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It’s Time to Move Beyond an “Adequate” Accounting System. Breakout Session # 703 Jeff Lubeck CPA CSPM CBM CEP President Strategic Business Solutions, Inc. Date April 26, 2004 Time 2:45 – 3:45. Views of Accounting Departments. Is Accounting Relevant???. Why is a System Important?.
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NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
It’s Time to Move Beyond an “Adequate” Accounting System Breakout Session #703 Jeff Lubeck CPA CSPM CBM CEP President Strategic Business Solutions, Inc. Date April 26, 2004 Time 2:45 – 3:45 NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
Views of Accounting Departments NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
Is Accounting Relevant??? NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
Why is a System Important? • Make payments • Generate invoices & receive payments • Prevent fraud • Against the government • Internally • Public money involved NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
Adequate Accounting • “Adequate” system generally more costly to implement & operate • Additional cost detail is usually more valuable to management • General guidelines, not hard & fast rules NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
Cost of Non-Compliance is High • Delay in payments • Delay in new awards • Cancellation of existing • Cancellation of new awards • Unfavorable ratings • Penalties & fines – corporate and personal NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
What an Accounting System is not • It’s not the accounting software • QuickBooks can be acceptable • “DCAA compliant” software may not be acceptable • A shoebox of receipts NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
Important Points • Specific cost accounting system is not required • Should be based on your products and/or services • Goal is to ensure equitable & consistent allocation of direct and indirect costs NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
Basic Requirements - FAR • Requires a company to maintain and consistently apply any method that is • Adequate • Efficient • Reliable • Equitable • But not necessarily exact & specific • Not biased against the government NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
Determination of Adequacy • DCAA or other government auditors will use SF 1408 • Uses “yes” or “no” questions to determine adequacies • Certain elements must exist • Job cost ledger • Labor distribution records • Time records NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
Beyond Adequate • There are internal & external requirements for information • Budgeting • Federal & state taxes • Operations • Project management NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
Uses of Financial Information NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
Uses of Information • Government is concerned with only 1 aspect • Adequate may meet the government’s needs, but not the company’s needs • Can affect a company’s ability to manage & direct the future of the company NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
Essential Elements (“Adequate”) • Transaction processing • Job cost tracking & profitability • Human resources & payroll • Billings and accounts receivable NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
Beyond Adequate • Key performance indicators • Budgeting & resource management • Based on last year’s budget, or • This years’ goals/objectives? • Labor & employee management • Average labor rates • Average billing multiplier NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
Automobile Dashboard • Auto engines have hundreds of processes, functions & activities • Dashboard presents just a few critical engine functions • Dashboard now presents non-engine information • Inside & outside temperature • Direction NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
Business Dashboards • Businesses are much more complex than they used to be • Need less information, presented more accurately and timely • Needs to be forward-looking & retroactive • Should include financial & non-financial information NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
Business Dashboard • A business dashboard is a compilation of information, updated frequently, that has an important impact on your business. NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
Dashboard Examples • Financial • Average revenues per staff • Number of hours billed • Labor utilization • Number of units shipped • Monthly revenue • They tend to be backward looking NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
Dashboard Examples • Non-financial • New proposals submitted • New proposals won • Number of technical papers presented • Number of new RFP’s that get the green light • Tend to be predicative in nature NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
Why Develop a Dashboard? • Helps management & employees know what is important to the company’s success • Without tracking & sharing, there is little chance of improvement • Without improvement, you’re being left behind NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
How to Build a Dashboard • Collect the information • Organize the information • Knowledge through analysis • Turn knowledge into wisdom NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
1. Collect the Information • Determine what is relevant to your business • Sort potential measures against your mission & vision • Filter into as few of measures as possible NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
2. Organize the Information • Leading vs. lagging • Financial vs. non-financial • Customer focused vs. operational focus • Short-term vs. long-term • Internal vs. external NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
3. Knowledge Through Analysis • Is it a people issue or process issue? • Do employees have tools & resources available to affect positive change? • Where performance is measured, performance improves. When performance is measure & reported, the rate of improvement accelerates. NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
4. Apply Wisdom • Measuring & tracking allows you to evaluate results • Can test different strategies • Forms the baseline to measure continuous improvement • Don’t get attached – a good solution today may turn into tomorrow’s problem NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
Concluding Thoughts • Output of the accounting system is normally considered the financial statements • Financial statements are the scoreboard. • What was the final score? • Who won? • Who should I “play” for next year? NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
Concluding Thoughts • Performance Measures are the statistics to manage a game. • Batting average against left-handed pitchers • What pitch to expect on a full count • How fast is the runner NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
Concluding Thoughts • Performance Measures themselves are meaningless. • Performance Management puts you in a better position to win the game NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
Good Measures Are • Simple. Any employee should be able to answer what is getting measured and why. • Consistent. Measures from various departments don’t conflict • Controllable. If people can’t impact what goes into the measure, it won’t matter NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
Good Measures Are • Cheap. They don’t take too much time and effort to collect and maintain. • Proactive. They drive performance towards the goals & objectives. They should drive planning & budgeting NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”
Questions? Jeff Lubeck CPA CSPM CEP CBM Strategic Business Solutions, Inc. 509.736.3604 jlubeck@StrategicBizSolutions.com www.StrategicBizSolutions.com NCMA World Congress 2004 “Maximizing Value to Stakeholders…Contract Management in the Business World”