Improved Cooperation among Financing Teams Contributes to Reduced Process Expenses: Monthly Key Performance Indicator
Casual chat about process improvement in organizations often leads folks to think of fancy technology like automation or generative AI. But here's a surprising fact: your organization's most valuable asset for process improvement might just be your employees!
Let me tell you about management accounting, which is a prime example of this idea. Though it sounds complex, it's all about understanding the key drivers of a business's expenses and income. And guess what? This can only happen when employees from different departments are on the same page and working together.
Now, you might be wondering about the costs of planning and management accounting. Well, it's the total price tag for planning, budgeting, forecasting; cost accounting and control; cost management; and evaluating financial performance. On average, organizations spend $1.08 for every $1,000 of revenue for this work, with the 25th percentile spending half of that and the 75th percentile spending more than triple that amount!
When benchmarking your costs, keep in mind that it depends on your industry and business complexity. For instance, food and beverage manufacturers usually have multiple business units and product lines, so their costs tend to be higher than those in the cross-industry median.
Now, let's talk about collaboration as a crucial factor in effective cost allocation. In my experience, cost allocation often consumes a lot of our time and effort. But by establishing a solid, collaborative cost management system, we can lower costs for these activities. Collaboration helps ensure that management accounting aligns with the rest of the business, making it easier for everyone to understand and support our decisions.
On the other hand, if your collaboration game is weak, you're likely to end up in a cycle of rework, as stakeholders may not agree with your cost allocation methods. Collaborating at the outset saves time and effort in the long run.
If you want to boost collaboration in your organization, it's essential to establish it as a core value. This means making collaboration a key part of your company's mission statement, leading by example, and rewarding collaboration in performance reviews. Setting aside dedicated time and space for collaboration is also a great way to get the ball rolling!
By focusing on collaboration, you can bring down costs in more areas than just management accounting. Planning, budgeting, and forecasting will also benefit from a more team-oriented approach. Given the importance of labor costs in any process, getting people to work together effectively is a smart move for sustainable cost reduction.
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Sources:- APQC (2019) Cost of Planning and Management Accounting- Hammond, S. (2016) Collaborative Cost Management: Achieving Operational Excellence through Strategic Collaboration- Armstrong, T. (2018) Engaging Finance in Collaborative Cost Management- Huggins, J. (2019) How Collaboration Drives Cost Reductions and Business Growth- Wagemann, K. (2017) Boost Collaboration and Improve Financial Performance by Focusing on People and Culture
- Management accounting, a crucial aspect in business, relies on employees from different departments working together to understand key drivers of expenses and income.
- Organizations spend an average of $1.08 for every $1,000 of revenue on planning, budgeting, forecasting, cost accounting, cost management, and evaluating financial performance.
- To benchmark costs effectively, consider industry and business complexity; for example, food and beverage manufacturers often have higher costs due to multiple business units and product lines.
- Collaboration is key for effective cost allocation, reducing costs for these activities and ensuring management accounting aligns with the rest of the business.
- By setting collaboration as a core value, companies can lower costs in more areas than just management accounting, including planning, budgeting, and forecasting.
- Focusing on collaboration can help reduce labor costs in any process, making it a smart move for sustainable cost reduction in organizations.
