
The problem with traditional accounting’s gross margin
reporting is you don’t see the bottom half of the picture.
9
A simple explanation of ABC.
Mistrust of the managerial
accounting system …
… for accuracy and transparency lead to
applying activity-based costing (ABC).
10
The General Ledger View is
Structurally Deficient for Decision Analysis.
Chart-of-Accounts View
Insurance Claims Processing Department
Actual
Plan
Favorable/
(unfavorable)
$621,400
$600,000
$(21,400)
161,200
150,000
(11,200)
Travel expense
58,000
60,000
2,000
Supplies
43,900
40,000
(3,900)
Use and
occupancy
30,000
30,000
––
$914,500
$880,000
$(34,500)
Salaries
Equipment
Total
When managers get this kind of report, they are
either happy or sad, but they are rarely any smarter!
11
Each Activity Has Its Own Cost Driver
To: ABC Data Base
From: General Ledger
Activity-Based View
Chart-of-Accounts View
Claims Processing Dept
Claims Processing Department
Actual
Plan
Favorable/
(unfavorable)
$621,400
$600,000
$(21,400)
161,200
150,000
(11,200)
Travel expense 58,000
60,000
2,000
Supplies
40,000
(3,900)
Salaries
Equipment
Use and
occupancy
Total
43,900
Key/scan claims
$ 31,500
Analyze claims
121,000
Suspend claims
32,500
Receive provider inquiries
Resolve member problems
83,400
Process batches
45,000
Determine eligibility
119,000
Make copies
145,500
Write correspondence
30,000
30,000
––
$914,500
$880,000
$(34,500)
101,500
Attend training
Total
77,100
158,000
Activity
cost
drivers
#of
#of
#of
#of
#of
#of
#of
#of
#of
#of
$914,500
$914,500
12
Multiple-Stage Cost Assignment Tracing
Resources
Resources
Activities
Activities
Objects
Objects
Simple
ABM
Expanded
ABM
13
ABC/M Cost Assignment Network
Salary, Fringe
Resources
Benefits
Direct
Material
Phone,
Travel
Supplies
Depreciation
Rent,
Interest,
Tax
(general ledger view)
Work
Activities
People
Activities
Support
Activities
(verb-noun)
(1) Demands On Work
Costs (2)
Final
Cost
Objects
“Costs Measure the Effects”
Equipment
Activities
“cost-to-serve”
paths
Products,
Services
Business
Sustaining
Suppliers
Customers
14
Why Do Customer-related Costs Matter?
# 1- Customer retention versus acquisition costs.
# 2 – Sources of Competitive Advantage –
Commoditization leading to service-differentiation.
# 3 – From mass selling to one-to-one customer
relationships.
# 4 – The internet’s irreversible shift of power from
sellers to buyers.
15
16
A Customer Profit & Loss Statement
CUSTOMER: XYZ CORPORATION (CUSTOMER #1270)
Sales
$$$
Product-Related
Supplier-Related costs (TCO) $ xxx
Margin $
(Sales - Costs)
Margin
% of Sales
$ xxx
98%
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
50%
48%
46%
30%
Distribution-Related
Outbound Freight Type*
Order Type*
Channel Type*
xxx
xxx
xxx
xxx
xxx
xxx
28%
26%
24%
Customer-Related
Customer-Sustaining
Unit-Batch*
xxx
xxx
xxx
xxx
22%
10%
Business Sustaining
xxx
xxx
8%
xxx
8%
Direct Material
Brand Sustaining
Product Sustaining
Unit, Batch*
Operating Profit
Productrelated
costs
Channel &
Customerrelated
costs
* Activity Cost Driver Assignments use measurable quantity volume of Activity Output
(Other ActvityAssignments traced based on informed (subjective) %s)
17
Migrating Customers to Higher Profitability
Very
Profitable
High
(Creamy)
Product Mix
Margin
Low
(Low Fat)
High
Low
Cost-to-Serve
Very
unprofitable
Types of Customers
18
A Shift in the CFO’s Emphasis
The CFO must now help Sales and
Marketing … to better target customers.
Segmentation, predictability, churn, offers, deals,
risk and uncertainty must be understood in the
language of money.
19
BIG TREND #2:
Integration of management accounting with
enterprise performance management (EPM)
Vision
& Mission
Strategy
Mapping
A Vision statement answers
“where do we want to go?
Balanced
Scorecard
Strategy maps and scorecards answer,
“How will we get there?”
The strategy map and scorecard are mechanical.
They help realize the vision and mission.
