Thought leader, author, and media contributor on performance management, sustainability, ethics, and corporate governance. Extensive senior experience in professional practice, academia, and non-for-profit area. Currently leading global research activities of a global professional association. Phone: 2019650017 Address: Institute of Management Accountants 10 Paragon Drive Montvale, NJ 07645 United States
A large HMO's financial reporting system was geared to providing information needed for external ... more A large HMO's financial reporting system was geared to providing information needed for external regulatory reporting. The system was unable to provide the information needed to effectively manage the HMO's health centers and their constituent medical departments. This paper describes the development by the HMO of a new financial reporting system designed to provide the detailed information needed to manage its health center operations. Design of the system required consideration of appropriate ways to measure departmental revenues, resolve information system issues, and allocate expenses to departments. The new system provided health center administrators with a tool that enabled them to focus on improving the organization's decision making and its cost effectiveness.
Changes in the delivery and reimbursement of health care services are requiring the training of i... more Changes in the delivery and reimbursement of health care services are requiring the training of increased numbers of undergraduate medical students in primary care. A significant portion of this training occurs in ambulatory care settings. This study examines the impact of training third-year medical students at two HMO and two non-HMO health centers. The presence of students did not affect physician productivity at the HMO health centers. Physician productivity at the non-HMO centers decreased by 0.31 patients per hour when students were present, for a cost of $517 per four-week rotation. Other costs to the training sites were estimated to be $560 per student, yielding a total cost to the non-HMO sites of approximately $1,080 per student per rotation.
Previous studies have reported students' widely held belief that they are more ethical than busin... more Previous studies have reported students' widely held belief that they are more ethical than businessmen. On the other hand, widespread cheating among college students has been reported. This paper examines this inconsistency between the beliefs of college students regarding the need for ethical behavior in a business setting and their actions in an academic setting. The results of this study indicate that while students are generally upset with cheating in their class, a large proportion of them nontheless engage in such behavior. It was further found that students have a good understanding of what constitutes ethical behavior in the business world and the need for such behavior. however, they also believe that business people fail to act in an ethical manner, and that they may need to act unethically to advance their careers. Students' concern with business ethics contrasted sharply with their own lack of personal ethics. This "paradox" is consistent with the idea that students view the practicality of an action as being more important than its ethicality. This belief is a cause for concern and indicates a need for students to sharpen their ethical decision-making skills in complex real-world type setting.
In 1978 China announced its open market economic reforms. The ensuing transition from a planned t... more In 1978 China announced its open market economic reforms. The ensuing transition from a planned to a market economy had far-reaching effects on its society, which are still being felt to this day. This transition requires business enterprises in China to adapt to the changes in their environment as many struggle to survive. In order to succeed in this new environment, organizations need to articulate new strategies, create organizational structures that support these strategies, and design and implement cost and performance management systems to support organizational strategies and to support the new organization structures. One Chinese company that has successfully made this transition is Hongdou Indus trial Stock Company, Ltd. (“Hongdou”, or “the Group”), a private enterprise that operates primarily in the apparel industry. This article describes the strategies adopted by that company to adapt to the market economy; the adoption of an organizational structure suitable to the changing economic environment in which the company operates; and the implementation of a unique “job-by-job” accounting system that provides the company with a performance management and evaluation system that enables it to align staff performance with company strategy. The development of this management accounting methodology has been credited by the organization’s management with significantly contributing to the company’s enhanced efficiency and the overall success of the company. We begin by providing a brief background of Hongdou. A discussion of Hongdou’s operating philosophy and its strategy follows, along with a discussion of its impact on its organizational structure. The impact of the effect of the changing organizational environment on Hongdou’s planning and control systems is examined, along with a description of a performance evaluation and reward system that it has successfully developed and deployed to support implementation of its strategy in the new business environment.
Mechanisms to measure and reward performance contributing to environmental and social responsibil... more Mechanisms to measure and reward performance contributing to environmental and social responsibility goals vary across organizations. This paper formulates a framework, based upon cost variance analysis, to study and analyze these differences. The framework decomposes sustainability objectives into two parts. The first consists of what might be considered a natural outcome of pursuing the traditional economic goal of efficiency through cost-minimization (a “waste” variance). The second part consists of sustainability gains that produce societal benefit but may be incongruent with short-term economic goals (a “sustainability” variance). While elimination of waste variances can be encouraged using a traditional performance evaluation and reward structure, elimination of sustainability variances requires re-design of performance evaluation tools and reward structures. We further demonstrate that differing production functions across organizations and industries impact the relative magnitude of the two variances. The failure to recognize and incorporate these differences can lead to inefficient allocation of resources and/or only partial fulfillment of strategic environmental goals of the organization.
