When leaders hear the phrase “process improvement,” it makes sense that technologies like automation or generative AI might come to mind. However, the reality is that your organization’s employees are often the most important enablers of process improvement.
Management accounting provides a good example of why an organization’s people are often the key ingredient for significant process improvements. After unpacking cross-industry data on the cost of planning and management accounting, we’ll explore collaboration as a key driver of lower costs for these activities.
The total cost of planning and management accounting includes the total costs of planning, budgeting and forecasting; cost accounting and control; cost management; and evaluating and managing financial performance.
APQC finds at the median, organizations spend $1.08 for every $1,000 of revenue to carry out planning and management accounting. Organizations at the 25th percentile spend the least to carry out this work ($0.59 per $1,000 revenue), while those at the 75th percentile spend more than three times that amount at $1.91.
Benchmarking Guidance
Your benchmarking results will be shaped by your industry and the complexity of your business. For example, companies that manufacture food and beverages often have multiple business units and product lines operating across different regions. It thus makes sense that the median for this industry ($1.65) is higher than the median for the cross-industry sample. Find and benchmark against your industry peers or organizations with a similar degree of complexity for a more accurate picture of where you stand on this measure.
Collaboration Drives More Effective Cost Allocation
In my experience as a CFO, cost allocation often consumes a great deal of the overall time and effort spent on planning and management accounting. For that reason, one effective way to drive down the cost for these activities is to develop a methodical and robust cost management system that has buy-in across the enterprise.
The goal of management accounting is to get your finger on the pulse of key expense and revenue drivers so that each part of your business can make better decisions. This means that cost allocation — and management accounting more broadly — cannot be something an accountant does in isolation from the rest of the business.
If you allocate costs and revenue in ways that don’t make sense to stakeholders or even run counter to what is happening in the business, you won’t be doing anyone any favors. You will likely find these activities take longer as you go through additional rounds of work and rework to allocate costs in a way that your stakeholders agree with. You will find it easier and faster to collaborate at the front end rather than working out disagreements after the fact.
Building a Culture of Collaboration
If you need to encourage greater collaboration across business silos, you may need to reinforce collaboration as part of your organization’s culture. At a foundational level, this means:
- Making collaboration an explicit organizational value that is mentioned alongside any other values and your mission statement.
- Acting as a role model for collaborative practices. Lead the way as CFO to show everyone that leaders value breaking down silos and working together.
- Aligning collaboration with your human capital management practices. For example, make collaboration an expectation for functional leaders and include measures that track collaboration in their performance review.
- Setting aside time and space for employees to collaborate.
- Working with your internal communications function to create messaging that reinforces collaboration as a value.
This list is by no means exhaustive, but these are some of the ways leading organizations work to introduce and sustain desired behaviors and practices as core elements of organizational culture.
Key Takeaways
In this article, I focused specifically on cost allocation and management accounting to demonstrate the value of collaboration for driving down process costs. It’s worth noting that the measure above includes other activities that will also be far more effective when carried out collaboratively, like planning, budgeting, and forecasting.
Given the importance of collaboration for these and other key financial management activities, you should reinforce collaboration as a key organizational value to the extent that you can. Labor is always one of the biggest drivers of cost for any given process, so getting people to work together more effectively will help drive costs down in a sustainable way.
Perry D. Wiggins, CPA, is CFO, secretary, and treasurer for APQC, a nonprofit benchmarking and best practices research organization based in Houston, Texas. Data in this content was accurate at the time of publication. For the most current data, visit www.apqc.org.