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Chapter from: "Strategic Cost Transformation: Using Business Domain Management to Improve Cost Data, Analysis, and Management"
Published by: Business Expert Press
Originally published in: 2019

Abstract

This chapter is excerpted from 'Strategic Cost Transformation: Using Business Domain Management to Improve Cost Data, Analysis, and Management'. Whether considered a goal or an objective, one thing is for certain; to survive and thrive, companies need to make money. To be effective at making money, employees need tools, models, and insights that lead to decisions that enable improved cash generation. We typically look to and rely on accounting information as a basis for these analyses and the resulting decisions. In my last book, Lies, Damned Lies, and Cost Accounting, I argued cost accounting is ill-equipped to provide cash information about a company. It wasn't a knock on cost accounting. Instead, it pointed out we are asking cost accounting to do something and provide information it wasn't designed for. Upon reading Lies, many asked, 'If cost accounting isn't what we should use for cash information, what should we use?'. Enter Business Domain Management, or BDM. BDM is an organizational and financial framework that breaks companies into two business domains, the Operations and Cash or OC Domain and the Accounting Domain. The OC Domain is where business and cash transactions occur; where work happens, and money is spent and received. It is in the OC Domain where we make decisions that affect the rate cash enters and leaves the company, and it is here where we know if we have made money or not, before we've calculated a single cost. The Accounting Domain is where we account for what happened in the OC Domain. This is where we traditionally looked for cash data. The BDM framework provides a powerful model for understanding operational and financial performance in its entirety, and it far exceeds anything accounting can provide on its own. Strategic Cost Transformation takes you on a journey from focusing on accounting information to having a corporate-wide model that creates alignment between areas in companies where there is usually misalignment - operations, cash, and accounting.

About

Abstract

This chapter is excerpted from 'Strategic Cost Transformation: Using Business Domain Management to Improve Cost Data, Analysis, and Management'. Whether considered a goal or an objective, one thing is for certain; to survive and thrive, companies need to make money. To be effective at making money, employees need tools, models, and insights that lead to decisions that enable improved cash generation. We typically look to and rely on accounting information as a basis for these analyses and the resulting decisions. In my last book, Lies, Damned Lies, and Cost Accounting, I argued cost accounting is ill-equipped to provide cash information about a company. It wasn't a knock on cost accounting. Instead, it pointed out we are asking cost accounting to do something and provide information it wasn't designed for. Upon reading Lies, many asked, 'If cost accounting isn't what we should use for cash information, what should we use?'. Enter Business Domain Management, or BDM. BDM is an organizational and financial framework that breaks companies into two business domains, the Operations and Cash or OC Domain and the Accounting Domain. The OC Domain is where business and cash transactions occur; where work happens, and money is spent and received. It is in the OC Domain where we make decisions that affect the rate cash enters and leaves the company, and it is here where we know if we have made money or not, before we've calculated a single cost. The Accounting Domain is where we account for what happened in the OC Domain. This is where we traditionally looked for cash data. The BDM framework provides a powerful model for understanding operational and financial performance in its entirety, and it far exceeds anything accounting can provide on its own. Strategic Cost Transformation takes you on a journey from focusing on accounting information to having a corporate-wide model that creates alignment between areas in companies where there is usually misalignment - operations, cash, and accounting.

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