On a regular basis, companies report on their financial performance based on the generally accept... more On a regular basis, companies report on their financial performance based on the generally accepted accounting principles. While these reports provide useful information, they are increasingly perceived as failing to provide the broader view of an organization’s operations needed to perform effectively in today’s economic/social environment. To address this shortcoming, companies are increasingly adopting “triple-bottom line” reporting—measuring their performance using economic, social, and environmental metrics. As firms begin to adopt reporting on environmental and social dimensions, it is necessary to integrate this broader view into an organization’s strategic and operational decision making processes. This is not an easy task, as such nonfinancial considerations are systematically ignored by decision makers and the ramifications are viewed as “free” goods. Additionally, tools to facilitate the evaluation of trade-offs among then three performance attributes remains to be developed. Such tools would enable a broader, all-encompassing view of an organization’s operations. Incorporating the social and environmental effects of business decision making is relatively new and has not been thoroughly explored. The opportunity cost of consuming environmental resources is of ten ignored. For example, the environmental cost of a lumber company’s failure to reforest land that it has logged is not measured. Awareness of this type of issue has brought to the forefront the need to explicitly consider these consequences. A company can alter the way it produces its goods in order to change it s impact on greenhouse gas (GHG) emissions, by altering its sourcing of raw materials, by changing its own production processes, or by changing its product to reduce the downstream consequences of using the product . This demonstrates the need for organizations to adopt an extended supply chain point of view in making decisions in a triple-bottom line context. Inclusion of environmental impact in the business decision making process can have a beneficial impact not only on the environment, but also the “bottom line.”Research has consistently shown that supply chain managers “who consider environmentally preferable criteria in the procurement process (or early in the supply chain sequence) have the power to reduce or even eliminate waste and environmental impacts as well as reduce costs.”1 Specifically, the industrial supply chain is “one of the most pervasive places where energy can be conserved.” “The implementation and integration of green purchasing concepts constitutes a system-wide process reform that collectively contributes to an organization’s reduction in ecological footprint.” In this article we develop this idea further. We begin by discussing the concept of carbon accounting.We then look at some measurement problems in carbon accounting.Value chain analysis and the need to incorporate the impact of decisions on the “carbon footprint” are then explored. We then present a framework for inclusion of carbon emissions in managerial decision making.We conclude by discussing how this extended analysis impacts companies in general and specifically the management accountants.
China is emerging as a major free-market participant after decades of centralized planning and co... more China is emerging as a major free-market participant after decades of centralized planning and control by the central government. This transition has both necessitated and been supported by tremendous changes in the field of accounting. New professions have been created, new standards adopted, and new institutions formed. These changes are helping China integrate into the global market and assisting it in its drive to rapidly develop its economy. In this paper we briefly described the changing political and economic environment of China. We then look at how Chinese accounting standards have evolved in response to those changes and the standards as they currently exist today. We then provide an overview of the accounting profession in China, including the development of the public accountancy profession, the state of management accounting, and the educational system in place to train accountants. Together, these changes are forming the basis for a new, modern accounting profession in China.
With its emphasis on activities and their cost drivers, activity-based costing provides organizat... more With its emphasis on activities and their cost drivers, activity-based costing provides organizations with a powerful tool for managing their costs. Yet use of an ABC cost management system may be ineffective in managing the costs associated with capacity due to poor selection of activity capacities or poor selection of an approach to ABC implementation. use of a process-based approach to ABC implementation enables management to control these costs and utilize bottleneck resources more efficiently. Additionally, with its focus on understanding an organization's key processes, it provides a framework for specifying the performance attributes that are key to improving an organization's profitability and overall performance.
Implementing business performance management (BPM) isn't a one-time project—it's an ongoing busin... more Implementing business performance management (BPM) isn't a one-time project—it's an ongoing business process. As organizations refine and improve this process, they will realize significant benefits. Acting on information provided by the BPM information system, managers will be making more informed decisions, which will lead to better performance and greater profitability for their company. Yet the improvements in performance achieved as a result of these efforts may be only a fraction of the potential benefits an organization can realize from implementing a BPM system. Those that want to maximize the benefit from their BPM efforts need to also consider creating a BPM Center of Excellence (CoE). A BPM CoE helps companies overcome many of the challenges they face when implementing business performance management. It's an internal group that provides consulting services and oversees the BPM efforts within an organization. The CoE helps standardize tools, procedures, and best practices, enabling companies to leverage their experiences across projects to achieve scalable (spanning the enterprise) results and reduce the cost of their BPM efforts. In this paper I describe COE responsibilities, how to create a COE, and other issues related to COEs.
Disruptive technology upsets the status quo by revolutionising the way customer needs are met. An... more Disruptive technology upsets the status quo by revolutionising the way customer needs are met. An intriguing aspect of this type of technology is that it is often developed and marketed by relative 'newcomers' to an industry and not by its leading firms. Researchers have proposed many strategic and marketing reasons for this pattern of innovation. In this paper, we explore how accounting standards and their consequent financial effects influence firms' decisions to invest internally in 'sustaining technology' and through joint ventures or research partnerships in 'disruptive technologies'. We illustrate that hi-tech companies use a combination of strategies for R&D investments.
The economy of the People’s Republic of China (China) has been growing at an explosive rate for d... more The economy of the People’s Republic of China (China) has been growing at an explosive rate for decades. This growth has been fueled largely by exports to the West, especially the United States, which is experiencing a growing trade imbalance with China. But despite this emergence of China as a major player in the world market, little is known about the management accounting techniques and costing methodologies that Chinese companies use to cost their products and manage their firms. Similarly, the role played by the finance and accounting function in these firms isn’t well understood, although both areas can significantly impact operations and affect companies that work with or compete against these firms.Whether you are looking to compete against, partner with, merge with, or in some other way do business with a Chinese company, understanding these factors can help determine whether that interaction results in success or failure.
This article, the first of three, discusses the evolution of the finance and accounting (F&A) function in Chinese companies.
