A large number of management and productivity philosophies have made roadways into the organizations over the last half century or so. Activity based costing, lean systems, six sigma, kaizen, kanban, throughput costing etc have emerged as useful tools in the hands of managers.
Growing globalisation, increasing costs, technology and competition are the biggest catalysts in the development of these concepts. A high level of manufacturing performance calls for a thorough understanding by managers of these tools and selection of the best ones to be employed in the organization.
A peculiar problem that comes across in this field is that while the above-listed concepts and philosophies have emerged with considerable frequency, methods for measuring, accounting and reporting the productivity have not been able to keep pace. Traditional cost based accounting and financial accounting have failed to align with these modern tools.
Profit focused accounting is nothing but a way to deal with the accounting and reporting issues of these productivity enhancement tools. This becomes necessary in order to effectively manage and control the processes. Managers need to know that from their profits are coming and how they need to align their production activities in order to maximize them.
Successful implementation of profit focused accounting requires, first and foremost, the integration of operational and financial philosophies. Organization wide implementation of a new accounting system can impact the way people have been working. Effective change management is the key to prepare the concerned employees to successfully absorb the change. Since these activities and tools relate mainly to the manufacturing processes, many a times other parts of the organization are unaware of them. Appropriate training and communication can help solve this problem. An active involvement of the bottom line is also sought. Another major problem that plagues the effective implementation and management of this accounting system is that organizations often ignore the long term benefits associated with these methods and accounting practice but rather focus more on the short-term profits. Synchronization of activities, customer focus, improvement in the processes, coordination and effective leadership are other is sue
s in this context which need to be intelligently addressed.
Conventional methods of costing and accounting no more remain relevant nor do they help in solving the above-mentioned problems. The blistering pace of innovation and improvements in productivity have imposed a new set of demands on the organizations. Companies are forced to look out for new techniques to extract maximum benefits of their latest strategies and effectively maintain a large customer base, improve processes, reduce costs and make better decisions. Balanced scorecard has become one popular management system that is believed to be capable of solving these problems facing the managements. Some KPIs specific to profit focused accounting can be related to quality improvements, cost reductions, education and learning of employees and manufacturing processes. They can be employed in order to know the profitability of the various productivity tools adopted.