I have long maintained the view that cost accounting is art and science. You can master the mechanics and science for a given industry or domain but the art is a debatable matter. Part of every cost accounting is the function of budgeting and it usually falls under two spectrum one is accounting for every cost possible and fix the costs and spend strictly around the allocated costs, but in real world we know this is sometimes not accurately possible so we operate within margins, this is my favorite method, the other is what is practiced in the industry most of the times that is to take estimated costs of the items and take an educated guess about things that you cannot account for or allocate x amount of resources add all of it and spend what you can afford as operations pan out. The first approach when integrating technology as a strategic component becomes inflexible because in three or five year cycles corresponding maintenance and service cycles do not match with your cost accounting schedules. Also new initiatives and new projects cannot be thought of to react to market conditions. The companies that enforce the first method strictly are like elephants strapped under the weight of inflexibility and unable to innovate because of the fiscal straps from the CFO and the CFO wonders why IT solutions are not up to date. The other spectrum is where top dog has the final say what can be spend and what cannot be spend which also can stall innovation or it’s a hit and miss game.
So Is there a middle approach that can marry cost accounting effectively with IT integration, alignment and new project initiatives. The idea is to avoid shooting from the hip or avoid extreme control. My proposition is to develop the business analysis function in such detailed way that an organization can have a matrix system of decision making where all the details and outputs of a business analysis research plan can be plugged in and decision for “yay” or “nay”. The CFO and the CIO are strategic members of this team along with the business analysts where infrastructure, cause/cost for project, market needs, market analysis, expected outcomes, expected returns and requirements strength are all producing outputs that determine significance for the pre-determined ratio of acceptability. This ratio of acceptability is something the senior management decides in terms of overall profitability and direction they want the organization to move towards. I personally think this can be game changer but the catch is development of such an business analysis matrix that aligns with cost accounting takes time to develop along with the thorough process of a fine tuned business analysis machinery where we have expert BA’s collecting the requirements keeping the cost matrix system in mind. I would even go to the extreme of having a team of analysts that work on every strategic plan or project initiative the organization wants to embark upon.
Thoughts for today.