By GARY COKINS, CPIM;

JOSEPH CHERIAN; AND

PAMELA SCHWER, CMA

26 / STRATEGIC FINANCE / October 2015

DON’T BE
STUCK IN
THE LAST
CENTURY!
It’s time for
management
accountants to
work with decision
makers and give
them the information
they need to do
their jobs.
October 2015 / STRATEGIC FINANCE / 27
WHAT’S GOING ON? It’s the 21st Century,
but many management accountants continue to use
accounting practices established well before the middle of
the 20th Century. Resource expenses are severely misallo-
cated when calculating product costs, violating costing’s
causality principle (the need for cause-and-effect insights).
Little visibility is provided as to what is driving costs. Rarely
are channel and cost-to-serve customer costs calculated,
which today are arguably more important than the product
and standard service-line costs reported above the product
gross profit margin line. Antiquated bottom-up spreadsheet
consolidations of volume-insensitive projected cost center
account-level expenses are applied for budgets rather than
top-down driver-based budgets leveraging models. These
are just a few of the deficiencies.
The result is that all levels of decision makers are denied
the mission-critical information they need to manage
organizations, make good decisions, and improve perform-
ance. Yet management accountants are supposedly expand-
ing their role and supporting the executive team as strategic
advisors. Is the hype actually just a fantasy created by man-
agement accountants?
To answer this question, we’ll examine six areas in
which decision makers are concerned about the work of
management accountants. We’ll share information from
users who are frustrated and disillusioned by the inability
of accountants to provide them the insights and foresight to
improve their organizations. And we’ll describe some rela-
tively obvious solutions to resolve the deficiencies. This MANAGER
information is based on our years of experience in manage- 27 YEARS OF EXPERIENCE
ment accounting and finance and on interviews we con- $60 MILLION IN REVENUE
ducted with line managers from all sizes of companies in a
variety of industries. Although it’s going to seem like the “I don’t like [our] accounting formats.
purpose of this article is just to criticize management
accountants, our intent is to motivate and inspire them to [There’s] no consensus on what’s in the cost of
truly be the strategic advisors they are supposed to be.
The issues in this article don’t involve financial account-
goods sold. Nobody is sure what should go in
ing. They involve management accounting. Financial there. Where’s all the rest of the value chain in
accounting is used for regulatory compliance and following
rules to satisfy needs of the investment community. Its pur-
that number? [I] hate the roll-up of all these
pose is for valuation, and external audits assure the rules cost allocations. I don’t know what goes into
are followed. In contrast, the purpose of management
accounting (in addition to keeping the books and perform-
them and [so] I can’t manage them.”
ing a variety of financial transactions) is for internally gen-
erating questions to stimulate needed conversations and for
providing fact-based evidence to support decisions. Man-
agement accounting is for creating economic value. Finan-
cial accounting looks backward and reports. Management
accounting is meant to understand the recent past and to
look forward, just as every business must do to survive.

1. DO MANAGEMENT ACCOUNTANTS KNOW

WHAT THEIR INTERNAL CLIENTS WANT?
Perhaps CFOs don’t sufficiently understand the decision-
making needs of the various departments they serve, such
as marketing, sales, and operations. Today, with increasing
global volatility, faster moves from competitors, and the
Internet-led shift of power from suppliers to customers, a
company’s internal users of management accounting infor-

