Costs: Accounting vs Analysis

Posted 25 April by Barb Easter in Accounting, Budget, Cash Flow, Videos

Accountants should look toward using data to analyze costs rather than simply accounting for them. Dynamic management and forecasting of costs rather than static reporting is a value added service to business clients.

Transcription:

Good morning everybody. Barb from Dryrun here, we are cashflow forecasting software out of Edmonton, Alberta, Canada.

Today I’d like to talk a little bit about costs.

I just saw the internet either roll their eyes or like lean in carefully to see what I was going to say.

As a greater topic here, I’d like to talk about the role of the accountant in tracking and controlling costs. So the greater role, not costs for costs sake.

So full disclosure, my father-in-law was a cost accountant and whenever we talked about just general issues related to his line of work he would say, he would have this way of just saying the devil is in the details, it’s always about the costs.

And of course because I like to poke the bear, I would say things like, you know, you could always make more money. You know you could always like invest in your sales process which is my orientation and background.

So we butted heads from time to time.

Let’s just take a pass through some of this information because I think that the point that I’m driving at here is the difference between cost accounting and cost analysis.

It is without question that the cost (and I’m cribbing from a sheet here because I wanted to make a point), it goes without saying it’s completely understood that the costing information system plays an important role in every organization.

It’s an important factor in the decision making process but costs themselves are secondary to other types of controls.

When we are talking about cost controls and this is where my father-in-law kind of entered. He was into costs for costs themselves.

The problem is that costs are evidence of good control over your operations, your processes and your activity sectors.

Your production costs, your quality costs, all those are evidence of processes that are running effectively.

The detailed accounting of costs, generating reports, using static data, only takes cost control through the first part of it’s effectiveness.

OK and this is the difference between cost accounting and cost analysis as I see it.

If you’re in cost accounting you’re responsible for the accounting of work that was performed relatively long ago, you need to reconcile and ensure that recorded data is accurate.

This frustrates a lot of people in the project management role.

So when we are talking about capitals planning or cost analysis, those cost analysts should be taking the aggregated data and trust me when I say at enterprise level I know what a pain it is to collect and aggregate and process that data into a formate that is useful.

However, in terms of analysis those analysts should be creating scenarios rather than reconciling costs.

I’m here to say that simple tools that are actually easier for larger teams project managers and subcontractors to collaborate on for forecasting are actually required to drive business growth.

Finally, accountants can really step into this role. We are talking about the role of the analysis, not just the accounting role. Not that the accounting isn’t significant.

Reporting has its place however when we are talking about driving business growth, we are talking about compressed margins due to clients that want better pricing, due to aggressive competition sometimes those costs instead of just being accounted for need to be analyzed.

The accountant or the accountant who has a managerial or strategic mindset so more in line with the CFO role stands in a really good place to stop any quiet price increases on costs and has the chance to redirect the conversation so that it drives growth.

For example to put services out to bid again.

So the accountant has what I see as a largely untapped skillset when it comes to the analysis portion of costing.

With that I will leave you hopefully with a…I guess a slightly deeper understanding of what businesses require.

So again, maybe ask yourself on your next client visit whether you are accounting or analyzing the accounts which is more likely to drive business growth and health.

Anyways, thanks for listening.

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