The “opening” of the People’s Republic of China to the West has led to an expanded role for Chine... more The “opening” of the People’s Republic of China to the West has led to an expanded role for Chinese companies’ finance and accounting (F&A) functions. How are they handling these additional responsibilities? What tools and techniques are they using? To what extent has Western practice influenced Chinese practice? IMA’s study of Chinese management accounting practices, on which this article is based, answers these questions.
This article describes the results of IMA’s study of the state of management accounting in the Pe... more This article describes the results of IMA’s study of the state of management accounting in the People’s Republic of China (China). We look at the costing practices employed by firms in that country. This is an important issue given the impact of product costs on firms’ pricing decisions and the not-uncommon complaint of product dumping by Chinese firms. Our study found significant differences between the costing practices followed by most Western companies and those followed by Chinese companies. This paper describes those differences are described next along with their possible implications.
THE POPULARITY OF ACTIVITY-BASED COSTING (ABC) GREW RAPIDLY DURING THE 1990S, AND, IN THE FOLLOWI... more THE POPULARITY OF ACTIVITY-BASED COSTING (ABC) GREW RAPIDLY DURING THE 1990S, AND, IN THE FOLLOWING DECADE, MANY SURVEYS REPORTED USAGE RATES OF ABOUT 50%. OVER THE PAST 10 YEARS, HOWEVER, THERE HAS BEEN DEBATE ABOUT THE OVERALL RELEVANCE OF THIS COSTING METHOD. TO INVESTIGATE THE CURRENT IMPORTANCE OF ABC, WE SURVEYED 348 MANUFACTURING AND SERVICE COMPANIES WORLDWIDE. OUR RESULTS INDICATE THAT ABC CONTINUES TO OFFER ORGANIZATIONS SIGNIFICANT VALUE FROM STRATEGIC AND OPERATIONAL PERSPECTIVES.
Ten years ago, activity-based costing systems were becoming established as a performance manageme... more Ten years ago, activity-based costing systems were becoming established as a performance management tool and the use of activity-based costing/management (ABC/M) was spreading from manufacturing to service industries. One area that looked especially promising was the field of healthcare. This paper compares the results of a survey on the use of activity-based costing by healthcare organizations with those from a similar survey conducted ten years ago. This comparison reveals that while healthcare organizations remain, on average, unsatisfied with their costing systems, the use of ABC/M has declined slightly in the past decade and fewer organizations are considering adopting the technique. This decline is due to the perceived difficulty and cost of implementing ABC/M systems, along with a lack of senior management commitment to them. Healthcare organizations also appear, in general, to have failed to transition from ABC to ABM, limiting the benefits achieved from implementation of these systems.
This article examines the differences between organizations that receive significant benefits fro... more This article examines the differences between organizations that receive significant benefits from their CPS and those that do not. What might a successful company whose CPS is providing significant benefits look like?
Based on an international survey, this paper identifies best practices in cost and profitability measurement used by successful organizations around the world. Criteria considered include technology used, length of time using their system, use of CPS information, costing methodology, functionality, and decision support.
Organizations face increasing demands to engage in environmental initiatives and to manage the en... more Organizations face increasing demands to engage in environmental initiatives and to manage the environmental risks associatedwith their operations. Whatever strategic response is developed, implementation of the response will rest with and depend upon the operating decisions of line managers and other employees (Dutta, Lawson, & Marcinko, 2010). Successful implementation will require the development of appropriate incentives in order to motivate managers, adequate information to support their decision making, and performance evaluation systems linked to the organization’s sustainability strategy (Dutta & Lawson, 2009).
Roth (2008) and Epstein (2008) have explored the use of well-known techniques of cost management to assist in sustainability efforts. They have developed extensions of activity analysis, budgeting, life-cycle costing, the balanced scorecard, and variance analysis that include environmental and social dimensions. This article extends Roth’s analysis by developing a set of variance measurements that can be applied at the cost-center level to evaluate management performance and measure the financial impact of implementing environmental priorities. Such a system of variances should prove useful to managers seeking implementation solutions to organizational mandates to improve environmental performance. It does so by making explicit the cost of pursuing sustainability objectives.
The proposed variance framework makes use of metrics related to the full social cost of an organization’s operating activities. In particular, prior research related to the development and use of so-called shadow prices for carbon enables us to isolate cost variances that could not be quantified before. The article thus begins with a description of the concept of carbon shadow pricing and its application. We then develop the variance model and provide a numerical illustration of its implementation.
A large HMO's financial reporting system was geared to providing information needed for external ... more A large HMO's financial reporting system was geared to providing information needed for external regulatory reporting. The system was unable to provide the information needed to effectively manage the HMO's health centers and their constituent medical departments. This paper describes the development by the HMO of a new financial reporting system designed to provide the detailed information needed to manage its health center operations. Design of the system required consideration of appropriate ways to measure departmental revenues, resolve information system issues, and allocate expenses to departments. The new system provided health center administrators with a tool that enabled them to focus on improving the organization's decision making and its cost effectiveness.
Changes in the delivery and reimbursement of health care services are requiring the training of i... more Changes in the delivery and reimbursement of health care services are requiring the training of increased numbers of undergraduate medical students in primary care. A significant portion of this training occurs in ambulatory care settings. This study examines the impact of training third-year medical students at two HMO and two non-HMO health centers. The presence of students did not affect physician productivity at the HMO health centers. Physician productivity at the non-HMO centers decreased by 0.31 patients per hour when students were present, for a cost of $517 per four-week rotation. Other costs to the training sites were estimated to be $560 per student, yielding a total cost to the non-HMO sites of approximately $1,080 per student per rotation.
