If You Can't Measure It You Cant Manage It

Topics: Management, Budget, Measurement Pages: 5 (1533 words) Published: September 6, 2010
There are many things one can measure in a business; from production costs; employee absenteeism; budget variances; waste; customer satisfaction; business unit performance, the list could go on and on, however how are these measurements relevant and how do they add to business performance, does simply measuring something mean you can influence it? “If you can’t measure it you can’t manage it” has been stated by more than one influential business or academic expert; Deming, Drucker, Kaplan, this is another list that could go on, however, this is a statement that has not been made without critism. This report will have a brief overview of the popularity of accounting measures, and then we will apply the “If you can’t measure it you can’t manage it” ideas to some specific contexts in order to demonstrate different views on the topic. Finally, we will conclude with our opinion. Discussion

Cost and management control information became of great importance during the 19th century as large production, transport and distribution businesses came to the fore (Kaplan, 1984). Production businesses needed to monitor the efficiency of their multiple processes in completing and end product and transportation businesses were dealing with larger numbers of cash transactions than any one before. As businesses grew larger more hierarchical and often separated geographically, ways to monitor the performance of divisions and manage aspects of the business were needed and the measurement of processes and costs became widely used. In the early 20th century this trend continued as companies created many of the management practices, based on the measurement of production characteristics and costs, which still formed the bases of almost all management accounting processes up until the late 1980’s and many of them onto today (Johnson & Kaplan, 1987). The late 1980’s saw a great amount of focus on management accounting measures as the dysfunctional effects of focusing on traditional quantitative measures became more and more apparent in an evolving economy. Academics and consultants began to emphasize the importance of non financial measures and managements need to measure and manage a wider variety of aspects through the creation of tools such as Kaplan & Nortons balanced scorecard. Managers have long been taught to pay close attention to a wide variety of measures and that by monitoring and measuring an aspect of business that they will be able to influence that item in the future. In order to control an item we must have clear indicators of where it has been, then we have the ability to decide targets for the future and be able to align employees with these targets in order to gain long term results. However once you move away from traditional business processes this route becomes somewhat more blurred. There are varying degrees of measurability in business from traditional accounting measures such as gross profit percentage, net profit and accounts receivable days, which can be measured accurately and reasonably reliably and therefore provide meaningful information to managers for decision making, to the “softer” aspects such as intellectual property or corporate culture which still require management and control but prove difficult to measure in a reliable or meaningful way. One of the management accounting concepts which popuralised the idea of needing to measure everything in order to adequately manage it was Richard Demings Total Quality Management. Quality costs include the costs of preventing quality problems, the costs of findings quality problems, the costs fixing quality problems that are found when the product is still in the manufacturer’s hands and the cost of fixing quality problems that are found when the product is in the hands of customers (Kaplan, Atkinson, 1998). Deming taught top Japanese executives to measure and continuously improve these costs. Budgeting plays an extremely important role in performance...
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