Gary Cokins

Gary Cokins, CPIM

(gcokins@garycokins.com;  phone 919 720 2718)

http://www.garycokins.com 

Gary Cokins (Cornell University BS industrial engineering/operations research) 1971; Northwestern University Kellogg MBA 1974) is an internationally recognized expert, speaker, and author in enterprise and corporate performance management (EPM/CPM) systems. He is the founder of Analytics-Based Performance Management LLC www.garycokins.com .  He began his career in industry with a Fortune 100 company in CFO and operations roles. Then 15 years in consulting with Deloitte, KPMG, and EDS (now part of HP). From 1997 until 2013 Gary was a Principal Consultant with SAS, a business analytics software vendor. His most recent books are Performance Management: Integrating Strategy Execution, Methodologies, Risk, and Analytics and Predictive Business Analytics.

All of my books are at:

https://www.goodreads.com/author/list/47692.Gary_Cokins

Linkedin.com contact:

https://www.linkedin.com/in/garycokins

http://www.linkedin.com/pub/gary-cokins/0/15a/949

https://garycokins.academia.edu/

Twitter:

@GaryCokins

15. The Strategic Cost of Quality

14. Measuring and managing patient profitability

13. Are Accountants Homo Accounticus?

12. Management Accounting 101, 102 and 103 Courses

11. Identifying and Measuring the Cost of Error and Waste 

10. Why Use ABC

9. Movie Sequel – “Accountant Pirates of the Caribbean”

8. Some Accountants are the Blind Leading the Blind

7. The CFO’s Expanding Role – Reality or Delusion?

6. How Many Types of Key Performance Indicators (KPIs) are There?

5. Does Accounting Undermine Managers' Ability to Make Good Decisions?

4. A Passionate Appeal for Activity-Based Costing (ABC)

3. Put Your Money Where Your Strategy Is

2. How Marketing and Finance Think differently

1. Measuring and managing customer profitability

Gary Cokins

Carlo Attademo

Quality!? 

How many times we hear of this word and the related concepts and standards needed to be met in order to be certified as an ISO 9000 (and following…) organization.

But are we sure about the meaning of Quality? 

Are we sure about its strategic importance for a company to be profitable? 

The former question involves some considerations about how we are accustomed to perceiving quality.

Most of us take it as a concept strictly linked to the high performance of making  products and delivering services with reference to the processes to make and deliver them.

It looks like only the business pursuing a Differentiation strategy would embrace the quality concept.

It isn’t always this way.

Quality is the ability of an organization to arrange all of its internal processes and to make all of its products/services to meet (at a minimum) the expectations of its customers. 

That means that even a firm adopting a low-cost strategy can also embed the quality concept into its processes and products/services.

 Last but not least, the firms nowadays are being affected by aggressive competitors to increase the quality standards of their products/services and lower their costs, thus adopting as a result a mixed strategy.

That means that it’s even more insightful how this subject is “across-the-board”.

The second question about the Profitabilty?  

You can find the full article in the file attached below

Gary Cokins

Christie Scanlon

Activity-based costing is an imperative for health systems seeking to ensure the profitability of their enterprises under value-focused health care.

U.S. healthcare providers are under tremendous pressure today—both from the government and from commercial health plans—to deliver value. This pressure is a consequence of today’s dramatic transition away from the nation’s long-standing revenue-driven healthcare system and its often-irrational pricing. To respond effectively, hospital and health system leaders require intelligence and creativity to manage their expenses and make fine-tuned investments of time and resources that will ensure success in a fee-for-value world.

An essential goal of the transformation is to create incentives for providers to deliver value for patients in the form of high-quality services delivered at the lowest possible cost, with sensitivity to the patient experience........

The full article is available in the file attached below

Previously published on www.hfma.org 

I enjoy maturity and evolution models of all kinds, especially for business. There is a stages of maturity model for information technologies and others such as for sales teams and their customer relationships. What I like about stages of maturity models is they provide confidence that regardless what stage one is at – low or high – there is a next step further up that can be attained in an evolutionary way.