Previous studies have reported students' widely held belief that they are more ethical than busin... more Previous studies have reported students' widely held belief that they are more ethical than businessmen. On the other hand, widespread cheating among college students has been reported. This paper examines this inconsistency between the beliefs of college students regarding the need for ethical behavior in a business setting and their actions in an academic setting. The results of this study indicate that while students are generally upset with cheating in their class, a large proportion of them nontheless engage in such behavior. It was further found that students have a good understanding of what constitutes ethical behavior in the business world and the need for such behavior. however, they also believe that business people fail to act in an ethical manner, and that they may need to act unethically to advance their careers. Students' concern with business ethics contrasted sharply with their own lack of personal ethics. This "paradox" is consistent with the idea that students view the practicality of an action as being more important than its ethicality. This belief is a cause for concern and indicates a need for students to sharpen their ethical decision-making skills in complex real-world type setting.
In 1978 China announced its open market economic reforms. The ensuing transition from a planned t... more In 1978 China announced its open market economic reforms. The ensuing transition from a planned to a market economy had far-reaching effects on its society, which are still being felt to this day. This transition requires business enterprises in China to adapt to the changes in their environment as many struggle to survive. In order to succeed in this new environment, organizations need to articulate new strategies, create organizational structures that support these strategies, and design and implement cost and performance management systems to support organizational strategies and to support the new organization structures. One Chinese company that has successfully made this transition is Hongdou Indus trial Stock Company, Ltd. (“Hongdou”, or “the Group”), a private enterprise that operates primarily in the apparel industry. This article describes the strategies adopted by that company to adapt to the market economy; the adoption of an organizational structure suitable to the changing economic environment in which the company operates; and the implementation of a unique “job-by-job” accounting system that provides the company with a performance management and evaluation system that enables it to align staff performance with company strategy. The development of this management accounting methodology has been credited by the organization’s management with significantly contributing to the company’s enhanced efficiency and the overall success of the company. We begin by providing a brief background of Hongdou. A discussion of Hongdou’s operating philosophy and its strategy follows, along with a discussion of its impact on its organizational structure. The impact of the effect of the changing organizational environment on Hongdou’s planning and control systems is examined, along with a description of a performance evaluation and reward system that it has successfully developed and deployed to support implementation of its strategy in the new business environment.
Mechanisms to measure and reward performance contributing to environmental and social responsibil... more Mechanisms to measure and reward performance contributing to environmental and social responsibility goals vary across organizations. This paper formulates a framework, based upon cost variance analysis, to study and analyze these differences. The framework decomposes sustainability objectives into two parts. The first consists of what might be considered a natural outcome of pursuing the traditional economic goal of efficiency through cost-minimization (a “waste” variance). The second part consists of sustainability gains that produce societal benefit but may be incongruent with short-term economic goals (a “sustainability” variance). While elimination of waste variances can be encouraged using a traditional performance evaluation and reward structure, elimination of sustainability variances requires re-design of performance evaluation tools and reward structures. We further demonstrate that differing production functions across organizations and industries impact the relative magnitude of the two variances. The failure to recognize and incorporate these differences can lead to inefficient allocation of resources and/or only partial fulfillment of strategic environmental goals of the organization.
On a regular basis, companies report on their financial performance based on the generally accept... more On a regular basis, companies report on their financial performance based on the generally accepted accounting principles. While these reports provide useful information, they are increasingly perceived as failing to provide the broader view of an organization’s operations needed to perform effectively in today’s economic/social environment. To address this shortcoming, companies are increasingly adopting “triple-bottom line” reporting—measuring their performance using economic, social, and environmental metrics. As firms begin to adopt reporting on environmental and social dimensions, it is necessary to integrate this broader view into an organization’s strategic and operational decision making processes. This is not an easy task, as such nonfinancial considerations are systematically ignored by decision makers and the ramifications are viewed as “free” goods. Additionally, tools to facilitate the evaluation of trade-offs among then three performance attributes remains to be developed. Such tools would enable a broader, all-encompassing view of an organization’s operations. Incorporating the social and environmental effects of business decision making is relatively new and has not been thoroughly explored. The opportunity cost of consuming environmental resources is of ten ignored. For example, the environmental cost of a lumber company’s failure to reforest land that it has logged is not measured. Awareness of this type of issue has brought to the forefront the need to explicitly consider these consequences. A company can alter the way it produces its goods in order to change it s impact on greenhouse gas (GHG) emissions, by altering its sourcing of raw materials, by changing its own production processes, or by changing its product to reduce the downstream consequences of using the product . This demonstrates the need for organizations to adopt an extended supply chain point of view in making decisions in a triple-bottom line context. Inclusion of environmental impact in the business decision making process can have a beneficial impact not only on the environment, but also the “bottom line.”Research has consistently shown that supply chain managers “who consider environmentally preferable criteria in the procurement process (or early in the supply chain sequence) have the power to reduce or even eliminate waste and environmental impacts as well as reduce costs.”1 Specifically, the industrial supply chain is “one of the most pervasive places where energy can be conserved.” “The implementation and integration of green purchasing concepts constitutes a system-wide process reform that collectively contributes to an organization’s reduction in ecological footprint.” In this article we develop this idea further. We begin by discussing the concept of carbon accounting.We then look at some measurement problems in carbon accounting.Value chain analysis and the need to incorporate the impact of decisions on the “carbon footprint” are then explored. We then present a framework for inclusion of carbon emissions in managerial decision making.We conclude by discussing how this extended analysis impacts companies in general and specifically the management accountants.
