Q: You describe Accounting Insights as a "management accounting firm." What is management
accounting? How is a management accounting firm different from a public accounting firm?
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A: My undergraduate days were spent at Iowa State University which had, and still has, a highly
regarded College of Engineering. Many of my friends were engineering students and knowing them made me keenly
aware of the many different flavors of engineering that existed. Some of my friends were civil engineers; others
electrical engineers and still others mechanical engineers, chemical engineers and so on. While freshmen, all
shared a common curriculum, but as upperclassmen, they branched off into the specialized studies that gave each
engineering discipline its uniqueness.
In much the same fashion, the field of accounting has specialties built upon a common foundation. At the highest-level,
the field of accounting is subdivided into two specialties: financial accounting and management accounting.
Financial accounting is concerned with in providing information about a company's operations
to parties external to the company such as the IRS, bankers, suppliers, creditors and shareholders. A primary
focus is on standardized reporting and achieving compliance with applicable laws and regulations.
Management accounting is concerned with providing financial information about a company's operations
to its internal managers. The focus is on developing relevant and timely information that helps internal managers
resolve the problems and make the decisions that arise on a day-to-day basis.
A Certified Public Accountant (CPA) is the industry-acknowledged expert in financial accounting.
There are both internal and external financial accounting roles mandated by law and regulation. Consequently
CPAs are employed both inside and outside of organizations. In general, a public accounting firm is composed
of CPAs who perform the external tasks (such as audit and attest) in the financial reporting process.
A Certified Management Accountant (CMA) is the industry-acknowledged expert in the practice
of management accounting. CMAs are most frequently employed within an organization. Management accounting firms,
such as Accounting Insights, provide management accounting services to companies that, for one reason or another,
do not have the expertise internally. (sdc)
Q: In your description of how Accounting Insights determines "true" product / service
cost, you mention using the "process model." What is the process model?
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A: The premise of the process model is that any organizational endeavor can be characterized in
terms of "process thinking" as follows:
• Inputs are provided to a process by its suppliers.
• The process, a combination of people, technology, supplies, methods and environment, converts
those inputs into outputs.
• Resources (people costs, technology costs, supplies, etc.) are consumed in the conversion
• Outputs are then either (1) delivered to an internal customer and become inputs to a downstream
activity; or (2) delivered to an external customer.
The process model of organizational behavior evolved from the process engineering disciplines prevalent in the
manufacturing world since the beginning of "mass production" in the early 1940's. For many years,
"process thinking" was used solely to control the quantity and quality of manufacturing outputs.
Then in the late 1980's through the work of Professors Robin Cooper and Robert S. Kaplan of the Harvard School
of Business, "process thinking" was applied to the costing of those outputs. The new techniques were
first used only in manufacturing settings to reevaluate the reported costs of tangible products. Other practitioners
then successfully applied the same techniques in settings where the primary market offerings were services,
such as banks and insurance companies. Finally, "process thinking" was recognized as invaluable tool
for not only costing non-manufacturing outputs, but for also understanding their conversion from inputs.
Today, the techniques of process modeling are recognized as applicable to any situation where an enhanced understanding
of "outputs" or their "conversion from inputs" is desired. (editor)
A: Many companies unknowingly use flawed or misleading cost data to quote prices, analyze profits,
and justify capital spending. Traditional accounting relies upon gross averages for assigning overhead and administrative
costs. But, if you have several different product lines or many different customers, there is a very good chance
that those gross averages are not telling the whole story.
Instead of using broad percentages to allocate costs, Accounting Insighsts seeks to identify cause and effect
relationships to objectively assign costs. As described above, we use the process model to do just that. Once
the costs of activities have been identified, the cost of each activity is attributed to each product to the
extent that the product uses the activity. In this way Accounting Insights often identifies areas of high overhead
costs per unit and so directs attention to finding ways to reduce the costs or to charge more for costly products.
A: This is one of those questions whose answer is "it depends."
It first depends on the objective of the project. If your project involves alot of training or requires our
consultants to glean information from interviews or facilitated group discussions, we would need to be "onsite"
quite a bit. On the other hand, if your project is one where the data is dug out of old reports or existing
systems, more of our interaction with your company can be electronic and our "onsite" time will be
less. At a minimum, we be "onsite" for a project kickoff meeting and a project wrapup session.