28 / STRATEGIC FINANCE / October 2015

mation need a much sharper pencil than in the past. For being provided means. This could be an issue of the man-
example, users need to know the return on investment ager being unaware of good accounting practices or of the
(ROI) for a marketing campaign or how profitable a cus- accountant not educating the manager about what each
tomer is, not just a customer’s sales volume. piece of information being provided consists of and how it
The decision maker is the management accountant’s is constructed or calculated.
client and deserves to be treated as such. That sharper pen- In today’s dynamic industries, where costs may not be
cil must address the issues related to the timing of informa- well understood, this can be a source of tension and misun-
tion and the level of detail and accuracy in that derstanding. Here are one manager’s opinions about cost
information—critical factors in management’s ability to allocations in the context of print and digital media: “This is
make good decisions. why [our] media [division] is in trouble. They thought for
A seasoned veteran (23 years of experience and who some wacky reason that electronics [their digital content]
works for a company with $75 million in revenue) said: just manufactured itself and we have no costs; it’s all free…
“[If] I have to discuss with my customers the right way to and it isn’t. A lot of companies [in our industry] abandoned
do their order, shouldn’t accounting treat me the same? If print too soon for digital and then found out it wasn’t so
you wait until the month closes, you easy. You can’t charge the same
can’t do anything. I have to be amount for digital as you do for
proactive and get accounting to give print!”
me the numbers sooner. [They] do Was it the failure of the account-
not understand the business, so ants to provide realistic information
there is a communication problem. using an activity-based costing
We can’t assume they [the account-
ants] know [the business]. But they
FAST FACTS (ABC) approach with appropriate
cost allocations that directly caused
need to ask!” this bad decision, or did manage-
The central problem here is that INTERVIEWEES’ YEARS IN INDUSTRY ment fail to use all the data pro-
the CFO and the decision maker vided to them? Some people could
understand the rhythm of the busi- 2
LESS THAN 20 YEARS argue that the manager should have
ness and the timing of decisions dif- 20 - 30 YEARS challenged the accountant, but the
ferently. In addition to their different 27% 23% manager already has a full plate.
MORE THAN 30 YEARS
frameworks, they don’t know who Managers rely on the accountants to
should reach out to whom: Should reflect reality. At the end of the day,
the accountants assume that there’s 50% accountants need to recognize that
an undisputed way in which all they will take the blame.
businesses operate, or should they
learn to adapt to the nuances of the 2. DO MANAGEMENT
specific business within which they ACCOUNTANTS CARE
work? These nuances revolve prima-
rily around the level of detail, accu-
ANNUAL REVENUES ABOUT GIVING THE RIGHT
racy, and timing of data. Additionally, LESS THAN $10 MILLION
INFORMATION TO
if accounting is a service that has 13% $10
INTERNAL CLIENTS?
L – $90 MILLION
internal clients, perhaps, as this vet- 30% Suggesting that management
eran suggests, it should become 13% $100 – $900 MILLION
accountants don’t care is harsh, but
more client focused, providing 3 MORE THAN $1 BILLION sometimes it seems that they don’t
timely information and at the right 43% care in an appropriate way. Their
level of detail and accuracy. loyalty seems to be more to a disci-
Another manager (27 years, plinary culture or to self-imposed
$60 million in revenue) said, “I don’t codes of consistency, not to what
like [our] accounting formats. the internal client wants and needs.
[There’s] no consensus on what’s in One manager observed, “The para-
the cost of goods sold. Nobody is INDUSTRY REPRESENTATION dox, which continues to puzzle me,
sure what should go in there. is how chief financial officers and
FINANCIAL SERVICES 3%
Where’s all the rest of the value TECHNOLOGY 3%
controllers can be aware that their
chain in that number? [I] hate the EDUCATION 7% management accounting data is
roll-up of all these cost allocations. I RETAIL 10% flawed and misleading yet not take
MULTIMEDIA 17%
don’t know what goes into them and action to do anything about it…Now
SERVICES 17%
[so] I can’t manage them.” MANUFACTURING 43% I’m not referring to the financial
That problem isn’t just about 0 2 4 6 8 10 12 14 accounting data used for external
understanding how to treat man- reporting; that information passes
The research with line managers from all sizes
agers like clients but also about of companies in a variety of industries was strict audits. I’m referring to the
helping both parties understand conducted with a grant from the IMA Research management accounting [data] used
what the accounting information Foundation. internally for analysis and decisions.

