Rethinking Management Accounting

“Ignore the cost accountants at your peril, because they won’t ignore you”

Session objectives

Experience the effects financial and cost accounting have on the way we run (IT) projects or develop products. Discover three alternative techniques that can help your CFO and cost controllers understand and support agile and lean practices.

Intended audience and prerequisites

No previous knowledge of accounting or financial techniques required. Some experience with the financial and cost aspects of projects and teams is a bonus.

Description

Why do we need to estimate, track and justify costs? Some reasons are

  • To calculate prices
  • To know if a project or product is (still) profitable
  • To decide where to invest our money
  • To verify if the investment brought any benefits
  • To justify the content of a proposal

But “classic” financial cost accounting and budgeting has some assumptions and practices that run counter to agile and lean improvement

  • We assume that we can break down a system like a company (and its customers and suppliers) into independent elements and that the whole is equal to the sum of its elements
  • We assume we can link each cost with the focus of our decomposition, be it products or activities. The difficulty lies in costs that are shared across products or activities.
  • We assume that more precision, more detail will give more correct results. Precise, detailed cost tracking can have a large cost
  • We assume that the price of a product is a function of its cost + some markup
  • We assume that we can predict what we’ll do and what resources we’ll need a long time in the future, so that we can fix the company’s budget at most once a year. Once the budget is set in stone everybody’s rewarded when they stick to the budget, thereby proving that the budget (procedure) was correct.

Some alternatives

This session introduces three alternative/complementary techniques:

  • Throughput Accounting
  • Lean Accounting
  • Beyond Budgeting

Session materials

Session Presentation in French by Pierre Hervouet and Pascal Van Cauwenberghe

Useful references

History