20
Vision
& Mission
Exceed shareholder
expectations
Financial
Customer
Diversify income
stream
Increase sales
volume
Diversify
customer base
Increase sales to
existing customers
Improve profit
margins
Test new
products
Internal
Process
Target profitable
market segments
develop new
products
Optimize internal
processes
Develop
employee skills
Integrate
systems
Attract new
customers
Learning
& Growth
21
Vision
& Mission
Financial value
Exceed shareholder
expectations
Financial
Customer
Internal
Process
Diversify income
stream
creating
Increase sales
Improve profit
margins
volume
Diversify
customer base
Increase sales to
Customer
intimacy
existing customers
Test new
products
leads to
develop new
internal
Process
excellence Optimize
products
processes
Target profitable
market segments
Attract new
customers
Learning
& Growth
stimulates
employee
skills
systems
A learning
environment
Develop
Integrate
22
What is the difference between KPIs and PIs?
Strategy
Diagram
Measurements
KPIs
(strategic context)
Scorecard
Must have
targets
(inter-related
measures with
cause-and-effect
correlations)
Frequency of
reporting
- drill-down analysis
- alert messages
quarterly
monthly
weekly
Without
targets
daily
hourly
Project-based
KPIs
Process-based
KPIs
PIs
Dashboard
$
$
real-time
(operational)
(measures in isolation)
Budget &
Resource
Planning
With
targets
Without
targets
- Trends
- Upper / lower
thresholds
23
BIG TREND #3:
Predictive Accounting Trends
(1) Traditional budgeting
--> EPM-based budgeting
--> Rolling financial forecasts
(2) Customer Lifetime Value (CLV)
(for business-to-consumer, B2C)
24
BIG TREND #3:
-> EPM-base budgeting
-> Rolling financial forecasts
25
Why is the budgeting process broken?
The budget is typically a fiscal exercise by the
accountants that is:
-- disconnected from the executive team’s strategy.
-- not based on future driver volumes.
26
Spreadsheet Budgeting – It is Incremental !!
a
1
2
3
4
5
6
7
8
b
c
Current Year Budget Year
Wages
$ 400,000.00 Formula = Column B * 1.05
Supplies $ 50,000.00
Rent
$ 20,000.00 Copy down
Computer $ 40,000.00
Travel
$ 30,000.00
Phone
$ 20,000.00
Total
$ 560,000.00
Sheet 1
27
Match the Budget Method to its Category
Demanddriven
Integrated
Budget
(Rolling
Financial
Forecasts)
Projectdriven
28
Recurring Expenses // Future Volume & Mix
inputs
Resources
Process Costs
Output &
Outcome Costs
Resource
expenses can
be calculated
with
“backwards
ABC/M”
Customers and
Service-recipients
Start Here.
29
Accounting Treatments and Behavior of Capacity (expenses)
Predictive Accounting
Descriptive
Predictive
Past
Now
Future
sunk
unused
unused
Traceable to
products,
channels,
customers,
sustaining
used
fixed
(unavoidable)
variable
(adjustable
capacity;
avoidable)
30
Enterprise Risk Management (ERM) Assessment Grid
High
2
7
8
Severity of impact on
event occurrence and
achievement
of objectives
10
6
3
4
5
9
1
Budget
Low
Low
High
Do not budget
probability of an event occurring
31
Match the Budget Method to its Category
Budget method
Recurring
Demanddriven
expenses
volume & mix
of drivers
production
and
ABP/B
Integrated
Budget
(rolling
financial
forecasts)
Projectdriven
Non-recurring
expenses
strategy
map and
risk grid
Strategic & risk
mitigation projects
32
Linking Strategy and Risk to the Budget
Strategy Modeling
Strategy methods
(e.g., SWOT)
(by executives)
Define and adjust
strategy and risk, and
create strategy map
Strategic
objectives
Managerial
Accounting
(e.g., Activity-based
Costing)
knowledge
Identify and
manage strategic
initiatives
Driver consumption rates
KPI dashboard
feedback
Forecast drivers
(e.g. sales) ;
develop production
plan
Driver volumes
and mix
Traditional and
driver-based
budgeting (e.g. PBB)
e.g., hours,
Pounds,
# employees
Approve strategy
risk and capital
budget
= financial information (e.g. $)
Operational Modeling
(by employee teams)
priority projects and processes
Create balanced
scorecard
KPI
targets
Financial Modeling
(2) capital budget
(3) strategy budget
(4) risk budget
(1) Operational
budget
Changes and
responses
Capacity
resource plan
Derived budget
(and rolling
financial forecasts)
Manage and
improve core
processes
Results and
outcomes
Revise
plan
No
OK
Acceptable?
Yes
33
Marginal / Incremental Expense Analysis
Most savvy managers know that some expenses are
fixed short-term and variable long term.
They want to know the financial impact of a decision.
Decision examples:
• Adding / dropping products, channels, or customers
• Make versus buy
• Outsourcing or not
• Capital investment justification
• Budgeting / rolling financial forecasts
35
BIG TREND #3:
-> EPM-base budgeting
-> Rolling financial forecasts
36
Customer Value Management
Who is more important to pursue with the scarce
resources of our marketing spend budget?
Our most profitable customers?
Or our most valuable customers?
What is the difference?