October 2015 / STRATEGIC FINANCE / 29

For this data, there is no governmental regulatory agency
enforcing rules, so the CFO can apply any accounting prac-
tice he or she likes.”
The vast amounts of financial information that conform to
disciplinary or self-imposed rules likely are meaningless to
real decision makers. Management accounting information is
meaningful only if it helps management make good decisions.
One manager (27 years, $60 million in revenue) com-
plained that “[Accountants are too] rigid because they want
to be consistent across divisions. But if divisions are differ-
ent, you can’t give them all the same data because they have
different data needs!” Another (30 years, $40 million in rev-
enue) added: “They never make an exception even though
every client is different, and they want to pigeonhole them.”
Who deserves the blame—or shame? Many accountants
know they are misallocating cost calculations that violate
costing’s causality principle. For example, they will allocate
indirect expenses, commonly referred to as overhead, with
cost allocation factors such as the number or amount of
direct labor or machine hours, units produced, sales, or
square feet. None of these factors reflects the consumption
of the work activity costs. Activity cost drivers and their
quantities for each activity more accurately reflect the costs.
This manager (42 years, $80 million in revenue) noted,
“[Here’s a] process issue—if something is in the wrong
account, Accounting just puts it somewhere else, and you
don’t know where it went. But they don’t have the knowl-
edge to know where it goes!” Added another (30 years,
$40 million in revenue), “I need more details about the
budget for my area. I need more detail about each of my
major accounts. I know they have the information but
choose not to share! I think part of this is that they are in
the Dark Ages with respect to how much information
can/should be shared.”
3. DO MANAGEMENT ACCOUNTANTS HIDE
INFORMATION?
Here’s a common failing: “One day the management
accountant realized that the calculations and practices on
which the cost system was based were incorrect. [They] did
not reflect the economic realities of the company. The input
expenses data was correct, but the calculated cost informa-
tion was flawed. A broadly averaged cost allocation factor
for indirect and shared expenses was used with no causal
relationship to the outputs being costed. As a result, the
current and forward-looking information provided to sup-
port the president’s decision making was incorrect. No one
but the management accountant knew this problem
existed. He decided not to inform the president.” Or per-
haps the president does know that such problems exist but
doesn’t communicate with the same language. Without a
common language to express concerns, useful information
wouldn’t be passed forward, so decisions would be based
on partial information or on improperly aggregated infor-
mation. Consequently, such decisions would become sub-
optimal and problematic.
Numerous complaints echoed those of this manager
(42 years, $200 million in revenue): “There was no infor-
mation sharing for months…and then you were still held
30 / STRATEGIC FINANCE / October 2015
responsible for profits. [There were] cost allocations you
couldn’t control, and yet you had to explain [them].” Even
rules of thumb can be hard to use if the information doesn’t
arrive with the proper level of detail and accuracy and in
time. Another manager (23 years, $75 million in revenue)
noted, “I must have real-time data to make real-time deci-
sions; you can always get lots of data, but it’s the timing and
the accuracy [I need] because [then] you can make better
decisions faster…I’ve got a budget that is a percentage of
sales…if I don’t know sales, I don’t know what I can spend.”
Weaknesses in management accounting are real. The
complaints we share here didn’t come from rookie man-
agers (average tenure in the industry reported by the
respondents was well above 20 years) in small and fledgling
companies (average revenue of those reported was well
above $50 million). The answers to the questions raised by
the complaints from managers are simple to suggest. The
solution to a lack of knowledge is more knowledge. Man-
agement accountants should spend time with their internal
customers, explaining the numbers and procedures and
answering any questions! The solution to the concerns
about lack of caring is to realize that the management
accounting information is critical to managing and improv-
ing the business. Just as a car with a great engine can sput-
ter if it’s run on poor fuel, a great company will stall if it’s
run on poor information—poor in timeliness and quality.
The solution to sweeping good information under the
rug is to offer information that some can drill-down into.
This is simple to do today with query software, and it can
be made visible with nimble information systems such as
ABC modeling tools. Numbers don’t exist on paper any-
more, and they aren’t carved in stone. And each bit of infor-
mation can have drill-down and roll-up capabilities,
creating a truly live or reactive document.
This veers into the realm of information design, which is
increasingly becoming an important responsibility of man-
agement accounting. In short, management accountants
should not only generate timely, detailed, and accurate
information, but they should also render it usable and valu-
able to the decision maker. Unfortunately, college curricula
and corporate training focus on the former and not enough
on the latter, so new and seasoned management account-
ants need the right skills and training.
Most colleges prepare their accounting students for jobs
with auditing firms. Hence, the emphasis is on financial
accounting. This is shortsighted because few accountants
succeed in becoming partners in their firm and typically
join organizations as financial managers where they need
more management accounting skills.
4. ARE MANAGEMENT ACCOUNTANTS
CREATORS OF THEIR DYSFUNCTION?
Given that the dysfunction in management accounting is
real, one natural question is whether management account-
ants are to blame. A management consultant commented,
“Why do so many accountants behave so irresponsibly? The
list of answers is long. Some believe the costing accuracy
error is not that big. Some think that extra administrative
effort required to collect and calculate the new information