 In biology there is an evolution of humans that has in earlier stages Australopithecus, then Homo erectus, then Neanderthals, and our current stage Homo Sapiens. Examples of important changes are brain size, hand grip, and a larynx for speaking.

 Homo Accounticus

Just to have some fun I will take the position that some accountants are primitive Homo Accounticus. Just as with humankind there are overlap periods where primitive accountants co-exist with more sophisticated ones with more capabilities and skills.

This implies they have evolutionary steps in their future. A stereotype of an accountant is as a bean counter. These are the Homo Accounticus. In the evolutionary ladder they can become bean growers. They can add value beyond just reporting to assisting their organization to gain insights and make better decisions.

 I mentioned the brain as an important change in this evolutionary ladder. There has been excellent research about the brain by Daniel Kahneman, recipient of the Nobel Prize in Economic Sciences for his seminal work in psychology, that challenged the rational model of judgment and decision making.

In his recently published book, Thinking, Fast and Slow, Kahneman explains the two systems that drive the way we think.

System 1 is fast, intuitive, and emotional; System 2 is slower, more deliberative, and more logical. 

System 1 is largely unconscious.  It makes snap judgments based upon our memory of similar events and our emotions.

System 2 is painfully slow.  Itis the process by which we consciously check facts and think carefully and rationally.

An example that Kahneman illustrate System 1 and System 2 thinking is this. Suppose that a bat and ball together cost $1.10 and that the bat costs $1.00 more than the ball. How much does the ball cost? Many people, relying mainly on System 1 thinking, will quickly say $0.10, but the correct answer is five cents. Here are the equations:

Bat + Ball = $1.10

Bat ($1.05) – Ball ($.05) = $1.00

A problem Kahneman points out is that System 2 thinking (slow) is easily distracted and hard to engage and that System 1 thinking (fast) is wrong as often as it is right. System 1 thinking is easily swayed by our emotions.

An example he cites include the analysis that professional golfers are more accurate when putting for par than they are for birdie regardless of distance. Another example of a controlled experiment observes that people buy more cans of soup in a grocery store when there is a sign on the display that says "Limit 12 per customer."

How do accountants exhibit System 1 and System 2 thinking?

What caught my attention is that System 1 thinking, which is deliberate and logical, is easily distracted. In our busy day there is little time for solitude and deep thinking.

An accountants’ day may be consumed with the monthly task of “closing the books” for financial reporting or analyzing product or standard service-line profitability. There is little time to consider the validity of the calculated information they are relying on.

Many companies continue to use the long-standing practice of standard cost accounting and allocate the indirect and shared expenses to products and services as a single “cost pool” with a single basis or factor such as sales volume, number of employees, or direct labor input hours.

There is no cause-and-effect relationship! In reality some difficult products to make or services to deliver are consuming relatively more of the total indirect expenses. Since cost allocations have a zero-sum error of the total, the easier products services must consume relatively less. The activity-based cost management (ABC/M) accounting method resolves this by disaggregating the single “cost pool” into its component work activity costs, and then traces and assigns each to the products using the quantity of an “activity driver” to resolve this problem.

Might you think that ABC/M should now be a commonly accepted practice by accountants? It was frequently written about in the 1970s.

However, research by Dr. Martijn Schoute of Vrije Universiteit in Amsterdam published in his dissertation thesis, Antecedents and Consequences of Cost System Design Choices, cites research that less than 20% of British firms use ABC/M.

Without applying the ABC/M method the consequence is that managers and employees are using flawed and misleading information for analyzing profit margins and operational costs.  

 Are most accountants Homo Accounticus?

Why would accountants who appear to be genetically born to seek precision, accuracy and detail rely on creating and worse yet using flawed information?

My belief is System 1 thinking, which is quickly accepting that their cost information is perfectly correct (because it reconciles with their firm’s total expenditures), is distracting the accountants from the deeper understanding of what they are doing.

Higher forms of the accountant species possess more Systems 2 thinking by being deliberate and logical.