China is emerging as a major free-market participant after decades of centralized planning and co... more China is emerging as a major free-market participant after decades of centralized planning and control by the central government. This transition has both necessitated and been supported by tremendous changes in the field of accounting. New professions have been created, new standards adopted, and new institutions formed. These changes are helping China integrate into the global market and assisting it in its drive to rapidly develop its economy. In this paper we briefly described the changing political and economic environment of China. We then look at how Chinese accounting standards have evolved in response to those changes and the standards as they currently exist today. We then provide an overview of the accounting profession in China, including the development of the public accountancy profession, the state of management accounting, and the educational system in place to train accountants. Together, these changes are forming the basis for a new, modern accounting profession in China.
With its emphasis on activities and their cost drivers, activity-based costing provides organizat... more With its emphasis on activities and their cost drivers, activity-based costing provides organizations with a powerful tool for managing their costs. Yet use of an ABC cost management system may be ineffective in managing the costs associated with capacity due to poor selection of activity capacities or poor selection of an approach to ABC implementation. use of a process-based approach to ABC implementation enables management to control these costs and utilize bottleneck resources more efficiently. Additionally, with its focus on understanding an organization's key processes, it provides a framework for specifying the performance attributes that are key to improving an organization's profitability and overall performance.
Implementing business performance management (BPM) isn't a one-time project—it's an ongoing busin... more Implementing business performance management (BPM) isn't a one-time project—it's an ongoing business process. As organizations refine and improve this process, they will realize significant benefits. Acting on information provided by the BPM information system, managers will be making more informed decisions, which will lead to better performance and greater profitability for their company. Yet the improvements in performance achieved as a result of these efforts may be only a fraction of the potential benefits an organization can realize from implementing a BPM system. Those that want to maximize the benefit from their BPM efforts need to also consider creating a BPM Center of Excellence (CoE). A BPM CoE helps companies overcome many of the challenges they face when implementing business performance management. It's an internal group that provides consulting services and oversees the BPM efforts within an organization. The CoE helps standardize tools, procedures, and best practices, enabling companies to leverage their experiences across projects to achieve scalable (spanning the enterprise) results and reduce the cost of their BPM efforts. In this paper I describe COE responsibilities, how to create a COE, and other issues related to COEs.
Disruptive technology upsets the status quo by revolutionising the way customer needs are met. An... more Disruptive technology upsets the status quo by revolutionising the way customer needs are met. An intriguing aspect of this type of technology is that it is often developed and marketed by relative 'newcomers' to an industry and not by its leading firms. Researchers have proposed many strategic and marketing reasons for this pattern of innovation. In this paper, we explore how accounting standards and their consequent financial effects influence firms' decisions to invest internally in 'sustaining technology' and through joint ventures or research partnerships in 'disruptive technologies'. We illustrate that hi-tech companies use a combination of strategies for R&D investments.
The economy of the People’s Republic of China (China) has been growing at an explosive rate for d... more The economy of the People’s Republic of China (China) has been growing at an explosive rate for decades. This growth has been fueled largely by exports to the West, especially the United States, which is experiencing a growing trade imbalance with China. But despite this emergence of China as a major player in the world market, little is known about the management accounting techniques and costing methodologies that Chinese companies use to cost their products and manage their firms. Similarly, the role played by the finance and accounting function in these firms isn’t well understood, although both areas can significantly impact operations and affect companies that work with or compete against these firms.Whether you are looking to compete against, partner with, merge with, or in some other way do business with a Chinese company, understanding these factors can help determine whether that interaction results in success or failure.
This article, the first of three, discusses the evolution of the finance and accounting (F&A) function in Chinese companies.
The “opening” of the People’s Republic of China to the West has led to an expanded role for Chine... more The “opening” of the People’s Republic of China to the West has led to an expanded role for Chinese companies’ finance and accounting (F&A) functions. How are they handling these additional responsibilities? What tools and techniques are they using? To what extent has Western practice influenced Chinese practice? IMA’s study of Chinese management accounting practices, on which this article is based, answers these questions.
This article describes the results of IMA’s study of the state of management accounting in the Pe... more This article describes the results of IMA’s study of the state of management accounting in the People’s Republic of China (China). We look at the costing practices employed by firms in that country. This is an important issue given the impact of product costs on firms’ pricing decisions and the not-uncommon complaint of product dumping by Chinese firms. Our study found significant differences between the costing practices followed by most Western companies and those followed by Chinese companies. This paper describes those differences are described next along with their possible implications.
