Evidence-Based Management (EBM)

Categories: Company Management

Management based on evidence. Duh.

In other words, managers who use actual data, research, and scientific evidence to at least inform their decisions.

Example:

Shawn is part of a management team for a car manufacturer. The group is looking for a spot to open a new plant. The rest of the team is interested in a spot in California because the land is extremely cheap. That’s where their research ended. Cheap. But Shawn is smart. He searches more in-depth.

It turns out that the location is right on the San Andreas fault line and that the insurance on the building would be so high it would make the plant far less economical. In addition, he looked at crime statistics and saw that there is a massive vandalism issue in the area, along with car jackings. The cost for increased security compounds the problem, not to mention the possible need for constant repairs…and that pesky insurance.

Shawn gets his energy drink…actually, a whole four-pack…and starts poring over topographical maps. He gets maps of various weather patterns. He looks at crime maps. His eyes water like crazy and he uses eye drops constantly to keep them from drying out. Finally, he finds a great spot in Texas where there’s no significant risk of earthquakes, tornadoes, or hurricanes. It’s a little remote, but the land is still inexpensive. More importantly, the insurance is cheap. Also, due to the location, there’s almost no crime, although there might be some weird, cult-like rituals in the woods nearby late at night. Fortunately, the plant won’t be open at that time, so no one has to see it.

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Cost Accounting: What is the Difference ...0 Views

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And finance Allah shmoop What's the difference between cost accounting

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and financial accounting Cost accounting is like the diary you

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keep locked up under your bed Financial accounting is like

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the memoir you publish later Cost accounting It's all the

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texts you and your best friend exchange talking about the

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people you people date Financial accounting It's the speech you

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give at their wedding Well basically comes down to a

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matter of audience and perspective Cost accounting targets and internal

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audience other people at the same company In other words

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cost accounting provides financial details for people inside of an

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organisation Teo do it better organize it better run it

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Better manage Better yet the margins for various products Yeah

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how do we optimize those The amount spent on private

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jet wax in a year How do we minimize that

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the expenses related to building the secret underground layer where

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you'll launch your bid for world domination with pinky and

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or the brain Yeah things of that nature Well managers

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and executives can use the data to make decisions The

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goal is to identify the amount that various items cost

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You know labor raw materials advertising sales margarita machines in

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the break room cost accounting also looks at how much

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each of those expenses contributes to the eventual bottom line

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Like do we actually need those expenses are the efficient

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Could we get him elsewhere Many Buffalo Man works in

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the accounting department at Little Thrones Inc The leading provider

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of toilets for doll houses They have three models of

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toilets A little dropper the original Little Throne Classic and

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a little thrown X L You know for the big

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and proud set The little dropper has sales of five

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hundred thousand dollars and earns an operating profit of two

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hundred seventy five grand You very high margin business It

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has an operating margin there of fifty five percent Well

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the classic little throne brings in revenue of eight hundred

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thousand and it contributes three hundred thirty six thousand to

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the bottom line Operating margins forty two percent Well the

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throne Excel has sales of just three hundred fifty thousand

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but the operating margins are the highest among the three

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product lines at sixty five percent That allows it to

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produce an operating profit of two hundred twenty seven thousand

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five hundred dollars Well based on this information Benny recommends

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the bigger marketing push for the throne X l if

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he can drive sales volumes higher for that product more

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of that money end up on the bottom line Well

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that kind of analysis represents cost accounting detailed information for

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people in the company meant to help make good decisions

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The info means to be forward looking like a Magic

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eight ball made of numbers The goal is to optimize

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what's going to happen now to financial accounting It gives

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information about the company's fiscal health for an external audience

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like people outside the firm people like investors and debt

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lenders and regulators It includes things like the Ten Cave

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A ten Q and the annual report filings You know

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the documents investors and regulators pore over to see how

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well or poorly the company is doing Financial accounting also

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includes documentation for audits Mess it up and suddenly there

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are people wearing SEC windbreakers in your office confiscating your

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computer And if things go badly while you end up

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restating results and well then sometime in the future you

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send your stock into a tailspin and possibly send the

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company into bankruptcy so you don't want to mess with

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the SEC time to announce the little thrones Quarterly results

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The Wall Street Benny and the management team don't want

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to give away too much information but they need to

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let their shareholders know how the company is doing so

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when they issue their report they don't break it down

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by product They give the total quarterly revenue one point

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six five million dollars and the total quarterly operating profit

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of eight hundred thirty eight thousand five hundred dollars And

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those numbers together produce an overall operating margin of fifty

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point eight percent But they keep the other details within

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the company Nothing about the individual products nothing about the

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secret world domination layer because it gets sent to outsiders

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Will the financial accounting info tends to be less detailed

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than the cost accounting figures It's just enough to get

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a picture of a company's financial situation without giving away

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too much And you know there are competitors and evil

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people out there right So you keep Mum different audience

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Different goal Also financial accounting has a backward looking vibe

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Executives use cost accounting toe optimize production going forward Financial

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accounting is more of a record of what's already happened

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You know they're reporting it It's basically closing the books

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on any given time period Think of it this way

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Cost accounting is like a detective's notes that he takes

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while trying to solve a mystery Financial accounting is like

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the true crime book he publishes Based on those notes

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he uses the notes to solve the case in the

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book while just sums everything up and you know provides

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a way to cash in All right another way to

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look at it Every year the Buffalo Man send out

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a year end news letter to all the friends and

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family on their Christmas card list It includes stuff like

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we're so proud of Bernie for getting an A in

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biology this year And we're so happy that Beatrice got

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her driver's license last month And well for Buster's latest

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trip to rehab finally does the trick You know things

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like that Think of that kind of reporting is the

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family communication equivalent of financial accounting Everything boiled down on

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Leah's Much information is you know necessary Meanwhile Benny Buffet

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Man keeps a diary and you know it includes stuff

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like Bernie originally got a C minus in biology but

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I threatened to sue the school so they upped it

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to a C and well Beatrice almost sideswiped a school

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bus during her third attempt on the driving test But

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I slipped the guy the D M V of fifty

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and well they let it slide Think of those examples

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like cost accounting more detailed different audience And Benny is

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well just writing it for himself An internal audience like

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his confessional riel sausage getting made type of information What

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