Consulting Firm Cites Common Failures of Business Management

Activity-based costing can be used to prevent common failures of management.

Dallas, TX (PRWEB) July 5, 2004 -- Robert W. Scroggins is a principal in the Dallas consulting firm RWSMC and a believer in the management use of activity-based costing, or ABC. ABC is a costing analysis and decision support tool developed in the 1980s by an industry consortium to help large industrial firms improve their product costing and business processes, enabling them to compete against lower-priced competition. It involves analyzing the activities and processes that are required in order to accomplish the objectives of a firm and then assigning direct and supporting costs to those objectives in a rational manner. Says Scroggins, ABC allows you to compute the real cost of producing, selling, and delivering products or services. Although it was originally developed for large industrial firms, it has been used and refined for over 20 years now and is useful for all types and sizes of businesses."

We frequently see management cut costs across the board so that no one will feel unfairly singled out for cost cutting, but this results in cutting some costs that dont need to be cut and cutting other costs more than is necessary. If costs are cut without first analyzing business activities, the result is often decreased efficiency and morale. This is managements failure to measure something before managing it."

Some managers display a 'cheaper is better attitude, while others purchase expensive technology just because its available and they hope it will help them. In both cases," says Scroggins, a well-prepared cost benefit analysis will help find a course of action that will incur the least cost or produce the greatest benefit. This is the failure of management to make a decision without comparing costs and benefits first."

Another important management failure we see is the failure to develop a business plan. We see this primarily in smaller businesses because larger businesses have usually done a certain amount of business planning in order to grow. Many small business managers tell us they dont need a plan because its in their head. Thats just an excuse for not performing the planning function. When you put down a business plan in writing-with a timeline, market facts and figures, expected courses of action with costs and consequences, and an assignment of responsibilities, it forces discipline upon management and the organization. A written business plan serves as a road map for the entire business and can be checked and revised. Failure to plan is the most basic management failure."

Scroggins believes that activity-based costing can help management do a better job of fulfilling its responsibilities. An activity-based cost analysis provides managers with a better understanding of what makes their business work. This helps them to evaluate costs and benefits, tell where cutbacks in cost are most needed, and prepare better business plans."

Scroggins advises firms to tailor their activity-based costing analysis to their size. We believe that accuracy is better than precision. The extra precision obtained in a detailed activity analysis just isnt cost effective for smaller businesses, so you should confine an activity analysis to major activities for small firms and perform a more detailed analysis for larger businesses. If you perform the activity-based analysis with common Excel spreadsheets, they can be used with little training. Larger businesses can install more complicated and expensive dedicated activity-based costing software if they want it."

Scroggins concludes by saying, Activity-based costing is loaded with benefits, and it is cost-effective for all types and sizes of businesses. I dont see why its not used more widely. It forces managers to think seriously and logically about their business, and not doing so certainly ranks at the top of the list of management failures!"

RWSMC is a management consulting firm based in Dallas, TX
For further information, contact Robert W. Scroggins, CPA.
E-mail: rwsmanagement@aol.com
Web site: members.aol.com/rscrogg562/
Voice / Fax: 214.941.7021 / 360.838.0943
(This firm is not a CPA firm)