Management accounting means looking forward

Management accounting and the Theory of Constraints can help streamline your maintenance operation.

By Russ Kratowicz

Financial accounting is different from management accounting. Financial accounting uses generally accepted rules to document for third parties everything that can be seen in the rear-view mirror. Management accounting is forward-looking in the sense it tries to lead us to better business decisions. Ken Delaney-Moore from Sheffield Hallam University put it nicely when he wrote “management accounting is done by the managers, for the managers, for the purposes of planning and control.” The approaches used in management accounting also can evolve freely to accommodate plant-specific matters of interest. It’s a case of sanctioned creative accounting.

Because accounting is written in the language of upper management cash—I invite you to join me on another dive into that mile-deep morass we call the Web in search of a few practical, zero-cost, noncommercial, registration-free Web resources that can help you make better money plans for your department and snag some continuous improvement ideas on the way back to the surface. Remember, we search the Web so you don’t have to.

A survey
The life of a manager always includes pressure to make decisions that improve corporate financial performance. It’s a distraction that comes with the territory and large paycheck. These executives generally use management accounting as a tool to achieve the expectation. But, Ernst & Young, the accounting firm, in partnership with the Institute of Management Accountants, noticed the lack of research or surveys that address the fundamental changes in the role of management accounting, the tools and methods (new or traditional) that are in play, the role new technologies have played in the diffusion of common management accounting and the factors that constrain or accelerate adoption of these tools and methods. So, these good folks conducted their own survey and posted the 24-page report of the findings for your edification. Because fully 40% of the respondents were upper-level executives in manufacturing plants, the results are relevant. You’ll be able to access the 2003 Survey of Management Accounting if your mouse points a sharpened pencil at www.ey.com/global/download.nsf/US/EBA__2003_Survey_of_Management_Accounting/$file/2003_Survey_Management_Accounting.pdf

Management accounting portal
This particular version of accounting science uses a range of tools, most of which focus on manufacturing a product. Some of them, however, address services, which sounds a lot like what your maintenance department furnishes each day. The research for this column uncovered a site that is gathering information about the whole field and packing it into one place. A prodigious effort, the “Management Accounting Information Center” is brought to you by Richard Torian from Walkersville, Md. His repository of free information bills itself as “an Internet site for researching management, accounting and business information.” There’s really too much material here to make encapsulating it in one or two paragraphs very easy. I’d recommend that you toss that mouse of yours in the general direction of www.informationforaccountants.com/ so it can get a grounding in the many facets of the discipline.

The unofficial graduate
A few years ago, MIT began its Open Coursework initiative, a program under which the school posts actual class materials to the Web for all to see. As it’s envisioned, those with an academic bent or curiosity about what goes on in an Ivy League classroom can access the syllabi, lecture notes and exams used in Cambridge. Listed among the multitudes of educators is Joseph Weber, who teaches “Management Accounting and Control,” a course that deals with accounting methodologies and costing, budgetary control, performance evaluation systems plus quite a bit more. Weber’s lecture notes aren’t so much straightforward, plain-vanilla notes but more a series of probing questions that require some mental exertion to answer. Of course, the class uses a prescribed text and, no doubt, it would be better if you had it at hand. Unfortunately, I couldn’t locate an online edition for you. The final exam is a real mind-bender, as is the URL. So, climb the Ivory Tower located at http://ocw.mit.edu/OcwWeb/Sloan-School-of-Management/15-521Management-Accounting-and-ControlSpring2003/CourseHome/index.htm to gather the pearls of wisdom about this month’s topic.

Free education
Biz/ed is a free online service that covers business, economics and accounting from the Institute for Learning and Research Technology at the University of Bristol in the U.K. Launched in early 1996, the site bills itself as the primary provider of Internet-based learning materials for the economics and business education community. You be the judge of that. The site, www.bized.ac.uk/learn/learn.htm, is richly linked internally and externally. If you’re even a little curious about a topic, you can lose track of time quite easily exploring the site. For example, clicking “Reference” near the top right corner of the screen links you to a business acronym finder and glossary; a collection of diagrams, charts and graphs that illustrate economic and financial principles; and 4,000 Web sites with business, management and economics content. But, we’re discussing management accounting here, so click on “Accounting” at the center of the screen to reach that corner of the business world. Then, click on “Management Accounting” to access the links. Investigate the link to “Investment Appraisal,” which shows how to evaluate the economic wisdom of purchasing that new maintenance gizmo you read about elsewhere in this magazine.

Virtual study hall
The best place to get some book learning is from a book publisher. The best place to get equivalent Web learning is from an online publisher. Pearson Education, Boston, Mass., is one such entity that provides online learning with nearly 2,000 of its textbook Companion Websites. Among the titles are several about management accounting. I’m going to take you on a roundabout path to this site’s pot of gold because getting there as the crow flies involves a URL that’s longer than the to-do list that dominates your daily life in the plant. First, send your trusty desk rodent to http://myphlip.pearsoncmg.com/cw/. Then, enter the word “management” in the space for a title and click “go.” When the new page loads, you’ll need to use ctl-f repeatedly with the phrase “management accounting” to locate the seven books about management accounting from the more than 100 books having the word management in the title. Focus on the text block to the right of the book jacket photo. Depending on the book, a mere click on study guide, student resources or miscellaneous resources will take you to the class notes, PowerPoint presentations, Excel spreadsheets and other free content about the topic. When you’re done researching management accounting, you might want to go back to the beginning and enter another word to see if this site can help with another problem you’re facing.

