|
On Target Aug - Sept 2007
 The Quest for “Productivity”
Productivity was the “buzz” word of the last century and still holds significant currency today.
Since before FW Taylor, “Productivity” has been seen one of the rewards of the scientific approach to business.
“Productivity” can be viewed in the micro or the macro sense. Taylor's work, with the meticulous dissection of the production process into its time elements and review of the each of those elements, was at the micro end of “Productivity” analysis. At the macro end, businesses have relocated from one country to another to achieve supposed “productivity” gains through savings in wages costs, not necessarily through a directly comparative improvement in efficiency of use but in recruitment from a cheaper source (the China game). Somewhere between the intense approach of Taylor and the almost “Cavalier” approach of switching national resource pools lies a valid mid-course of product management and costing.
Assessing the worth of products can be achieved without the meticulous observations of Taylor and does not extend to relocating factories in the hope of finding sufficiently skilled and willing labour with the right attitude.
Product costing can be as accurate or rough-shod as the user desires, it all depends on the expectations and use of the resulting values. Product costing, when combined with expectations of product sales and product pricing generates a powerful factor, “Product Margin”. Product margin is a “productivity” measure which quantifies the benefit of how much and how worthwhile a particular product is to both produce and supply.
Taylor's and the cavalier approach focus on the benefits of input management, controlling the source and measurement of supply, with view to generating improvement.
Just as a Product is what comes out of the process, Product Analysis (Margin included) is the approach which is devoted not only to the “inputs” but also embraces the “output” measure. Product output management qualifies any potential input benefits by assessing the overall commercial benefit of the product being produced, almost regardless of how comparatively “efficiently” it is produced. Little “productive benefit” is likely to result from the best method of production of any product or service which is not profitable or in demand.
These days' computers and economically available software can be used to develop sophisticated production cycles and relationships used in the production of saleable products. The product recipe, be it a cake, chemical compound, electronic sub-assembly or engineering assembly, represents part of the intellectual property inherent in a product. By managing this “recipe” the manufacturer can review and influence not only the costs of manufacture but also compare actual to theoretical manufacture and variances generated from the production process.
The search for “Productivity” can be an elusive pursuit. Dealing with it objectively is the only way. When emotions can come to play (selling the sacred cow) when “favoured” products are pursued for reasons of ego, hidden agendas or unachievable expectation, non-productive influences corrupt the real and objective results. One major benefit of scientific and objective measurement tools is they have no emotion, they do not play favourites and are thus consistent between products, opportunities and across time frames.
A software application which predicts product costs and margins through managing product batch recipes / formulas is 'Makemaster', developed by ICMA Vice-President Derek Maullin who was supported by an ICMA competitive applied research grant; and with the assistance of a commercial bakery who continue to use it as an indispensable tool for their management processes and pricing decisions.
Makemaster maintains accurate and updatable records of products, their ingredient costs, batch production sizes, process losses and selling prices to model each product cost, selling price and margin or intermediate products cost. Recognising the realities of the manufacturing cycle, Makemaster accommodates the volume production of intermediate products which are used as “ingredients” in the production of final products and allows for those final products to be packaged into separate media for different market segments. Working in reverse, the final products dependent on any intermediate product can be planned and used to determine the size of batch needed to satisfy their combined production need, producing significant efficiencies of scale in production of the intermediate product.
Makemaster also allows for the final products to be reverse engineered and analysed quantifying the required purchased ingredients. This analysis can be compared to actual ingredients used and variances of both price and usage quantified.
Makemaster is designed to work with a sister product “PoSMaster”, installed on Point of Sale terminals, which is used to accurately trap sales values and volumes. Product prices can be instantaneously updated to the PoS system and sales data downloaded to Makemaster without any user additional input of manipulation.
The benefits of this tandem approach to business data management will result in significant improvements in materials and labour performance and thereby generating that elusive “productivity” which every manufacturer needs to continue to exist in a ever competitive world. Management accountants in manufacturing and retail would find these products particularly useful in providing decision oriented information.
Executive Spotlight
 Juan Rincon CMA
Financial Analyst
BP Australia
Juan is a Solicitor by trade, and recently obtained his MBA from Monash University. Juan joined BP Australia in September 2005. His experience encompasses more than ten years in corporate finance and financial modeling in South America and the USA where he held positions as Head financial consultant for Marketing Studio, Marketing Manager for Avillas bank, and Region Manager in the Corporate banking division of BSCH, Banco Santander. The more challenging and rewarding role faced by Juan is to be the father of two boys and an adorable daughter.
What are your core responsibilities as a risk analyst?My core responsibility as a risk analyst encompasses the financial evaluation of BP' clients, develop industry analysis and building financial models.
Initially my responsibilities were to built and apply financial models for risk evaluation of as part of the Sarbanes Oxley implementation, in doing so we did a lot of research about evaluation models and came up with a set of models that capture better the specificities of our business and have some predictive value. In the market you will find some very reputable ones such as the Z-score or Lincoln but we are in need of a model that allows us to play with the specific variables of our business, that why we develop some in house models.
In a further step we incorporated the industry analysis into the models via sensitivity scenarios
Our core responsibilities today is keeping the models updated with the new realities in the market and provide sensible analysis of the information available and provide recommendations about how to mitigate the risks.
What are the reporting challenges you face dealing with different risk models/evaluations?
Capture complex realities within the boundaries of just figures in always a challenge, but more difficult is to persuade about the accuracy of the results and the predictions from those figure. It takes a great deal of thinking to prepare a report it is like planning a strategy. Usually the audience of those reports does not have a strong financial background that coupled with different levels of risk appetites result in a very skeptical and difficult audience.