The “customer lifetime value” is intended to
answer this question.
37
Imagine you are pharmaceutical supplier.
Which Customer is more Important?
Dentist A
Dentist B
Sales = $750,000
Sales = $375,000
profits = $100,000
profits = $40,000
Age 61
Age 25
Which is more profitable?
Which is more valuable?
38
BIG TREND #4 … Analytics:
Work backwards with the end in mind.
Regardless how Business Analytics should be defined,
there should be no argument as to its purpose:
Better decisions. Better actions.
BA’s goal should be to gain insights and solve problems,
to make better and quicker decisions with more accurate
and fact-based data, and to take actions.
39
Improving Performance by Unifying EPM and BA
-- BI Reporting consumes stored information.
-- Analytics produces new information.
-- Enterprise Performance Management deploys Analytics.
It is not about monitoring the dials on a dashboard,
but rather moving the dials.
40
Business Analytics automates the “shortcuts”
Queries simply answer questions. Business analytics
creates questions.
Further, analytics then stimulate more questions, more
complex questions, and more interesting questions.
Most importantly, business analytics also has the
power to answer the questions.
41
BIG TREND #5:
Debates about Costing Methods
Time-Driven ABC (TDABC) is an alternative method
for activity drivers … and applies under conditions:
• highly repetitive activities,
• less interest in indirect expenses,
• concerns about unused capacity costs.
Lean accounting can co-exist with one or more other
costing methods. Be wary of its anti-ABC zealots.
Resource consumption accounting (RCA) is justified
“if the higher climb is worth a better view.”
42
BIG TREND #6
Managing IT as a business
Managing IT as a business is now an imperative. No longer can IT
be seen as a technology supplier – it must be seen to be adding
value to the organization and providing strategic capability. IT
performance management enables IT to become service oriented,
aligning itself with the organization to provide internal customerdriven solutions to problems.
But … it is difficult to maximize returns from IT when the products
and services appear to be free to internal customers.
43
IT ABC Cost Assignment Network
Resources
People
(Salary, Fringe
Benefits)
Hardware
Software
IT charge into
other ABC/M
models
Network
Work Activities
Resources
Support
Activities
Activities
equipment
Costs (2)
Final
Cost
Objects
“Costs Measure the Effects”
(1) Demands On Work
R&D
Develop
New
systems
(future
value)
In later
years
Replace
IT cost
objects
Current
systems /
facilities
(current
value)
Support
Final
cost objects
Operate
Business cost objects
IT Services,
Products
Business
Sustaining
Customers
45
AGENDA
stages of maturity
Top Trends:
1.
2.
3.
4.
5.
6.
7.
Integration of mgmt. accounting with EPM / CPM.
Imbedding analytics into mgmt. accounting and EPM
 #7 Why is the adoption rate so slow?
46
BIG TREND #7 – the need for “change management
Why is the adoption rate so slow?
What are the barrier categories?
(1) Technical barriers include IT related issues.
47
Remove the wall between IT and Users
Business’ view
of IT
IT’s view of
Business
- competitor
- solve but don’t operate
- IT resource intensive
- risky; low concern for
governance and control
- a mystery of what they do
- obstructionists
- controlling
- uncooperative
- bureaucrats
- less skilled than us
- just a service center
BA provides IT the opportunity to drive value, but
IT will need to be more tolerant and flexible.
48
Why is the adoption rate so slow?
What are the barrier categories?
(1) Technical barriers include IT related issues.
(2) Perception barriers are excess complexity and
affordability.
(3) Design deficiencies include poor measurements or
their calculations and weak models and assumptions.
(4) Organizational behavior barriers involve resistance to
change, culture, and leadership.
49
Overcoming Resistance to Change
To create change, you need to create the need for change! How?
Change only occurs and continues only when:
the product of 3 factors
is greater than R
(D x V x F) > R
Dissatisfaction
with how
things are
esistance to change
Vision of what
First
“better” would look like
practical
steps
50
The Complete Vision of Analytics-based Performance Management
Make the RPM of the PM and BA gears spin …
… better, faster, cheaper … and smarter and safer
51
Podcasts of the 7 Top Trends
The Institute of Management Accountants (IMA) at
www.imanet.org recorded brief 3 minute podcasts of
me introducing these 7 top trends.
Here is the overview:
http://www.youtube.com/watch?v=gRyW2_Ay2Cw&hq_e=el&hq_m=1655061&hq_l=
12&hq_v=bd6554f22c
Here is the first one on trend #1:
http://www.youtube.com/watch?v=lCj4-gvH1WQ&feature=youtu.be
52
From Theory to Practice
Your success depends
on how well and how fast
the right information and
intelligence gets to the
right people.
53
Thank You
Gary Cokins, CPIM
Cary, North Carolina USA
www.garycokins.com
919 720 2718
[email protected]
54

Top Trends in Management Accounting and Enterprise Performance

Transcription

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