Blog

In my last blog we saw that the law of non-contradiction makes it impossible to deny the existence of truth, and, absolute truth in particular. We also saw that this insight is important to management accounting. It finds application in management accounting because operational truths (how real resources are actually used) must form the basis for costing information used in decision making. Where did this epiphany lead us? For the most part, not very far from where we started. It is more like a massive anchor has been driven into solid rock right where we were. Thus we have a starting point to build on. At this point we are still left with the question: how do I get to a cost number I can trust?/p>

This blog is the third post in a series on management accounting information for effective decision support. The first blog highlighted why financial accounting information simply cannot cut it when it comes to effective decision support. The second blog pointed out the problems created by method-centric approaches to costing. By method-centric I mean ways of parsing general ledger information into more supposedly relevant buckets of information for decision support. Fortunately these methods often contradicted each other as to the appropriate management action in a particular scenario. I say fortunately because the contradictions forced us to keep looking. And as I alluded to in the last post, help came from an unexpected place—philosophy.

Investors and shareholders that read in the introduction to this blog post that 68% of managers acknowledge their management accounting information is deficient will very likely respond with: Whaaaaaaat?  To which the management accountants among us would say: Exactly!  And, quite frankly, the situation is worse than what it seems at first.  In the 2003 E&Y study 83% of managers responded that they…

The Frustration and Divide Between the Shop Floor and Finance

There is a far more intractable problem with the information finance produces: it leads to incorrect (i.e., suboptimal) operational decisions. Even if the information finance provides was available in real-time to decision makers on the shop floor, the disconnect…

In this series we have looked at a principle-based approach that takes the uncertainty out of decisions on how to best do managerial costing, which also eliminates the smoke and mirrors of the various managerial costing methods (e.g., standard costing, activity-based costing). Causality (the relationship between a cause and its effect) has been established as the principle that governs managerial cost modeling. In this post we take a closer look at the second principle—analogy, which governs how managerial cost information should be used.