MANAGER
42 YEARS OF EXPERIENCE
$200 MILLION IN REVENUE
“I need real-time accurate
profitability numbers on a daily
basis...I can’t wait because then I
can’t fix anything. I have done this
a long time. You are only profitable
if you know today how you
did...otherwise you can’t respond
[in a way to become profitable].”
will not offset the benefits of better decision making. What-
ever reasons are cited, accountants’ resistance to change is
based less on ignorance and more on the accountants’ mis-
conceptions about what determines and influences accu-
rate costing.” The consultant understood that accountants
wrongly perceive that employee time sheets are the pri-
mary source of cost accuracy. They are not. Cost accuracy is
determined by properly modeling activity costs with their
drivers.
Part of the problem is also the paternalistic attitudes
some management accountants have toward their internal
customers, treating them as unable to use or understand the
numbers. But that isn’t a constructive attitude or conducive
to good organizational functioning. Many times, the users of
the numbers may understand the numbers as well as the
accountants and because of their “skin in the game” may
care differently about the trade-offs between timeliness
and correctness. Said one manager (42 years, now in a
company with $200 million in revenue): “I need real-time
accurate profitability numbers on a daily basis…I can’t wait
because then I can’t fix anything. I have done this a long
time, [I’ve] built a number of companies…and you are only
profitable if you know today how you did…otherwise, you
can’t respond [in a way to become profitable].”
Another manager (32 years, $4 million in revenue) felt
that the company’s management accountant was too much
about the numbers and not enough about the business:
“[Our CFO] didn’t really understand the business. In other
places [where I’d worked before], the controller was like
the [CEO’s] third arm, his savant, his advisor….The guy here
is only about numbers [and not about advice].”
One manager actually defended the accountants: “I find
that CFOs can have good insight into the business but are so
busy doing [somewhat irrelevant] reports they don’t have
the time.”
5. ARE THE METHODS WRONG?
Despite repeated calls from so many luminaries in the field,
such as Robert S. Kaplan, and despite the clear value of pro-
viding more accurate costing, it’s apparent that organiza-
tions not using activity-based costing (or weak designs of
it) when the conditions for ABC apply are providing inaccu-
rate and misleading information to their users who are per-
forming analyses and making decisions based on that
flawed information. If decision makers don’t trust the infor-
mation or don’t get the right amount of detail in the infor-
mation with the right level of accuracy at the right time,
they probably won’t use the information. Or, even worse,
the decision makers will use the information implicitly,
trusting it to be accurate, and will make decisions that are
correct in terms of the information provided but wrong in
terms of the outcomes generated. As examples, they might
promote sales volume on a product or service that in reality
is unprofitable or discontinue a product, thinking it is
unprofitable when in fact it is very profitable. If this contin-
ues, the accounting profession as a whole loses credibility.
Here are three examples of data not having the right
detail, right accuracy, and/or right timeliness:
Manager 1 (24 years, $11 million in revenue): “I need a
October 2015 / STRATEGIC FINANCE / 31
report that would show profitability by profit center, and I
