You can have an accounting system without accountability. But, can you have accountability without an accounting system?

The recipe for faltering or failure in today’s fast-paced global economy is to be content with your own knowledge. Traditional cost systems that account for actual spending by resource type on a monthly basis were primarily designed to meet external reporting requirements. They were not designed for holding managers and employees accountable for effectiveness and efficiency of performance and decision-making.

Measuring actual spending versus a budget or standard cost could be construed to be a form of accountability. Yet the typical material, labor and overhead budget and/or standard is typically developed by looking at the past accounting records coupled with some measure of management commitment to improve in the future. Does accounting for actual spending versus budget qualify as a form of accountability? If senior management dictate negative or positive consequences based on performance to budget, then I would answer this question as yes e.g. my boss is holding me accountable. However, is this singular form of accountability adequate to meet every organization’s needs?

In today’s competitive marketplace, the most important ability is accountability. Accountability precedes improvement. Continuous improvement is an absolute requirement that all manufacturing, service, educational, not-for-profit and governmental organizations must achieve to survive and thrive. Previous articles on the ICMS.net web site, The Journal of Cost Management plus many other magazines have proposed ideas and portrayed case studies documenting the need for improved accounting systems.

Traditional cost management systems fall short on accountability. But to be held accountable, managers need accounting systems. To insure that their accounting systems support continuous improvement, managers should consider the following three forms of accountability:

• Traditional cost systems measure “how much did we spend?” Activity Based Management (ABM) systems measure “what did we do with what we spent?” ABM cost systems raise one-on-one accountability to a multi-dimensional level by measuring activity, output and value.
• Traditional cost systems are inward focused e.g. actual versus budget. ABM systems are outward focused e.g. activity cost benchmarked to global best practices. ABM systems open the door for mentor accountability. Traditional systems simply document what costs have been or are today. Activity benchmarks document how good an organization can be at practical capacity or should be with best practices.
• Traditional cost systems measure cost vertically e.g. by cost center. ABM systems measure cost horizontally e.g. activity cost by business process. ABM systems open the door for group accountability. A group of people focused on working together to perform a business process is a powerful method to help everyone be accountable for their cost, cycle time and quality improvement commitments.

One of the hardest things in the world is to accept criticism and turn it to your advantage. I encourage you to use the past, current and future articles of ICMS and other authors as a form of accountability to challenge your own opinions and organization. Conversely, we here at ICMS are also accountable, to you our readers. Please send me your constructive criticism via E-mail TomPryor@icms.net. We’ll all be better for it.