In this regard the way the findings are reported is as important as the very findings. What we do is to put some time in analyzing the business from the point of view of the people whom the report is address to and based on this common ground we build premise by premise, creating trust and building confidence about the grounds of our analysis and the methodology we have used. Therefore when we reach the conclusions and recommendations no one get surprised.
What message you like to give aspiring management accountants in the field risk management?
Reality is extremely complex, the variables involved in each situation vary dramatically from one situation to another, in some regard are unique, so each situation deserved to be modeled in its own basis and a second aspect we shall not forget is that we are dealing with decisions that affect human beings, each stakeholder has his or her own appraisal
My advise will be to open your mind to fully understand the case, listen the people involved in the case, the more point of views you can collect the better your analysis will be.
Then two recommendations are in order: first, to be vary careful in selecting the sources of your data, always use more source than one and maintain a healthy “trust but verify” attitude, discrepancies and variances have been proven a better source of information that uncontested data. Second, do no trust “one fits all” risk models, even if they are yours. As a risk analyst must be prepared to think outside the square, do not fall in love with existing models, because worked accurately in the past does not means that will be perfect for another purpose do not reheat answers. Each situation deserves a comprehensive analysis; therefore a good analysis involves the creativity of being fit for this particular situation.
Get Involved
PR Subcommittee Member
ICMA is looking to ramp up its PR activity and to take on a motivated and imaginative PR subcommittee member. The subcommittee member will report in to the ICMA Vice President, Derek Maullin, who heads the PR committee and is responsible for promoting and defending the ICMA brand in all media - corporate, broadcast and online. We Are looking for someone to run the press office, with an eye for a good story, an angle and with B2C / B2B experience. Of course, strong knowledge of and a "passion" for the goals of the management accounting profession. The subcommittee member will be working closely with country specific branches and recognized providers. This is a chance to be pivotal in building our already established profile in to something huge.
Main role for the country specific subcommittee member:
Liaising with media and maintaining relationships
Developing media strategies
Preparation of press releases
Developing story ideas and written material for both internal and media use
Assist with corporate promotions, awareness campaigns and special events
Subcommittee member required for the following countries:
- Australia - India
- Lebanon - Philippines
- UAE
Register you interest by emailing a brief write-up about your PR skills/connections and how you would best represent ICMA in your country. Email pr-sc@cmawebline.org
Technology Subcommittee Member
ICMA has initiated a Technology subcommittee which will focus on the implementation of advanced systems to improve business management processes. This subcommittee will be headed by Derek Maullin and Hans Ferdinands. The subcommittee will perform a continuous evaluation of business systems like ERP, MRP, etc, at the higher end of the business size but also look into the needs addressing SME (which is 70% of the commercial economy of most nations).
SME needs are typically shaped by a (say) MYOB/Quicken or one of the other 9,999 accounting application packages, most operated with an under developed appreciation of what business reporting is all about or how it can really help the business management cycle.
Topics of continuous evaluation would include but not limited to:
Business Planning
Product Pricing and Costing
Advance Business Forecasting
Carbon Accounting
ICMA members who have an involvement in promoting, implementing and / or maintaining such systems are welcome to become involved in this subcommittee. Members are required to email their interest to tech-sc@cmawebline.org detailing their interest/exposure to such systems and include suggestions to which types of software applications they think should be evaluated.
Bookshelf
Those of us who are parents would understand that we sometimes need to remind our children “you can't be good at everything, but keep trying and practice hard if you want to succeed”. Some may have drawn on the work of Howard Gardner, the Harvard educational psychologist who wrote about multiple intelligences (Frames of Mind, Basic Books, 1983). Charles Handy (The empty raincoat: making sense of the future, Hutchinson, 1994) later suggested that there are at least nine different forms of intelligence: factual, analytical, linguistic, spatial, musical, practical, physical, intuitive and interpersonal.
Howard Gardner has now written a book on the ways of thinking that we need to develop if we are to respond constructively to the changes driving our future. Five minds for the Future (Harvard Business School Press) provides an outline of five cognitive abilities or 'virtues': 'The Disciplined Mind' (the mastery of a professional practice), 'The Synthesizing Mind' (the ability to synthesize ideas from a variety of disciplines into a coherent whole), 'The Creating Mind' (the capacity to uncover new problems, questions and unexpected answers), 'The Respectful Mind' (seeking to understand and work with differences among human beings), and 'The Ethical Mind' (which takes us 'beyond self-interest).
While Gardner's book is directed primarily at educators wanting to equip tomorrow's professionals and contains mostly anecdotal evidence mixed with normative arguments ('shoulds and oughts'), it should provide thought provoking reading to other readers.
Bill Richardson
What’s On?
Aug 11 - Oct 27, 2007
Manila, Philippines
CMA Program on Advanced Management Accounting and Advanced Strategic Management Accounting conducted by CMA Philippines
Aug 11 - Oct 27, 2007
Tripoli, Lebanon
CMA Program on Advanced Management Accounting and Advanced Strategic Management Accounting conducted by CMA Lebanon
September 2-9, 2007, Mumbai, India
CMA Symposium on Advanced Management Accounting and Advanced Strategic Management Accounting conducted by CMA India
9th - 16th December,2007
Delhi, India
CMA Symposium on Advanced Management Accounting and Advanced Strategic Management Accounting conducted by CMA India
10th - 17th February,2008
Mumbai
CMA Symposium on Advanced Management Accounting and Advanced Strategic Management Accounting conducted by CMA India
Feb, 2008
Venue: TBA, UK
CMA Program on Advanced Management Accounting conducted by CMA Europe
Feb, 2008
Venue: TBA, UK
CMA Program on Advanced Strategic Management Accounting conducted by CMA Europe
Coming in 2008
China
Dubai
|