need a report that would allow me to plug in different sce-
narios for staffing and pricing to see what the optimum
would be. The reports I get right now are so integrated
that…I can’t get the total picture. I am getting a bottom line,
but it isn’t granular enough to show costs against each of
the elements.”
Same manager: “The digital side of business [isn’t] fully
loaded. We overload print products so digital looks good.
The real expenses need to be charged…because digital looks
better than it really is. I’m not a fan of allocations, but this
needs to have some kind of [rationale to the] allocations
because everyone is running around talking about how
profitable digital is, but we don’t have the true expenses
factored in!”
Manager 2 (10 years, $4 million in revenue): “Most diffi-
cult for me is the department allocations…why am I getting
the allocations I am? I want the detail. I am ultimately
responsible for the bottom line that includes those [costs]. I
never get to see the full company data so I could see where
I fit in. Am I pulling my weight? Do I need to pick it up?”
The annual budgeting process is also an issue. When
many management accountants began their careers, creating
reports for management meant giving programming requests
to the data processing department, who, in turn, would say it
would take 400 staff-days to write the code. Today, anyone
with spreadsheet skills can create that same report in
20 minutes, and that includes many modern managers.
So what does management expect to receive from
accountants for budgeting and planning? Many of those we
interviewed are looking for something more than historical
spending. They want trend data for their industry, for the
industries of their suppliers, and for the industries of their
customers. They want market intelligence. They want reli-
MANAGER
10 YEARS OF EXPERIENCE
able forecasting tools. $4 MILLION IN REVENUE
One manager explained that he wants a report that
would allow him to plug in different what-if scenarios for
staffing and pricing to see what the optimum level would be “Most difficult for me is the department
for each “job” or customer.
Some decision makers felt that their accountants lis-
allocations…why am I getting the allocations I am?
tened only during the budget cycle, then just forgot about I want the detail. I am ultimately responsible for the
looking ahead after that, instead focusing on reporting past
results and variances the rest of the year rather than look-
bottom line that includes those [costs]. I never
ing forward. An overriding theme from our interviews is get to see the full company data so I could see
that many of these managers just don’t care about using the
budget as any kind of decision-making tool. They view it as where I fit in. Am I pulling my weight? Do I need
a spending control tool. Others want to create their budget to pick it up?”
numbers almost as a game for obtaining rewards, so they
rarely use them to manage the business. Examples of the
decisions they make are whether to run a specific product
on a specific machine, whether to buy more raw materials
or not, whether to rework, or whether to run overtime
shifts. None of this involves budgets. It’s about real-time,
right-now forecasts of immediate needs, not what someone
might do six months from now. A note to the progressive
accountants: There should be a shift to top-down driver-
based modeling using consumption rates with forecasts to
calculate the required level of headcount and spending.
This is a superior approach to bottom-up consolidations of
cost center spreadsheets.

