When talking about cost and internal decision support information, you often hear this question asked?
Why? Most costing efforts begin in finance. They begin by dissecting the general ledger to create more operationally meaningful information. Which means they need to reconnect financial accounting information with operational information (that was meticulously stripped away in the traditional accounting processes and systems). Doing this is complicated - its hard work, information must be re-aquired, shortcuts are often used to make connections (often designed on the fly and poorly documented), and even when its done credibility is often low. The real problem is the financial accounting model was never meant to be a model for internal decision support; it was designed to provide “general” information for external creditors and investors.
The times are changing, for the better. Good internal decision support always required a different model. It required an operational model with costs designed to reflect the resources and processes of the organization. The biggest change is Industry 4.0. As industries adopt “smart” technologies, they create a model of their value creating operations, many support functions, and inbound and outbound logistics. The operational model is mostly there. You just need to figure out how to design a cost system to reflect it.
This is where RCA excels and has long experience. RCA has only focused on modeling for internal decision support to improve performance, managerial innovation, and profitability. RCA focuses on accurately modeling cause and effect relationships, modeling fixed and proportional costs (and how they change) through processes, modeling capacity and capacity cost. RCA information creates readily available incremental and marginal cost information that is critical to many profitability decisions. Product and services costs are not distorted with arbitrary overhead allocations, they don’t change with production or sales volume and mix, and costs can be multi-dimensional for sales channels, customer costing, etc.
Why would you not want this view? Especially when the technology you are investing in and applying to your company’s operations minimizes the “climb”.