ADVISORY & CONSULTING

Let’s Get Real: Kill SALY

Gary Cokins on predictive accounting and driver-based budgeting.

^ Click to play video

^ Download the podcast and subscribe on iTunes here

With Steven Sacks
The NEW Fundamentals

The main problem with the annual budget process as a fiscal exercise done by the accountants is that it is disconnected from the executive team strategy.

MORE STEVEN SACKS: Would You Buy Your Own Services? | The Future of the Accounting Profession | Avoid Last-Minute Deal Making | Business Is About Relationships | Can a CPA Firm Be Different in a Changing Market? | A Rapidly Changing Business Environment Requires Flexibility

MORE WITH GARY COKINS: The Myths of Performance Management | Gary Cokins: The Truth about Activity-Based Costing

GoProCPA.comExclusively for PRO Members. Log in here or upgrade to PRO today.

Corporate finance expert Gary Cokins says the typical annual budget process allows too much room for bad habits, such as the use-it-or-lose-it mindset of allocated resources, as well as incorporating last year’s inefficiencies in processes into the current year.

Five Key Take-Aways:

  1. There is interest now in corporate performance management because executives are frustrated with strategy failure. They are good at formulating strategy, but meeting expected goals is a real problem.
  2. The way to get rid of spreadsheet budgeting is to view the amount of spending of any organization as the result of the confluence of two streams. The first is going to be repeatable work. It tends to be operational. The second is non-repeatable because it involves capital, risk management, and strategy projects.
  3. Accounting must carefully identify and construct key performance indicators. But not every type of measurement is key.
  4. Activity-based costing is just full absorption costing done correctly, without the “butter spreading” on spreadsheets of labor hours or units produced or sales dollars or full-time equivalent headcount or square feet. None of those reflect the unique consumption that the products or service lines actually consume.
  5. Many people have heard about the balanced scorecard, but it’s just a feedback mechanism. The real intelligence is in the strategy map.