32 / STRATEGIC FINANCE / October 2015

6. DO EMPHASES IN THE DISCIPLINE NEED
TO CHANGE?
Managers increasingly should be shifting from reacting to
after-the-fact reported outcomes to anticipating the future
with predictive analysis and proactively making adjust-
ments with better decisions. To close the gap, accountants
should change their mind-set from management account-
ing to management economics. They need to classify
resource-expense behavior with changes in demand and
the planning horizon as sunk, fixed, step-fixed, or variable.
This involves incremental and marginal expense analysis.
Their reporting should be more customer-centric, going
beyond just product costing to include order type, channel,
and customer service expenses. To go from being reactive to
proactive, the management accountant will need to com-
municate with all internal customers (such as sales and
manufacturing) to adequately understand what the com-
pany’s customers want and how they behave. Management
accountants can’t become proactive by stumbling around in
the dark with their eyes closed. They have to open their
eyes, focus clearly on the customer, and become familiar
with what the customer needs and wants.
It also seems as if management accountants spend more
time saying “no” than anything else. While there are legiti-
mate areas where a “no” is required, the manager who has
a reasonable request for information shouldn’t be denied
just because “that isn’t how we do things here.” A com-
pany’s customers don’t care about internal issues and are
even insulted when they’re told about a supplier’s internal
troubles—they have businesses to run and don’t have time
to be a confidant or friend to their supplier.
One manager (42 years, $80 million in revenue) noted:
“[Their] tone is disrespectful against managers. Rules are
made up as they go. We have had financial challenges, but
management could have contributed to solutions if we
weren’t viewed as the problem [by accountants].” And
another (27 years, $60 million in revenue) remarked,
“They are too firm on the rules…they have their ways and
won’t change…and I will ask the same question(s) every
month.”
In what other area can a client ask for something over
and over again and not get it? Nevertheless, there’s some
acknowledgment of the need for correctness, as in this
quote from a decision maker (32 years, $4 million in rev-
enue): “What works in this relationship? [They’re] accu-
rate! Even about two-cent items. [He] was a pain in the
neck, but I appreciated it. And he kept us in line and out of
jail.” This balanced the view of another manager (32 years,
$20 million in revenue): “[Our] prior controller was a
‘know-it-all’ who knew nothing! Did not know business
and tried to make decisions about what data to share or
collect. Was let go!” And someone else (27 years, $5 million
in revenue) offered: “In one breath [they] tell me I am
responsible, and then in the next I’m not. Plus, I don’t get
the control [of data or decisions]. Allocations are [of]
Titanic [impact] if business conditions go south.”
MAKING THE RIGHT CHANGES
Finance and accounting professionals won’t evolve from
“bean counters to bean growers” if traditional practices
continue. There are problems of willful blindness, wrong
methods, and interpersonal styles.
Where are management accountants going? Perhaps
they are running to business analytics, and much of the
content of analytics is legitimately within the domain of
management accounting. While Big Data and business ana-
lytics are becoming the playground for marketing and oper-
ations professionals, if management accountants don’t learn
to apply advanced analytics, they could become increas-
ingly irrelevant.
The widening gap between what management account-
ants provide and report and what decision makers need
involves the shift from analyzing descriptive historical
information to analyzing predictive information, such as
budgets, driver-based rolling forecasts, cost estimates, and
what-if planning scenarios. Yet everyone can learn and
gain much from historical information. Although account-
ants are gradually improving the quality of reported his-
tory, decision makers are shifting their view toward
understanding the future better. This shift is a response to a
more overarching change in executive management styles—
from a command-and-control emphasis that is reactive
(such as scrutinizing cost-variance analysis of actual vs.
planned outcomes) to an anticipatory, proactive style
where organizational changes and adjustments, such as
staffing and spending levels, can be made before negative
things happen and before minor problems become big
ones.
Again, our intent in this article wasn’t to be discouraging
or critical of accountants. It was to be motivational and
inspirational. If the accounting profession doesn’t have an
open discussion about how the users to be served view
accountants, then how can management accountants make
changes that will benefit providers and users of business
data? SF
Gary Cokins, CPIM, is IMA’s executive-in-residence and is founder and
owner of the consulting firm Analytics-Based Performance Management
LLC in Cary, N.C. (www.garycokins.com). A thought leader in EPM,
business analytics, and advanced cost management, he previously was a
consultant with Deloitte, KPMG, Electronic Data Systems (EDS), and SAS.
He also a long-time member and active committee member of IMA. You can
reach Gary at (919) 720-2718 or gcokins@garycokins.com.
Joseph Cherian, Ph.D., is an associate professor of marketing at the
Graham School of Management at Saint Xavier University in Chicago, Ill.
Prior to this, he was at the University of Illinois at Chicago, where he also
collaborated on research with colleagues in accounting. You can reach him
at cherian@sxu.edu.
Pamela Miller Schwer, CMA, is an associate professor and former
chair of the Department of Accounting at Saint Xavier University,
Chicago. Her four-decade accounting career began at Johnson & Johnson
Products and has included work in corporate, academia, and private con-
sulting. She is a member of IMA’s Fox River Valley Chapter. You can reach
her at schwer@sxu.edu.
October 2015 / STRATEGIC FINANCE / 33
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