THE POPULARITY OF ACTIVITY-BASED COSTING (ABC) GREW RAPIDLY DURING THE 1990S, AND, IN THE FOLLOWI... more THE POPULARITY OF ACTIVITY-BASED COSTING (ABC) GREW RAPIDLY DURING THE 1990S, AND, IN THE FOLLOWING DECADE, MANY SURVEYS REPORTED USAGE RATES OF ABOUT 50%. OVER THE PAST 10 YEARS, HOWEVER, THERE HAS BEEN DEBATE ABOUT THE OVERALL RELEVANCE OF THIS COSTING METHOD. TO INVESTIGATE THE CURRENT IMPORTANCE OF ABC, WE SURVEYED 348 MANUFACTURING AND SERVICE COMPANIES WORLDWIDE. OUR RESULTS INDICATE THAT ABC CONTINUES TO OFFER ORGANIZATIONS SIGNIFICANT VALUE FROM STRATEGIC AND OPERATIONAL PERSPECTIVES.
Ten years ago, activity-based costing systems were becoming established as a performance manageme... more Ten years ago, activity-based costing systems were becoming established as a performance management tool and the use of activity-based costing/management (ABC/M) was spreading from manufacturing to service industries. One area that looked especially promising was the field of healthcare. This paper compares the results of a survey on the use of activity-based costing by healthcare organizations with those from a similar survey conducted ten years ago. This comparison reveals that while healthcare organizations remain, on average, unsatisfied with their costing systems, the use of ABC/M has declined slightly in the past decade and fewer organizations are considering adopting the technique. This decline is due to the perceived difficulty and cost of implementing ABC/M systems, along with a lack of senior management commitment to them. Healthcare organizations also appear, in general, to have failed to transition from ABC to ABM, limiting the benefits achieved from implementation of these systems.
This article examines the differences between organizations that receive significant benefits fro... more This article examines the differences between organizations that receive significant benefits from their CPS and those that do not. What might a successful company whose CPS is providing significant benefits look like?
Based on an international survey, this paper identifies best practices in cost and profitability measurement used by successful organizations around the world. Criteria considered include technology used, length of time using their system, use of CPS information, costing methodology, functionality, and decision support.
Organizations face increasing demands to engage in environmental initiatives and to manage the en... more Organizations face increasing demands to engage in environmental initiatives and to manage the environmental risks associatedwith their operations. Whatever strategic response is developed, implementation of the response will rest with and depend upon the operating decisions of line managers and other employees (Dutta, Lawson, & Marcinko, 2010). Successful implementation will require the development of appropriate incentives in order to motivate managers, adequate information to support their decision making, and performance evaluation systems linked to the organization’s sustainability strategy (Dutta & Lawson, 2009).
Roth (2008) and Epstein (2008) have explored the use of well-known techniques of cost management to assist in sustainability efforts. They have developed extensions of activity analysis, budgeting, life-cycle costing, the balanced scorecard, and variance analysis that include environmental and social dimensions. This article extends Roth’s analysis by developing a set of variance measurements that can be applied at the cost-center level to evaluate management performance and measure the financial impact of implementing environmental priorities. Such a system of variances should prove useful to managers seeking implementation solutions to organizational mandates to improve environmental performance. It does so by making explicit the cost of pursuing sustainability objectives.
The proposed variance framework makes use of metrics related to the full social cost of an organization’s operating activities. In particular, prior research related to the development and use of so-called shadow prices for carbon enables us to isolate cost variances that could not be quantified before. The article thus begins with a description of the concept of carbon shadow pricing and its application. We then develop the variance model and provide a numerical illustration of its implementation.
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Papers by Raef Lawson
This study examines the impact of training third-year medical students at two HMO and two non-HMO health centers. The presence of students did not affect physician productivity at the HMO health centers. Physician productivity at the non-HMO centers decreased by 0.31 patients per hour when students were present, for a cost of $517 per four-week rotation. Other costs to the training sites were estimated to be $560 per student, yielding a total cost to the non-HMO sites of approximately $1,080 per student per rotation.
The results of this study indicate that while students are generally upset with cheating in their class, a large proportion of them nontheless engage in such behavior. It was further found that students have a good understanding of what constitutes ethical behavior in the business world and the need for such behavior. however, they also believe that business people fail to act in an ethical manner, and that they may need to act unethically to advance their careers.
Students' concern with business ethics contrasted sharply with their own lack of personal ethics. This "paradox" is consistent with the idea that students view the practicality of an action as being more important than its ethicality. This belief is a cause for concern and indicates a need for students to sharpen their ethical decision-making skills in complex real-world type setting.
One Chinese company that has successfully made this transition is Hongdou Indus trial Stock Company, Ltd. (“Hongdou”, or “the Group”), a private enterprise that operates primarily in the apparel industry. This article describes the strategies adopted by that company to adapt to the market economy; the adoption of an organizational structure suitable to the changing economic environment in which the company operates; and the implementation of a unique “job-by-job” accounting system that provides the company with a performance management and evaluation system that enables it to align staff performance with company strategy. The development of this management accounting methodology has been credited by the organization’s management with significantly contributing to the company’s enhanced efficiency and the overall success of the company. We begin by providing a brief background of Hongdou. A discussion of Hongdou’s operating philosophy and its strategy follows, along with a discussion of its impact on its organizational structure.
The impact of the effect of the changing organizational environment on Hongdou’s planning and control systems is examined, along with a description of a performance evaluation and reward system that it has successfully developed and deployed to support implementation of its strategy in the new business environment.
As firms begin to adopt reporting on environmental and social dimensions, it is necessary to integrate this broader view into an organization’s strategic and operational decision making processes.
