More and more companies are being re-organised by value chain (how the business adds value to its customers and stakeholders) rather than functionally (Products, production, finance, HR etc). Unfortunately management accounting has failed to keep pace in delivering value added proactive periodic financial reports!
This is particularly true in small to medium sized organisation (both for and not-for-profit sectors) where traditional accounting is used mostly as part of its compliance infrastructure. Among other disadvantages, this approach
Incorporating the portfolio approach to management reporting insures that
Although the concepts, in different incarnations, are applicable to both new and existing businesses, it is particularly beneficial to those at the cusp of a growth spurt.
The simplest way to illustrate the concept is with a warehouse simile.
Say a warehouse stores 4 products - A, B, C & D, where costs are loaded onto the products based on their footprint!
When, product B, with, say better inventory management is able to reduce its foot print, it shares a reduced loading of warehouse operating costs.
As the costs of un-utilised space doesn't really disappear just because a product is using less warehouse space - these are then loaded onto the CEO (as the individual accountable for as s/he is now responsible for:
Either way, as the CEO is now responsible, s/he carries the costs and the efficient product is rewarded rather than penalised for improvements in efficiency by carrying fewer costs, and
In evaluating product profitability / viability, each product carries the ONLY cost of expenditure decisions it makes and not of those outside of their control.
The whole concept is based on
The key strategies employed in minimising wastages could include
How to get to this view
Validate the concept by calculating profitability of existing portfolio of products based on direct costs only comprising of:
Socialise the themes & some preliminary ideas of how to get there with the governance function and when approved, start work on the detail of how to get there including formatting prior year incomes and costs in product silos and agreeing the best way to move forward with re-organisation plan.
Consider whether data warehousing can help minimise the "additional" work that could be needed to add dimensions to transactions in real time.
Draft a re-organisation plan including
Overall the simple message is this: consider whether your business could benefit with the portfolio approach. Then check in with your Core Business Services specialist to help create mock reporting proformas to assess whether the insights generate value on an ongoing basis before deciding to implement on production systems.
The above publication discusses income tax & other issues generally and is not intended to be specific advice. Whilst every effort has been made to provide valuable, useful information, Core Business Services Ltd, any related suppliers, associated companies & practices accept no responsibility or any form of liability from reliance upon or the use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only. Please do consult with your advisor or call this firm for information / advise specific to your circumstances before finalising any particular course of action.