The amount of time spend "onsite" also depends upon the location of your facilities. "Onsite"
time is often very productive but travel is also very expensive in terms of both hours and dollars. We are more
likely to spend time "onsite" to get information and resolve issues if you are located within easy
driving distance of Minneapolis/St. Paul. If you are located further away, we are more likely to rely on the
telephone or email. (sdc)
A: This is another of those questions whose answer is "it depends." I have been involved
in projects with costs ranging from several thousand dollars to serveral hundred thousand dollars. There just
is no average. The best answer I can give you is an overview of the factors that drive the cost of our projects.
One factor that drives project cost is the breadth of the organization to be included in your
project. For example, an enterprise-wide project will be more costly If you have multiple locations than if
you only have one. If you have one administrative department, your project will be less costly than if you have
three or four. An enterprise-wide analysis will be more costly than an analysis restricted to one or two functions.
Another factor that drives the cost of a project is the scope of the workplan, the number of
steps. Most projects will include tasks for developing data, analyzing that data and making recommendations.
A project that ends after we have made recommendations will be less costly than one that continues with tasks
for implementing the recommendations or training your staff to repeat the analysis.
A third factor that drives project cost is the quality and assessability of the data needed
for the project. This is the factor least understood by many clients. It is less costly to transfer data electronically
than it is to rekey data from printed reports. It is more costly to reconcile raw data to your firm's reported
financials than it is to work with data that has already been reconciled. It is less costly to collect data
that already exists than to create data (for example, by counting invoices). Assessing the quality and assessability
of your data is one of the key objectives (from our perspective) of the initial needs assessment meeting.
A final factor that can drive project cost is travel. Of two identical projects, the one that
includes travel is more costly than the one without travel. Unfortunately, we must charge for out-of-town travel
time and expenses. We absorb local travel time and expense as overhead. (editor)
A: When I first the consulting profession some twelve years ago, I was often asked this question.
Today, I rarely hear it. But I'll confess. I'm a Macintosh user. I have a Powerbook G4 with an 800 mH PowerPC
processor and one gigabyte of RAM sitting on my desk. I use it both in the preparation of my work products and
in the day-to-day administration of Accounting Insights. As a Mac user, I'm still in the minority, but I know
that it matters even less than it did ten years ago. My next computer will also be a Mac.
Technology itself is partly responsible for rendering the old Mac vs. PC debate irrelevant. I've long been able
to run Windows with emulation software if some extraordinary software was released only for Windows. And with
Apple's move to an Intel processor, on my next Mac I'll be able to run Windows' software in one window and Mac
software in another.
Another trend that has helped make the Mac vs. PC debate moot is the growing dominance of cross platform software.
Many, many software companies release their software with nearly identical versions for Windows and Macintosh.
And the fact that much of this software boasts cross-platform file compatibility is more important than their
common cross-platform features.
And finally, a third trend has helped quell the Mac vs. PC debate— the increasing complexity of software
and the inability of many people to keep up with the changes. Every release of software adds new features and
the advantage today goes to the business that can exploit them. Today your skill in using software is far more
important than the brand of your computer. Yes, I'm a Mac user but more importantly, I'm a very good Mac user.
A: I use Microsoft® Excel® for 90% or more of my financial modeling.
My computer is a Macintosh Powerbook G4 and I'm running OS X 10.4.8 as the operating system. The version of
Excel I'm currently using is officially "Microsoft Excel 2004 for Mac 11.3.3 (061213)." I'm not sure what Microsoft’s
paranthetical numbers mean, but both my versions of Excel and Mac OS X are the latest releases.
Excel has everything I want in modeling software.
• First of all, it's very flexible. It allows me to develop very "wide" models when necessary.
In one project, for example, the model had 15 worksheets and I used 51 instances of the model. Excel also allow
me to work with very "tall" models when necessay. In another project, I modeled billing and collections data
starting with tens of thousands of transaction records.
• Secondly, Excel is a cross-platform application. In fact, the entire Microsoft Office®
suite is cross-platform compatible. It just doesn't matter if my client is working in a Windows world. My models
will execute on their computers.
• Finally, Excel has very good tools for outomating tasks when necessary. I'm not a consultant
who has to write macros for every model I create. But there are times when it just makes sense to automate a
repetitive task. For example, I developed several macros for creating summaries in the project that used 51
instances of a 15 worksheet model.
