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The Five W’s and One H of Designing Cost Systems

By 3C Software

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What are the questions?Whether the decision is to build a cost system from scratch or purchase and configure a system, there are six questions that must be asked (and answered). 1. WHO benefits from the cost system?2. WHAT are the data requirements?3. WHEN should the system “go live”?4. WHERE is the cost system located?5. WHY is a cost system necessary?6. HOW to get what you need?

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WHO benefits from the cost system?

Cost Accountants and ManagersThis group is responsible for creating the data and is most

interested in increasing accuracy and functionality, reducing the time needed to maintain the

system, and eliminating redundancy when entering data.

Business Leaders and ExecutivesThis group consumes the data

provided by the system to make decisions. Job roles for this

group includes CFOs, COOs, plant managers, sales and marketing managers, industrial engineers

and IT professionals.

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WHAT are the data requirements?The answer to this question is driven from the answers to many other questions including:• Do you need to know standard costs, actual costs, or both?• How do you allocate overhead costs to products?• When do you generate budgets?

Developing a comprehensive list of data needs for each audience will provide a roadmap to integrating data across existing systems.

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WHEN should the system “go live”?To get to a successful launch, lots of planning is required. A detailed project plan that includes target dates, milestones, delivery schedules and critical paths are all keys to success.

But the most critical indicator of a successful launch is buy-in from executive leadership.

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WHERE is the cost system located?There are three options that will impact the overall design and functionality of the system.

Centrally ManagedCorporate cost accounting group manages all costing and each manufacturing location uses the same rules for calculating costs.

Co-LocatedThe system resides on a dedicated server and is generally managed by the corporate cost accounting group but each manufacturing location has their own rules for calculating costs.

Build and DropEach manufacturing location has their own standalone cost system where the rules are specific to the location and managed by the local staff.

The best approach varies based on the financial and reporting structure of the company.

Wondering how some of the world’s most recognized brands manage their costing process? Click Here

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WHY is a cost system necessary?

To know your costs!Without accurate product cost data, it is impossible to know if the company is maximizing profits, selling to the right customers, or producing the best mix of products.

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HOW to get what you need? Pitfalls in developing a cost system include:• Hard-coding calculations and comparisons.

Focus on making the system as flexible as possible to ease configuration and make troubleshooting easier.

• Not knowing your data. Take a hard look at the available data and match the inputs to your desired results before you start building your cost system.

• Underestimating the importance of an implementation plan. Stage the components of the cost system (product costs, inventory valuation, forecasting, etc) so the project does not become to complex and ultimately never achieved.

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Need Help?ImpactECS by 3C Software is a comprehensive and dynamic cost and profitability modeling platform. It combines the features and functionality of a robust financial system with the flexibility and end-user control of traditional spreadsheet tools.

Learn more about ImpactECS:

www.3csoftware.com