Thank you for this contribution. I'm not sure I agree with you on some aspects of your assessment of characterizing and applying cost, BUT I think you make the very valuable point that Revenue Drivers merit a great deal of attention in business and profitability analytics than they are often given!
Thank you for your feedback. You may find some interest in the comment I left on RLawson discussion.
I agree with Larry White's comment that "Revenue Drivers merit a great deal of attention". Increasingly CFOs and accountants must transition from their traditional role of financial reporting to financial performance analysis. This requires understanding the forces, factors, and inputs that cause (.i.e., "drivers") of both costs and of revenues. ... Gary ... Gary Cokins
Design of the appropriate costing system for an organization can be a difficult decision, and the various claims of vendors can sometimes make the decision more difficult. IMA has published a framework, Conceptual Framework for Managerial Costing, that is methodology agnostic, which identifies the key attributes in a managerial costing system. A companion publication, Developing an Effective Managerial Costing Model, aims to help provide guidance, especially to SME, on implementing the framework.
Your note that, in some industries, “the cost system is essential for the realization of profit” is well taken. Profitability analytics involves the intersection of three bodies of knowledge – cost management, revenue management, and investment management. It is only by considering all three that managers can be sure of making decisions that increase the value of their organizations.
PACE has just completed a report, The Profitability Analytics Framework, published by the IMA that provides a holistic framework for managerial decision-making.
“IMA has published a framework, Conceptual Framework for managerial Costing, that is methodology agnostic.”
The conceptual framework published by the IMA does not recommend any particular methodology for the cost calculation. But it is based on epistemological and practical choices which are fraught with consequences.
The epistemological choice assumed is that of "Correspondence Truth", a criterion of truth widely used in experimental sciences, known as hard sciences, but whose transposition in the field of social sciences is not obvious. In management we work on representations of the world, in order to transform it, we postulate laws of causality at a level of aggregation such that multiple secondary causes escape us. The formalization of these laws is necessary for action, but they cannot be confused with reality, a reality that regularly contradicts them.
On a practical level, the choice to deal with "managerial costing" by assuming that this area can be considered independently within management accounting, is a point of view difficult to accept.
These choices may explain why the conceptual framework ignores the organization within which the cost system will be located. However, the cost system inevitably produces a representation of the organization, a representation that resonates or conflicts with other representations (organization chart, logistics flows, production processes, etc.). Are the causal laws defined only at the resource level or can they be defined simultaneously at the level of the units of analysis representing the organization? If the answer is yes, how do we define these units of analysis This concept is absent from the conceptual framework, yet most concepts (homogeneity, traceability, capacity, work, attribution) find their meaning within the units of analysis much more than at the resources level. It seems to me that this concept of unit of analysis would improve and facilitate the use of the conceptual framework.
@pierre.mevellec interesting point of view and discussion: - "This concept is absent from the conceptual framework, yet most concepts (homogeneity, traceability, capacity, work, attribution) find their meaning within the units of analysis much more than at the resources level. It seems to me that this concept of unit of analysis would improve and facilitate the use of the conceptual framework".
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