I've experimented with database applications, specifically Microsoft Access and File Maker Pro. But until recently,
neither was cross-platform compatible. Microsoft still has not released a Macintosh version of Access. And I
felt very limited in the flexibility offered by these packages. They are useful for "tall" models but not for
"wide" models. In the end, I decided that for my modeling, the advantages of these applications just did not
outweigh their disadvantages. I stayed with Excel.
I've also experimented with several of the dedicated Activity Based Costing
applications (ABC software). In one project, I used (at the Client's request) Net Prophet as the modeling application.
(Note: Net Prophet has subsequently been acquired by Hyperion.) In general, I have these thoughts about ABC
software. On the plus side, I really like the graphics. It is much easier to explain the concepts embedded in
a cost model with a visual depiction of the model than without. On the downside, I have two
concerns. First of all, very, very few of the ABC software packages are cross-platform. (Note: In fact, I don't
know of one.) Secondly, all of the ABC packages I've investigated are more inflexible than I like. If a model
requires any variation from the methodology implemented in a given package, the modeling software balks (usually
with a cryptic error message). The companies I model often have similarities, but they have never been identical.
I need flexibility. I've stayed with Excel. (sdc)
A: This is the process we use at Accounting Insights:
• First, we have to open the channels of communication. Just give Accounting
Insights a call or send Steve an email to express your interest. Steve will return your call and arrange for
an initial face-to-face meeting (or an extended teleconference) with you and your staff.
• From your viewpoint, this initial meeting is an opportunity to meet Steve
and to gain a better understanding of Accounting Insights capablities. It also gives you a chance to express
your management accounting issues in some detail. This by itself is often valuable because it helps you clarify
what you expect from the project. From our viewpoint, the purpose of this initial meeting is to meet you and
your staff and to gain enough insight into your circumstances that Steve can develop a strategy to address your
• After the initial meeting, Steve will prepare a project workplan and cost estimate for your
approval. We will communicate this information to you in the form of an offer letter. The offer
letter will specify what Accounting Insights will do, what we will deliver, and how much it will cost.
• If our offer meets your expectations, you will return the Start Work authorization
included in the offer. Upon its receipt, we will contact you to schedule a project kickoff meeting. And the
project is underway.
• If our initial offer does not meet your expectations, we will modify our strategy, workplan
and deliverables, if possible, based on your feedback and submit a revised offer. (editor)
A: Named ranges, formulae and constants are a powerful tool in developing spreadsheet models of
any size. Names are self-documenting and help prevent spreadsheet errors. I do use them a lot. I have been frustrated,
however, by the lack of embedded support within Excel for maintianing and managing Names. There is a 3rd party
utility available (Name Manager for Excel by JKP Application Development Services) that gets excellent reviews,
but I've chosen to use a home-brew solution.
The first sheet of every Excel workbook I create is a Table of Contents worksheet. Associated with this Table
of Contents is a macro that is triggered by the ACTIVATE event. Among other things, the macro
list all of the Names used in the workbook and their definition. If the Name is a range, the macro lists the
worksheet and the range. If the Name is a formula, the macro displays the formula, and if the Name is a constant,
the macro shows the value. Names that are created as part of Excel's internal machinations are ignored. The
following screenshot shows the actual listing from one of my models.
Once I have the Names and their definitions listed I use Excel's autofilter functionality to slice and dice the
list and find the answer I'm after.
Click here to download my Table of Contents
worksheet and its macro. (sdc)
Q: Which Excel function do you find the most useful when constructing a spreadsheet model of an
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A: This is a difficult question. There are a handful of functions I use regularly depending
on the modeling project.
SUM is probably the function I use the most often; I am, afterall, an accountant.
Recently, I've found myself using the SUBTOTAL function more and more often. SUBTOTAL
has all the features of SUM and COUNT and it has the added advantage of operating
only on visible cells. When I am autofiltering a list of data, I put all of my analytical calculations in a
block below the list and use SUBTOTAL instead of SUM or COUNT.
SUBTOTAL returns an answer based on the cells made visible by the current filtering criteria.
I also use the SUMIF function quite frequently. I use it to summarize data at the bottom of
a table or to create check figures for a table. I also use SUMIF to spread data that is in
a list into columns. I think the secret to using SUMIF is to be creative in assigning a key
for the SUMIF match. For example, if I have region and department and month in three columns
of two different lists, I might create another column in both lists with a calculated key (i.e. myKey = REGION
& DEPARTMENT & MONTH) to use with SUMIF. Click
here to download a worksheet demonstrating my use of SUMIF to create check figures and
to spread list data into columns. (sdc)