This is not an easy task, as such nonfinancial considerations are systematically ignored by decision makers and the ramifications are viewed as “free” goods. Additionally, tools to facilitate the evaluation of trade-offs among then three performance attributes remains to
be developed. Such tools would enable a broader, all-encompassing view of an organization’s operations. Incorporating the social and environmental effects of business decision making is relatively new and has not been thoroughly explored. The opportunity cost of consuming environmental resources is of ten ignored. For example, the environmental cost of a lumber company’s failure to reforest land that it has logged is not measured. Awareness of this type of issue has brought to the forefront the need to explicitly consider these consequences.
A company can alter the way it produces its goods in order to change
it s impact on greenhouse gas (GHG) emissions, by altering its sourcing of raw materials, by changing its own production processes, or by changing its product to reduce the downstream consequences of using the product . This demonstrates the need for organizations to adopt an extended supply chain point of view in making decisions in a triple-bottom line context. Inclusion of environmental impact in the business decision making process can have a beneficial impact not only on the environment, but also the “bottom line.”Research has consistently shown that supply chain managers “who consider environmentally preferable criteria in the procurement process (or early in the supply chain sequence) have the power to reduce or even eliminate waste and environmental impacts as well as reduce costs.”1 Specifically, the industrial supply chain is “one of the most pervasive places where energy can be conserved.” “The implementation and integration of green purchasing concepts constitutes a system-wide process reform that collectively contributes to an organization’s reduction in ecological footprint.”
In this article we develop this idea further. We begin by discussing the concept of carbon accounting.We then look at some measurement problems in carbon accounting.Value chain analysis and the need to incorporate the impact of decisions on the “carbon footprint” are then explored. We then present a framework for inclusion of carbon emissions in managerial decision making.We conclude by discussing how this extended analysis impacts companies in general and specifically the management accountants.
In this paper we briefly described the changing political and economic environment of China. We then look at how Chinese accounting standards have evolved in response to those changes and the standards as they currently exist today. We then provide an overview of the accounting profession in China, including the development of the public accountancy profession, the state of management accounting, and the educational system in place to train accountants. Together, these changes are forming the basis for a new, modern accounting profession in China.
This article, the first of three, discusses the evolution of the finance and accounting (F&A) function in Chinese companies.
Our study found significant differences between the costing practices followed by most Western companies and those followed by Chinese
companies. This paper describes those differences are described next along with their possible implications.
OF ABC, WE SURVEYED 348 MANUFACTURING AND SERVICE COMPANIES WORLDWIDE. OUR RESULTS INDICATE THAT ABC CONTINUES TO OFFER ORGANIZATIONS SIGNIFICANT VALUE FROM STRATEGIC AND OPERATIONAL PERSPECTIVES.
This paper compares the results of a survey on the use of activity-based costing by healthcare organizations with those from a similar survey conducted ten years ago. This comparison reveals that while healthcare organizations remain, on average, unsatisfied with their costing systems, the use of ABC/M has declined slightly in the past decade and fewer organizations are considering adopting the technique. This decline is due to the perceived difficulty and cost of implementing ABC/M systems, along with a lack of senior management commitment to them. Healthcare organizations also appear, in general, to have failed to transition from ABC to ABM, limiting the benefits achieved from implementation of these systems.
Based on an international survey, this paper identifies best practices in cost and profitability measurement used by successful organizations around the world. Criteria considered include technology used, length of time using their system, use of CPS information, costing methodology, functionality, and decision support.
Roth (2008) and Epstein (2008) have explored the use of well-known techniques of cost management to assist in sustainability efforts. They have developed extensions of activity analysis, budgeting, life-cycle costing, the balanced scorecard, and variance analysis that include environmental and social dimensions. This article extends Roth’s analysis by developing a set of variance measurements that can be applied at the cost-center level to evaluate management performance and measure the financial impact of implementing environmental priorities. Such a system of variances should prove useful to managers seeking implementation solutions to organizational mandates to improve environmental performance. It does so by making explicit the cost of pursuing sustainability objectives.
The proposed variance framework makes use of metrics related to the full social cost of an organization’s operating activities. In particular, prior research related to the development and use of so-called shadow prices for carbon enables us to isolate cost variances that could not be quantified before. The article thus begins with a description of the concept of carbon shadow pricing and its application. We then develop the variance model and provide a numerical illustration of its implementation.
This study examines the impact of training third-year medical students at two HMO and two non-HMO health centers. The presence of students did not affect physician productivity at the HMO health centers. Physician productivity at the non-HMO centers decreased by 0.31 patients per hour when students were present, for a cost of $517 per four-week rotation. Other costs to the training sites were estimated to be $560 per student, yielding a total cost to the non-HMO sites of approximately $1,080 per student per rotation.
The results of this study indicate that while students are generally upset with cheating in their class, a large proportion of them nontheless engage in such behavior. It was further found that students have a good understanding of what constitutes ethical behavior in the business world and the need for such behavior. however, they also believe that business people fail to act in an ethical manner, and that they may need to act unethically to advance their careers.
Students' concern with business ethics contrasted sharply with their own lack of personal ethics. This "paradox" is consistent with the idea that students view the practicality of an action as being more important than its ethicality. This belief is a cause for concern and indicates a need for students to sharpen their ethical decision-making skills in complex real-world type setting.