Your cost data is probably wrong
In his editorial titled Do You Really Know Your Costs, Brian J. Hogan from Manufacturing Engineering magazine argues that American manufacturers really don’t know much about their true cost structure. The logical consequence, he says, is that any decisions we make about outsourcing something that appears to be too expensive to do in-house are suspect. Go visit www.findarticles.com/p/articles/mi_qa3618/is_200502/ai_n10298053 for a quick read that might start you thinking.

Spreading the costs
We live in an enlightened world that has invented such presumably accurate portrayals of cost structure as activity-based costing (ABC) and computerized recordkeeping to ensure we get a true picture of the plant’s finances. An accounting bugaboo that won’t go away is arbitrary cost allocation, especially when it comes to overhead. Sometimes overhead distribution is the least accurate aspect of the bean counter’s world. At least, that’s the thinking of the Association of Chartered Certified Accountants, a group that tracks its pedigree back to eight people in 1904 London and now claims more than 320,000 members in 160 countries. The organization’s Web site houses “The ABC of overhead allocation,” an article by Dan King that argues anything but ABC is a distortion. Although his focus is on manufacturing, I’m sure you’ll be able to make the connection to accounting for the maintenance function. Hie thyself to www.accaglobal.com/publications/diplomanewsletter/15674 for a full accounting of King’s royal proclamations.

A chain of results
In the holistic approach to business, each element of the organization is adjusted so that it works in harmony with the others. When the work flow is balanced that way, it becomes obvious to all which step in the process is the boat anchor holding back the drive to success. That single step is the only one deserving of any attention from management, as the others aren’t restricting progress. Tony Rizzo from Lucent Technologies gives a concise summary of Dr. E. M. Goldratt’s ideas in Corporate Rightsizing And The Theory Of Constraints. You can find this clearly written article at www.rogo.com/cac/rizzo1.html.

Military maintenance practices
Listen up, troops. The next Web citation relates to your tax money at work. And, after reading it, I think you’ll agree that someone finally got it right—in the military, in the maintenance arena, no less. Here’s the story of a heavy vehicle maintenance shop at a Marine Corps base in Georgia that was never able to complete its assigned repairs on time. Backlog was increasing as fast as they drove repaired military vehicles out the door. The excuse offered was a lack of capacity. Does this sound at all familiar?
After the facility made some structural changes, it can now complete 99% of its work on time. In short, their breakthrough idea was to replace the MRPII scheduling noose with a philosophy based on simplified drum-buffer-rope scheduling that flows from lean maintenance and Goldratt’s Theory of Constraints. If the military can do this, so can anyone out here in the real world. March your mouse over to www.realization.com/pdf/Applying_TOC_Principles_and_Lean_Thinking_at_Marine
_Corps_Maintenance_Center.pdf
, where it will find Applying Theory Of Constraints principles and lean thinking at the Marine Corps maintenance center, by Mandyam Srinivasan, Darren Jones and Alex Miller.

Plan before you get the equipment
In the ideal world, every shutdown would be planned, both from the operations end and the maintenance end. One of the missions here at magazine central is to help ensure that your maintenance planning is impeccably thorough and unimpeachably logical. That’s why you should visit www.reliabilityweb.com/articles/oee_04.htm to investigate an abridged version of a chapter from Bob Hansen’s book, Overall Equipment Effectiveness and brought to you by Reliabilityweb.com in Fort Myers, Fla. He ties the Theory of Constraints to maintenance scheduling in chapter 6, Win-Win Maintenance/Equipment Shutdown Strategies. This is a long read that takes time to absorb completely. If you dive in, I think you’ll find it worth the effort it takes to understand what Hansen has to say. The real take-away is at the end—the listing of 52 tips that should help make your next plant turnaround go more smoothly. If anyone asks, tell them you learned about it here.

The scheduling problem
In the big picture, it’s probably a good idea for us to view the maintenance function as a production activity residing inside a larger production process. Maintenance production is the operational piece that provides a key ingredient or performs a key step at the most appropriate time to keep a recognized production bottleneck from closing off completely. Naturally, the maintenance work schedule must mesh closely with the schedule being used on the plant floor. But performing such scheduling well can be a tricky little exercise. So, I offer you The Ashford Group, Bethel, Conn., a consultant that knows a lot about scheduling. For example, I direct your attention to www.ashfordgrp.com/NEWS.htm, where you will find links to “Volume 1—Production Scheduling,”  an eight-part series on the topic. It is chapter 8 that discusses the application of the Theory of Constraints to scheduling. Even if you can’t bend the material to address maintenance, it still gives you some good ideas to pass along to your colleagues in production.

Without comment
www.findarticles.com/p/articles/mi_qa3685/is_199701/ai_n8754932
www-cpr.maxwell.syr.edu/faculty/duncombe/PPA734/PPA734.htm
www.gama.net/weber/

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