Abstract
We report on a consultation addressing the re-configuration of a Standards Cost Accounting System of a major MNC. We identified two fundamental theoretical issues pertinent to this re-configuration: Their Standards Cost Accounting [SCA] System was (1) not adaptive within their control time frame, and (2) the holistic systemic protocols espoused by W. Edwards Deming were not used to condition the decision-making framework addressing control. We developed an adaptive Decision Support System [SCA:DSS] that offered the following integrated systemic features: (i) The SCA:DSS is parametrized using the Marketing/Sales sub-budget as approved by corporate-level management and (ii) is used to set the control standards for direct Materials & Labor costs and ABC related allocations, (iii) A detailed interactive profiling of production activity is produced at a time when adaptive corrective actions would still be reasonably possible, and (iv) Adaptive: Best, Stasis and Corrective Action Cases regarding the effect of these corrective actions on the contribution margin are displayed. However, even given the adaptive design features and the explicit designs to effect holistic integration over the pilot division and the central headquarters of the firm, the SCA: DSS failed to be implemented. We offer valuable insights into this failure-to-launch that may be indispensable in effecting a synergetic environment where adaptive holistic cost control may be realized. In this paper all of the technical functionalities of the SCA: DSS are detailed and a working illustration is provided. The SCA: DSS is offered as a free download without restrictions to its use.
Highlights
The Theoretical Design Context for Adaptive ControlIt is interesting that most of the decision-making systemic re-parametrizations regarding cost control are done on a yearly basis
Following we offer a capsule of the holistic imperatives that is due to both Ackoff (1967) and Deming (1992, 1993)
In a dynamic adaptive context, effectively, DM try to identify those actions that could conform to the adaptive nature of the problem and within this set of possible actions which one provides acceptable flexibility for future actions. In this regard, following the holistic imperatives of Deming the usual characteristics of production process accounting control that we found to be relevant in this context for the adaptive nature of the holistic system are: (i) systems-wide decision-making integration over the various activity centers and agents that impact and are impacted by the firm’s production process, (ii) reliable and relevant benchmarks for variance identification for selected cost components, (iii) timely, accurate and consistent measures of production activity, (iv) timely feedback to those responsible and empowered to take corrective actions, (vi) protocol guidance for taking corrective actions that are coordinated with the reward protocol(s) for the agents in the system, and (vii) the post-corrective action-reevaluation of the control actions are part of the learning feedback loop
Summary
It is interesting that most of the decision-making systemic re-parametrizations regarding cost control are done on a yearly basis. Consider the latest Horngren text treatment on Cost Control (Datar & Rajan, 2018)—clearly one of the trend-setting text presentations over the last 40 years This widely adopted text from Pearson[https://www.pearson.com/us/], one of the market leaders in the academic text marketplace, offers the following council: Planning consists of selecting an organization‟s goals and strategies, predicting results under various alternative ways of achieving those goals, deciding how to attain the desired goals, and communicating the goals and how to achieve them to entire organization. As ―spot-on‖ as this advice is relative to encouraging decision-makers [DM] to be attentive to effecting adaptive and holistic cost control, there are no detailed practical illustrative examples of adaptive control and further the Deming (1992, 1993) protocols, as such, are not referenced or illustrated in the text This is the point of departure of our research presentation. Following we will: 1. Discuss the theoretical context for the consulting engagement that led to the development of the SCA:DSS for production cost monitoring for control
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