COST ACCOUNTING TO UNDERSTAND THE MANAGEMENT OF THE FOREIGN COMPANY
“Cost accounting to understand the management of the foreign company”
Keep the foreign company under control, at the economic level, both on site and from Italy
The summary of the intervention
The intervention means to provide the Italian parent company with the ability to control and manage the economic dynamics of its foreign branch. The logic of the intervention is to provide a management tool to the foreign branch, which at the same time also serves the parent company.
So a single tool for two purposes, monitor the foreign branch but also allow it to optimize its management.
The final aim is to carry out a careful survey of costs in order to obtain the answers necessary for the right decision-making.
The way in which this survey is carried out depends on the IT situation of the foreign company: they can be simple cost cards or an organic system of industrial and analytical accounting managed by a management software.
Where available, at the head office or on site, a business intelligence program will retrieve data from industrial and analytical accounting, processing them according to formulas and algorithms which are themselves the subject of the intervention.
What is important in the intervention is not the computer or accounting mode, but the meaning, the logic of the reasoning and the information obtained.
The company is in fact a complex organism that moves in a complex environment: the meaning is therefore to understand and decode this complexity. The cost of a batch of production of more or less quantity, of an out-of-standard, of a single or split shipment, of a simple or problematic customer, are all aspects whose management must become comprehensible and structured.
The symptoms of his need
There is a perception that many cost-related aspects get out of hand and that there is no real knowledge of the profitability of many activities of the foreign company. The component relating to raw materials and direct labor costs is generally quite under control. Other items are not known, because of the doubts about the correctness of the relative numbers. Many questions therefore do not find an answer and the decisions that are made are based more on sensations than on real data. Strategic and operational decisions related to individual customers or groups of customers would require information on their profitability, including a large part of overhead costs. The prices of non-standard workings would need a certain and sure costing. Surcharges that are applied in certain cases, for example for particular or fractional shipments, have always been applied on a lump-sum basis, while they would need to start from a calculated cost. Overall there is a perception that some information is missing to make many decisions regarding the foreign company.
The course of the intervention
The first part of the intervention is dedicated to understanding the costs of the company: the purpose is to understand and analyze.
After the analysis we have the second part in which the system must be structured in an organic way. This is the moment in which the cost cards are created, the algorithms are defined, the first answers are given regarding the cost of the various analysis objects.
Then we move on to the third phase. The report is developed and it must be immediate, flexible, suitable for use both in the entire foreign branch and, if necessary, in the parent company. Reporting must produce information for decision making. In fact, the system does not start from the production of data, but from its use, that is from the decisions that will be supported by its information. The project will therefore base its success not on the amount of data produced, but on how effective it will be to support decisions. It will therefore have to be analytical, but immediate, accurate but fast.
The final phase consists of training people to use it, both in terms of data supply and in terms of application for decision making, always keeping in mind the dual use of the tool, for the on-site management of the site and for control from Italy.
The human resources involved
The intervention involves the management of the Italian parent company and of the foreign branch, in the part of understanding its needs and its strategies.
Local human resources at the operational level will be involved in the technical and operational aspects of the project. Important operational aspects will be the data supply processes and the IT procedures used: the local operators of the administrative and IT area will be involved. The administrative managers of foreign and Italian companies will subsequently be involved in the part concerning the decision-making of the instrument. As in any Farnetani Estero Consulting project the impact on the ordinary activities of companies will be minimized, alternating the people involved, limiting their use, and optimizing the interaction with the consultant based on the work requirements of individual operators.
The intervention can last from ten to fifteen days of work by a consultant, depending on the size, complexity and spatial location of the foreign company. In any case, the duration of the intervention is agreed on the basis of a specific quote.
The advantages achieved
The foreign company has a tool with which to plan and manage its economic dynamics.
The foreign branch and the parent company obtain many answers among which the profitability of:
– products, singles and intended as categories or families
– customers, individuals, categories or commercial sectors
– production batches
– transport and delivery batches
– specific activities, such as processing, administrative compliance or commercial actions
– specific suppliers
– business areas
The dynamics of general costs will be very thorough and known.
The knowledge of its costs will be an undoubted advantage, usable in the processes of cost reduction.
The only limitation to obtaining these advantages will be the availability of data in the company, or the possibility of obtaining them.
The Italian parent company moves in a perception of less uncertainty respect to the previous situation, controlling the work of the foreign branch so as to be able to make the most appropriate decisions.
The system can be developed and refined, in the following phases, in many ways.
The level of analysis of the activities and the refinement of the algorithms can be increased.
The integration with the budget can be increased.
A classic development of the system is its growing integration with the IT environment.
Simple cost cards and bills of materials can become an industrial and analytical accounting system. This can start autonomous, but subsequently integrated with the management system and finally integrated with the business intelligence programs.
Natural development of the intervention will be the cost reduction actions, which will be based on all the answers obtained.