SUPPORT FROM

FACT-BASED
DATA AND
INFORMATION
TECHNOLOGY
(Chapter 3)
 “It is a common criticism of cost
accountants that they spend
too much time in working out elaborate
distributions of expenses
which are unimportant in themselves and
which do not
permit an accurate distribution.
Undoubtedly some of that
criticism is deserved, but it should also be
remembered that
once the basis for distribution has been
worked out, it can generally
continue in use for some time.”
- H. G. Crockett
 ROLE OF RELIABLE FACT-BASED DATA—
PRIMARILY COST MEASUREMENTS

● The activity-based cost management (ABC/M) methodology,2 which

throughout this book will be referred to as activity-based
management (ABM), has become the accepted proven solution.
● Activity-based management (ABM)—acting on the ABC data—drives
the PM wheel by providing it with high-octane information.
● ABM is more than just an accounting system. It is also much more
than a managerial information system.
● ABM lifts managerial accounting into the realm of managerial
economics. It should be considered a change management tool.
 ROLE OF INFORMATION TECHNOLOGY AND
DATA WAREHOUSING

● The convergence of the integrated solution components of PM

by leveraging data warehousing technology provides valuable
advantages:
● Single version of the truth. The financial, costing, and PM
components can all draw their data from a central data
warehouse. A world-class data warehouse technology can read
data (formally referred to as extract, transform, and load [ETL])
from virtually any source, in virtually any form, off of any
platform, while assuring data quality. It can consolidate
operational data from disparate systems into a powerful,
consistent information resource.
 ROLE OF INFORMATION TECHNOLOGY AND
DATA WAREHOUSING

● Data quality and integrity. A data warehouse does

more than collect data. It prevents problems that are
hazardous to a business intelligence system by
cleansing data of such problems as duplicate data,
illogical combinations, or missing values. It helps users
make sense of it by translating it into useful
information, storing it, and then delivering it in a
consumable format where the quality and data integrity
are never in question.
 ROLE OF INFORMATION TECHNOLOGY AND
DATA WAREHOUSING

● Information sharing. Through integration housed in a data

warehouse, disparate employee teams and their local systems
can automatically share information from multiple locations in
ways that were once cumbersome and time wasting.
● Knowledge sharing. By applying business rules, assumptions,
and evaluation criteria against the data warehouse, users can
analyze and drill into data bent on performing “root cause” or
filtering analysis to reveal understandings that could have been
overlooked when relying on only one solution set.
 SHIFT IN POWER FROM CHIEF INFORMATION
OFFICER TO THE BUSINESS FUNCTIONS

● As a factor in so many other changes in business, the

Information Revolution is also the catalyst for PM.
● The timing is right for PM. Why? There is a parallel
between the Industrial Revolution of two centuries ago
and today’s Information Revolution.
● The more visible impacts of each revolution appear to
surface about a half-century after each revolution
began.
 SHIFT IN POWER FROM CHIEF INFORMATION
OFFICER TO THE BUSINESS FUNCTIONS

● Underlying the Information Revolution is actually the harnessing of

knowledge. This revolution is much less about electronics and
semiconductors than about codifying logic, systems, and economic
analysis. The rise in PM as a discipline may not be heralded as
comparable to the discipline of biotechnology, but both share
common heritages: smart, knowledgeable workers leveraging the
convergence of IT computing power and compelling problems. For
biotechnology, the problem is improving the health of humanity and
animals.
● For PM, the problem is improving the organization’s navigation—
traction, direction, and speed—with real-time response to turbulence
and unforeseen obstacles.
 SHIFT IN POWER FROM CHIEF INFORMATION
OFFICER TO THE BUSINESS FUNCTIONS

● Professor Robert S. Kaplan of the Harvard Business School has

consistently demonstrated an astute sense for identifying and
researching the next popular management method.
● Kaplan’s reasoning is that two major forces draw companies to focus
on customers:
1. As products become commodities, the importance of services rises.
That is, as differentiation from product advantages is reduced or
neutralized, the customer relationship grows in importance, and the
cost-to-serve component of each customer’s profit contribution
requires measurement and visibility.
2. The Internet is irreversibly shifting power from sellers to buyers.