“Grandpa, how do you get the corn rows so straight?” Even after more than forty years, I still remember his reply. “Tommy, I focus on something at the far end of the field and then plow straight at it.”

People and organizations need fixed points of reference.

For my grandfather, a tree on the horizon was his point of reference. For centuries, sailors have used the North Star to guide them across the ocean. No matter where you’re located on a clear night, the North Star reliably and accurately provides location and direction. For businesses, accurate financial reports are an important point of reference. Luca Pacioli, the father of double-entry bookkeeping during the 15th century said, “If you cannot be a good accountant, you will grope your way forward like a blind man and may meet great losses.”(1) My grandfather’s tree, the North Star and reliable financial reports are examples of reference points.

What is a fixed point of reference?

According to author Frank Peretti, “A fixed point of reference for human beings is always something that is found outside themselves. It has to be something to which we can always come back. If we try to haul our point of reference around with us, we have lost it because it has, been moved and we can never refer back to it.”

• A fixed point of reference is separate from you. You are not the center of the universe.
• A fixed point of reference does not move. You move, but the fixed point does not.
• A fixed point of reference must be sure and true to be of value. It is a truth worth knowing and remembering.
• A fixed point of reference is constant. It never changes. It’s timeless.
• A fixed point of reference must be clear. If it cannot be seen and understood, movement towards it becomes impossible.

What are examples of fixed points of reference?

There are a limited number of fixed points of reference. There is an unlimited supply of diversions and lies. Author Steve Allen said, “Error will always swamp truth because, unlike truth, it is infinite. There is only one right answer to the question ‘How much is two and two?’ but there is no limit to the number of wrong answers.” (2) My list of fixed points of reference includes:

• The North Staris a fixed point of reference for ship captains.
• Mothersare fixed points of reference for their children.
• The Constitutionis a fixed point of reference for American citizens.
• Mission statementsare a fixed point of reference for organizations.
• Homeis a place we always remember.
• The Bibleis a fixed point of reference for Christians.
• Activity Based Cost systemsare a point of reference for managers needing reliable, accurate, relevant information for decision-making.

What happens to persons or organizations that have no fixed points of reference? Or the wrong point of reference?

Accounting reports were once considered a dull but reliable reference point for managers, stockholders and compliance officers. Unfortunately, that is no longer the case. Unethical accounting practices at Enron, Global Crossing and Boeing, to name a few, have left stakeholders with a reference point they can no longer trust. Without a clearly reliable reference point, ambiguity prevails.

Bob Gunn, editor of Strategic Finance magazine, said, “For most people the word ambiguous suggests uncertainty, equivocation, and doubt — a situation that is obscure, an outcome that is indistinct. When things are ‘muddy’, people are apt to feel off-balance or experience an inner turmoil that makes it hard to perform effectively.” (3)

Having the wrong points of reference can be just as deadly as having none at all.

• Gross margin percentages are useful but no longer serve as a valid reference point for distributor pricing and profitability analysis. Distributors typically learn from the implementation of Activity Based Costing (ABC) that overhead costs are not consumed equally by all products and customers.
• Pre-tax profit percentages are useful but unreliable reference points for capital intensive manufacturers. Many manufacturers are combining the use of Activity Based Costing and Shareholder Value Analysis to achieve a more relevant reference point … cash, not just profit.
• Measuring actual spending to budget is no longer a relevant reference point for citizens evaluating the stewardship of tax dollars. City, county, state and federal governments are using Activity Based Management (ABM) to support Performance Based Budgeting (PBB), both of which measure activity output, cost and value.

Activity Based Cost Management systems are universally considered best practice reference points for improved decision-making and cost improvement. The Top Ten Consequences for people and organizations that have no valid fixed points of reference are:

• They frequently get lost.
• They waste time.
• They waste resources.
• They make bad decisions.
• They experience chaos.
• They have no hope.
• They experience stress.
• They are lonely, relying solely on themselves.
• They drift aimlessly.
• They chance shipwreck daily.

Vantage Point

Did you hear about the person who spent all their time and energy climbing the ladder of success only to find out that it was leaning on the wrong building? It can easily happen if you have the wrong point of reference, with no one at the bottom of the ladder, holding it steady, looking out for your well being. “We were created for dependence, not independence.”(4) A single vantage point limits our understanding of the world.

You need dependable, fixed points of reference to solve whatever problems or challenges you face this year — mounting P&L losses, severed personal relationships, putting together a business deal, defining a worthwhile goal, health issues, designing a new house, grasping true joy, creating the budget in record time, saving a marriage. All can be addressed by asking, “How can I look at the issue from a different vantage point?” Webster’s Dictionary defines vantage as “a superior, favorable position”. Do you need a new vantage point to solve a problem or take hold of an opportunity? Defining a fixed point of reference is a great way to start.

Do you need a new cost management point of reference?

ICMS can help your organization successfully implement, optimize and sustain an Activity Based Cost Management (ABM/ABC) system… the best practice in the world for all types and sizes of organizations. Call me at 817-475-2945 to discuss your specific needs or e-mail tompryor@icms.net.

(1) Alfred W. Crosby, The Measure of Reality, Cambridge University Press, 1997.
(2) Steve Allen, Reflections, Prometheus Books, 1994.
(3) Bob Gunn, Strategic Finance, December 1999, pages 13-14.
(4) Charles R. Swindoll, Paul, W Publishing Group, 2002.