accountancy doesn’t even measure cost
TRANSCRIPT
Accountancy doesn’t even measure cost
• The extent to which the finance function has held management and corporate governance in its grip is rarely fully acknowledged. It encourages an excessive focus on historic accounting figures, often diverting managers away from the real company and its performance. It even leads to the remarkable conclusion that employees don’t even exist, that they are ‘intangible’.
• Now, to be clear, we’ve nothing against finance. It performs an essential function. What New Normal Radical Shift challenges is the idea – firmly part of the fashionable business model – that only finance should be allowed anywhere near the steering wheel. Consider the following common phrase: ‘We must bear down on costs’. Well, fine, but unless ‘cost’ is understood as being a by-product of human behaviour, this focus is at best limited and at worst creates wasteful distortions and poor strategic decision-making.
• The bias is exacerbated by an excessive focus on quarterly reporting, which adds short-termism to the problems of management-by-numbers.
• The point was well made in the recent Management Futures blog of the Chartered Management Institute: ‘If a finance manager claims that: “We’ll save £x million by switching to casual labour,” this is an easy argument to rebut. You simply say: “That’s accounting cost, not operating cost. You’re omitting some of the biggest factors to take into account.”’
• This of course, is heresy – the idea that accountancy doesn’t even measure cost very accurately. But it’s called being in the real world. Our radical shift isn’t about projecting an idealistic future, it’s more about catching up with the present.
