About Cost Matters
Cost matters is another ‘lock down’ book.
It came about, like many of my books, more by accident than design. I was thinking about writing a ‘Little Book’ version of Future Ready about business forecasting. But as I planned it out, I recognised that there was an important component of the Beyond Budgeting management model that I had thus far failed to address at all.
Worse still, this ‘hole’ in my corpus left one of the most frequent questions we get about Beyond Budgeting unanswered: ‘if we don’t have budgets how do we control costs?’ The title of this book is a declaration that managing costs is an important topic. But also reflects the fact that to do a better job we need to engage with what matters about managing costs: the nature of the methods and tools we use and how we use them, which I believe are often part of the problem rather than the solution.
In this book I have adopted a tried and tested format. The book is broken up into a series of short lessons accompanied by had drawn illustrations.
I also follow my normal practice of starting with the problems and how traditional practices fail and then build an alternative set of methodologies. Where this book differs is that I argue that cost management methodologies often already exist and that as finance people we often just need to remove the barriers we place in their way that frustrate their effective operation.
That is why I devote quite a lot of this book to explaining how Lean and Agile practices work for the benefit of finance practitioners.
The book is structured around five modules:
1. Foundations. While this is not a technical book it is necessary to define and describe some basic concepts such as how costs are described and classified. In this section I also introduce the organising idea that costs are equivalent to energy in biological organisation. They can both be described as having the capacity to do work. Thus, the methods and practices we employ to manage costs should be conceived as components in a metabolic system rather than a set of stand-alone tools. I also argue that practice of attributing costs to entities such as products and profit centres should not be used as a mechanism to control costs since they obscure the cause and effect relationship between activities and costs.
2. Existing structure. This section shows how traditional tools such as accountability (cost) centres, budgets and process of authorisation can make matters worse because they erect unnatural boundaries and so encourage sub-optimal patterns of behaviour. It is argued that instead should be to build structures and practices that reflect the nature and structure of the work being done. And that the most important distinction is that between work which is continuous in nature (process) and that which is organised into discreet packages (projects).
3. Processes and accounting for work. This section describes ‘Lean’ management practices and how finance can enable them to build more efficient, less wasteful, processes.
4. Decision making and the allocation of discretionary resources. This section describes how Agile practices that help manage projects in conditions of uncertainty can be supported by applying Beyond Budgeting principles. In addition, I describe a novel yet simple way of valuing such projects as options.
5. People. There is sometimes an unfortunate tendency to treat ‘people’ as a cost that needs to be reduced rather than as the source of ideas that helps do a better job of managing them. This section aims to redress that balance.
You can buy ‘Cost Matters’ through normal retail channels, direct from the publisher or from my bookstore in physical or PDF form.