One Chinese company that has successfully made this transition is Hongdou Indus trial Stock Company, Ltd. (“Hongdou”, or “the Group”), a private enterprise that operates primarily in the apparel industry. This article describes the strategies adopted by that company to adapt to the market economy; the adoption of an organizational structure suitable to the changing economic environment in which the company operates; and the implementation of a unique “job-by-job” accounting system that provides the company with a performance management and evaluation system that enables it to align staff performance with company strategy. The development of this management accounting methodology has been credited by the organization’s management with significantly contributing to the company’s enhanced efficiency and the overall success of the company. We begin by providing a brief background of Hongdou. A discussion of Hongdou’s operating philosophy and its strategy follows, along with a discussion of its impact on its organizational structure.
The impact of the effect of the changing organizational environment on Hongdou’s planning and control systems is examined, along with a description of a performance evaluation and reward system that it has successfully developed and deployed to support implementation of its strategy in the new business environment.
As firms begin to adopt reporting on environmental and social dimensions, it is necessary to integrate this broader view into an organization’s strategic and operational decision making processes.
This is not an easy task, as such nonfinancial considerations are systematically ignored by decision makers and the ramifications are viewed as “free” goods. Additionally, tools to facilitate the evaluation of trade-offs among then three performance attributes remains to
be developed. Such tools would enable a broader, all-encompassing view of an organization’s operations. Incorporating the social and environmental effects of business decision making is relatively new and has not been thoroughly explored. The opportunity cost of consuming environmental resources is of ten ignored. For example, the environmental cost of a lumber company’s failure to reforest land that it has logged is not measured. Awareness of this type of issue has brought to the forefront the need to explicitly consider these consequences.
A company can alter the way it produces its goods in order to change
it s impact on greenhouse gas (GHG) emissions, by altering its sourcing of raw materials, by changing its own production processes, or by changing its product to reduce the downstream consequences of using the product . This demonstrates the need for organizations to adopt an extended supply chain point of view in making decisions in a triple-bottom line context. Inclusion of environmental impact in the business decision making process can have a beneficial impact not only on the environment, but also the “bottom line.”Research has consistently shown that supply chain managers “who consider environmentally preferable criteria in the procurement process (or early in the supply chain sequence) have the power to reduce or even eliminate waste and environmental impacts as well as reduce costs.”1 Specifically, the industrial supply chain is “one of the most pervasive places where energy can be conserved.” “The implementation and integration of green purchasing concepts constitutes a system-wide process reform that collectively contributes to an organization’s reduction in ecological footprint.”
In this article we develop this idea further. We begin by discussing the concept of carbon accounting.We then look at some measurement problems in carbon accounting.Value chain analysis and the need to incorporate the impact of decisions on the “carbon footprint” are then explored. We then present a framework for inclusion of carbon emissions in managerial decision making.We conclude by discussing how this extended analysis impacts companies in general and specifically the management accountants.
In this paper we briefly described the changing political and economic environment of China. We then look at how Chinese accounting standards have evolved in response to those changes and the standards as they currently exist today. We then provide an overview of the accounting profession in China, including the development of the public accountancy profession, the state of management accounting, and the educational system in place to train accountants. Together, these changes are forming the basis for a new, modern accounting profession in China.
This article, the first of three, discusses the evolution of the finance and accounting (F&A) function in Chinese companies.
Our study found significant differences between the costing practices followed by most Western companies and those followed by Chinese
companies. This paper describes those differences are described next along with their possible implications.
OF ABC, WE SURVEYED 348 MANUFACTURING AND SERVICE COMPANIES WORLDWIDE. OUR RESULTS INDICATE THAT ABC CONTINUES TO OFFER ORGANIZATIONS SIGNIFICANT VALUE FROM STRATEGIC AND OPERATIONAL PERSPECTIVES.
This paper compares the results of a survey on the use of activity-based costing by healthcare organizations with those from a similar survey conducted ten years ago. This comparison reveals that while healthcare organizations remain, on average, unsatisfied with their costing systems, the use of ABC/M has declined slightly in the past decade and fewer organizations are considering adopting the technique. This decline is due to the perceived difficulty and cost of implementing ABC/M systems, along with a lack of senior management commitment to them. Healthcare organizations also appear, in general, to have failed to transition from ABC to ABM, limiting the benefits achieved from implementation of these systems.
Based on an international survey, this paper identifies best practices in cost and profitability measurement used by successful organizations around the world. Criteria considered include technology used, length of time using their system, use of CPS information, costing methodology, functionality, and decision support.
Roth (2008) and Epstein (2008) have explored the use of well-known techniques of cost management to assist in sustainability efforts. They have developed extensions of activity analysis, budgeting, life-cycle costing, the balanced scorecard, and variance analysis that include environmental and social dimensions. This article extends Roth’s analysis by developing a set of variance measurements that can be applied at the cost-center level to evaluate management performance and measure the financial impact of implementing environmental priorities. Such a system of variances should prove useful to managers seeking implementation solutions to organizational mandates to improve environmental performance. It does so by making explicit the cost of pursuing sustainability objectives.
The proposed variance framework makes use of metrics related to the full social cost of an organization’s operating activities. In particular, prior research related to the development and use of so-called shadow prices for carbon enables us to isolate cost variances that could not be quantified before. The article thus begins with a description of the concept of carbon shadow pricing and its application. We then develop the variance model and provide a numerical illustration of its implementation.