The cost of letting staff go……
As an accountant, when we think of the costs of letting staff go, we probably think redundancy costs and so on. These can be quite substantial. But maybe these short run costs are better than longer term damage costs. I know the example I give here may be less likely to work in Europe for employment law reasons, but I’m just trying to think about costs, not the HR side.
I read recently that Amazon (and others) are offerings employees a cash sum of up to $5000 if they wish to leave. Maybe this is a bit strange, but there may be an argument which suggests such a payment actually saves money longer term – employees who are not engaged with their company are probably less productive. I don’t know if companies like Amazon have done a cost analysis on this, but it seems to make sense.
To give another example, a few tears ago an employer told me that a substantial redundancy payment made to an employee probably was a good deal. The employee in question was creating a poor image with customers, which was starting to effect turnover. Again, maybe no cost analysis was done, but the short term cost of redundancy was compared with unknown longer term effects.
Break even in farming
Farmer’s, even if they know their costs, face a problem in that they can’t do anything about crop prices. If the price is above break even, it may even make sense to rent more land to grow more.
And of course, if a farmer knows the break even ‘cost’ per acre/hectare then they can try to get the best price above that.
Here is a good article showing the costs of corn this year, and working out a break even price. It’s a good example of the application of break even analysis.
Incomplete records
Sometimes a business does not keep (or have) proper records. Most countries require a business to keep accounting records by law, so in my experience the only time a business does not have records is when there is something like a fire, or records are lost or destroyed. When this happens, there are several techniques which can be used to help “build” a set of accounts. Here is a nice article from CPA Ireland which details some of these.
More accounting tricks – Hollywood accounting
My last post noted some “tricks” used to make a budget balance. Here’s another story on how accounting tricks can be used to make something with huge revenues into a loss maker – it’s Hollywood accounting.
Counting money or CO2 – guest post on CESAR blog.
I recently was invited to write a post on the CESAR blog. This is great blog which deals with issues on sustainability and environmental reporting. You can read the post here.
A $4billion budget trick
While searching the web for some blog material I came across this. It’s a great story about how some US senators played some tricks with various departmental budgets to plug a hole in another.
Costs of Goggle Glass
Here is a great post which highlights the costs of Google Glass. As I expected, the hardware costs are relatively small. These are, according to Google, small relative to research, engineering and other development costs.
Flat rate taxi fares, Hailo – reducing taxi costs?
I recently got a flat rate taxi fare from an airport in Europe – a bit of an adventure, the guy was really moving it. And the rate was of course cheaper than normal taxi fare which at airports are usually more expensive . So then I started to think about apps like Hailo (and the latest one Uber). Can these reduce taxi costs and in turn give us cheaper fares. Well I guess so. I don’t know for sure, but I would assume using Hailo is cheaper than “renting” a radio and a customer base from a taxi firm. If I’m right, will these reduced costs be passed on?
What is true cost accounting?
Image from 3bl media
True cost accounting (also called Environmental Full Cost Accounting) is a process which tries to identify all costs associated with a product or service. This includes not only the normal costs we would associate with a product or service, bit also social and environmental costs. It attempts include what economists call externalities – something which affects society or the environment but is not included in the market price of the product. Rather than me continue, here is a short YouTube video which explains the concept in a very clear way.
Does my milkman use Activity-Based Management ideas?
Not my milkman…
Ok, the title of this post is not really correct. It should be more like “does my milkman and his supplying dairy use activity-based management principles”? First, let me explain that where I live we still have milk delivered to our door twice per week. This is quite common in Ireland and has been happened for as long as I can remember. The only difference nowadays is that deliveries are no longer daily due to refrigeration technology improvements. Second, what is Activity-based Management (ABM)? In a co-authored text book (see burnsetal.com), ABM is defined as “The
use of ABC information to identify operational and strategic improvement possibilities”. We could extend this to say that ABM assumes a business manages itself based on activities (as in Activity-based Costing) rather than functions.
So what has this to do with my milkman? Well, despite its very traditional nature, technology has made its way into milk delivery. A new website (mymilkman.ie) has been set up by several dairies in Ireland to streamline milk delivery. Through the website, I can pay for my milk, change my order, pause my order if I go on holidays and so on. And when I signed up, I got €10 credit on my account.
I asked my milkman what he thought about the site. He told me that even if he gets only 50% of customers to sign-up, he will save 8 hours work per week. Why? Well he does not have to call to the door to collect money for one thing.
So what has this to do with ABM? Well the €10 credit on my account makes me think that someone is thinking that it costs less to manage a customer if online – and I would suggest this is a customer service activity. And if we think about it, how many businesses charge us more if we do things through call centres versus online for example. So there may be many businesses out there using the ideas of ABM – managing activities. But would they all use ABC? I doubt it. For example, the dairy industry probably used some form of process costing. Nevertheless, I think many businesses may use the basic idea of managing activities they perceive as costing more/less in different ways.
What is lean accounting?
Defining lean accounting is a bit odd to me, as I don’t really buy the idea that there is a technique called “lean accounting”. Having said that, there is definitely a concept called lean manufacturing. In a nutshell, lean manufacturing implies three concepts – pull, flow and waste reduction. Pull means product is produced (or pulled) according to customer demand. Flow means product moves through a facility as efficiently as possible and no delays. Both of these should imply waste reduction.
So what does this mean for accounting. Well one thing is inventory reduction. Another may be capital investment to get things working well. Both might put accountants off! But rather than me rattle on, here is a very nice article from Forbes which explains lean accounting and some issues.
An interesting view on assets and income…
Here is a good post from worthytoshare.com which looks at a lady seeking a partner from an interesting view. It is worth a read, trust me
Accounting and public services
Accounting and accounting information is used for many purposes. Even the public sector immune to accounting information, and accounting-based controls. Recently (March 4th, 2014), BBC Radio 4 broadcast a very interesting programme (The Accountant Kings) on accounting in the provision of public services in the United Kingdom. Here is a link to the series website http://www.bbc.co.uk/podcasts/series/fileon4, and the podcast itself can be found at http://downloads.bbc.co.uk/podcasts/radio4/fileon4/fileon4_20140304-2050c.mp3.
A lively accountant’s website…
Have a look at this post from Accountancy Age. There is a link within to the website of a firm called Wood & Disney. It’s a well designed website, but with a touch of humour.
The costs we don’t capture
Image from wikipedia
I recently attended the 11th ACMAR conference in WHU, Vallendar, Germany. A presenter was reminding us of how we often forget about opportunity costs. This made me think of a recent hotel reservation I made, and how many costs go unrecorded.
I had booked a hotel in Montreal for a few days in April. The hotel emailed me to say that a due to a refurbishment programme, they would not open until May – a delay of 4 weeks. The Canadian winter delayed the refurbishment work it seemed. I was offered alternative accommodation, which was fine.
There is of course a loss of revenue to the hotel use to the delay. I would guess that the cost of lost revenue was included as part of the refurbishment, but I wonder will the revenue lost due to the delay ever be recorded or noted. Somehow I doubt it. Either way, such “costs” never make it to the accounting records.
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