Computers have made a huge difference in our business lives. We collect data, analyze data, make reports from data, manage data, and, at times, cuss data. But really, are we use it or it data using us?
John Miller illustrates the changes and challenges in data acquisition, analysis and use. Opportunities abound for those wise enough to use their data well.
Why Have A Cost System
Alan Stratton responds to a viewer’s frustration with his CFO’s reluctance to implement an effective cost system. He shows when a cost system is not required and when it is critical for business.
In episode 22
Coming up on Performance Management Edge… Big Data and Why Have A Cost System.
I’m Alan Stratton and this is the show that helps you get an edge in business. This is the edge you need to get things done, to soar above the masses, and to make more money.
Computers have made a huge difference in our business lives. We collect data, analyze data, make reports from data, manage data, and, at times, cuss data.
Today, John Miller addresses some of the challenges of data. Afterwards, in the question segment, we’ll continue answering the question from episode 21, which also has a data angle.
First, over to you, John.
When I first got out of college in 1970 and went to work for Arthur Andersen, a spreadsheet was made from paper. Colored either yellow or green, there were rows and columns to manually enter data, using an adding machine to calculate totals and to make simple calculations. A pile of spreadsheets was a data set.
Each decade since then, innovation in software, systems and technology set new records each year in the amount of data we can collect and use in decision making and to run the business
Looking forward, the next generation may well be the era of BIG DATA and for those of us in the performance management and measurement community we’d better be ready.
BIG DATA is a loosely defined term to describe data sets so large and complex that they become awkward and difficult to work with using traditional management tools like Excel and Access.
Wal-Mart is a BIG DATA example. Every hour they feed more than 1 million transactions into a data base estimated at more than 2.5 petabytes. With each petabyte equal to 1 million gigabytes that’ a lot of data!
Even a day’s worth of transactional data at WalMart would render excel useless for any kind of analysis of the data
But that’s nothing compared to Google that processes 24 petabypes of data a day.
BIG DATA is big and getting bigger. The trend to larger data sets is due to the additional information derived from analysis of a single large set of related data, as compared to separate smaller sets with the same total amount of data.
The whole, is more valuable than the sum of the parts and enables predictive analytics and other advanced tools and techniques to spot business trends and identify opportunities.
There are significant differences in the way companies and people use and require data. These differences can be summarized into four groups:
Data Wasters. They have lots of data but never use it. Sound familiar?
Data Collectors and Hoarders. Submerged in data, they collect everything and don’t do much more other than store it. “In Health care, it’s not ‘big data’, it’s a title wave of data” says a Corporate VP of Quality and Medical Management for a hospital in California. He goes on to say “we’re overwhelmed with all the data we collect”.
Next you have Data Users. They fully embrace the importance of BIG DATA sets but lag behind the leaders. Data use is in selected areas of the business and not fully embraced by all.
At the top are the Data Masters. They use and make decisions on a large percentage of the data they collect. They view the collection and use of data as a strategic advantage in outperforming competitors.
As with any new technology, there is a sharp learning curve. It often takes years to move from amateur to master.
The challenge for each of us in the performance management and measurement community is to use BIG data sets effectively and efficiently to extract value and usefulness that result in better business models, better performance measures, better profitability analysis, better product/service costing, better process improvement results, and more accurate forecasts of the future.
Chose to be a data master!
Until next time…
…Thanks for listening in
Thank you John. Data can be a blessing or a curse, all depending on how you use it and its quality. Just acquiring data is a waste; the key is how we use it to our advantage. Often, there is a wealth of insights available if properly managed. My first personal computer was an Atari 800; what was yours?
Let us hear your opinions. John and I would love to hear your experience and comments dealing with or using big data. What has worked for you? Scroll down the page at Performance Management Edge dot com and let us hear your opinion.
Now for today’s question, we’ll continue with the question from episode 21.
“Our CFO believes we don’t need a costing system. We already have a general ledger and track expenses to all departments and a budget system to collect expense estimates. In his opinion, a costing system would be a waste of money.”
Earlier in episode 21, we discussed what makes up a system and Pierre Guillaume highlighted critical features of systems.
So, can your CFO work without a cost system? If your company offers a single product to a single customer and is making immense profits, then perhaps a cost system is a waste of resources. But unless you meet each of these criteria, you need a cost system. Even Atari, the leading video game company from the 1980’s had a cost system. At that time Atari was making obscene profits, yet we analyzed costs. We wanted to know what made up our profits, where the money came from, and how we could do better.
Companies use a cost system to find which customers are profitable or not, which products are profitable or not. They use their cost systems to compare products especially how products consume resources and activities both in terms of quantity, rates, and totals.
With the elevation of the importance of customer service, not all customers are equal, or, not all customers are equally profitable. Revenue does not determine whether a customer is profitable or not. It helps, but when compared to the cost to serve, we can open a treasure chest of golden information.
If your CFO only cares about mergers and acquisitions and investor relations, he may not care about real profitability, but he ought to. If he only wants to worry about office supplies, petty cash, and travel expenses, skip the cost system. Can you do without a cost system? Let me put it in simple terms. No. A cost system is essential. I could go into more detail but this is enough for now.
Now to our viewers. Do you agree, or Not? I’m sure everyone has some sort of feelings about their cost system. Whatever they are, let’s hear your viewpoint. Please share below this video at Performance Management Edge dot com.
In addition to comments, we also appreciate your questions like this one. With your questions, we customize this show to your own issues. Keep the questions coming. Ask your question on the “Ask Us” tab at Performance Management Edge Dot Com or as a video on our YouTube channel.
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Remember: Business Management is more of an art than a science. Don’t wait for tomorrow to get started. Start today making these perspectives part of your business art.
On behalf our viewers, I thank our experts. We’ll see you all again on the next episode.