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.
Related or Semi-related Video
Cost Accounting: What is the Difference ...0 Views
And finance Allah shmoop What's the difference between cost accounting
and financial accounting Cost accounting is like the diary you
keep locked up under your bed Financial accounting is like
the memoir you publish later Cost accounting It's all the
texts you and your best friend exchange talking about the
people you people date Financial accounting It's the speech you
give at their wedding Well basically comes down to a
matter of audience and perspective Cost accounting targets and internal
audience other people at the same company In other words
cost accounting provides financial details for people inside of an
organisation Teo do it better organize it better run it
Better manage Better yet the margins for various products Yeah
how do we optimize those The amount spent on private
jet wax in a year How do we minimize that
the expenses related to building the secret underground layer where
you'll launch your bid for world domination with pinky and
or the brain Yeah things of that nature Well managers
and executives can use the data to make decisions The
goal is to identify the amount that various items cost
You know labor raw materials advertising sales margarita machines in
the break room cost accounting also looks at how much
each of those expenses contributes to the eventual bottom line
Like do we actually need those expenses are the efficient
Could we get him elsewhere Many Buffalo Man works in
the accounting department at Little Thrones Inc The leading provider
of toilets for doll houses They have three models of
toilets A little dropper the original Little Throne Classic and
a little thrown X L You know for the big
and proud set The little dropper has sales of five
hundred thousand dollars and earns an operating profit of two
hundred seventy five grand You very high margin business It
has an operating margin there of fifty five percent Well
the classic little throne brings in revenue of eight hundred
thousand and it contributes three hundred thirty six thousand to
the bottom line Operating margins forty two percent Well the
throne Excel has sales of just three hundred fifty thousand
but the operating margins are the highest among the three
product lines at sixty five percent That allows it to
produce an operating profit of two hundred twenty seven thousand
five hundred dollars Well based on this information Benny recommends
the bigger marketing push for the throne X l if
he can drive sales volumes higher for that product more
of that money end up on the bottom line Well
that kind of analysis represents cost accounting detailed information for
people in the company meant to help make good decisions
The info means to be forward looking like a Magic
eight ball made of numbers The goal is to optimize
what's going to happen now to financial accounting It gives
information about the company's fiscal health for an external audience
like people outside the firm people like investors and debt
lenders and regulators It includes things like the Ten Cave
A ten Q and the annual report filings You know
the documents investors and regulators pore over to see how
well or poorly the company is doing Financial accounting also
includes documentation for audits Mess it up and suddenly there
are people wearing SEC windbreakers in your office confiscating your
computer And if things go badly while you end up
restating results and well then sometime in the future you
send your stock into a tailspin and possibly send the
company into bankruptcy so you don't want to mess with
the SEC time to announce the little thrones Quarterly results
The Wall Street Benny and the management team don't want
to give away too much information but they need to
let their shareholders know how the company is doing so
when they issue their report they don't break it down
by product They give the total quarterly revenue one point
six five million dollars and the total quarterly operating profit
of eight hundred thirty eight thousand five hundred dollars And
those numbers together produce an overall operating margin of fifty
point eight percent But they keep the other details within
the company Nothing about the individual products nothing about the
secret world domination layer because it gets sent to outsiders
Will the financial accounting info tends to be less detailed
than the cost accounting figures It's just enough to get
a picture of a company's financial situation without giving away
too much And you know there are competitors and evil
people out there right So you keep Mum different audience
Different goal Also financial accounting has a backward looking vibe
Executives use cost accounting toe optimize production going forward Financial
accounting is more of a record of what's already happened
You know they're reporting it It's basically closing the books
on any given time period Think of it this way
Cost accounting is like a detective's notes that he takes
while trying to solve a mystery Financial accounting is like
the true crime book he publishes Based on those notes
he uses the notes to solve the case in the
book while just sums everything up and you know provides
a way to cash in All right another way to
look at it Every year the Buffalo Man send out
a year end news letter to all the friends and
family on their Christmas card list It includes stuff like
we're so proud of Bernie for getting an A in
biology this year And we're so happy that Beatrice got
her driver's license last month And well for Buster's latest
trip to rehab finally does the trick You know things
like that Think of that kind of reporting is the
family communication equivalent of financial accounting Everything boiled down on
Leah's Much information is you know necessary Meanwhile Benny Buffet
Man keeps a diary and you know it includes stuff
like Bernie originally got a C minus in biology but
I threatened to sue the school so they upped it
to a C and well Beatrice almost sideswiped a school
bus during her third attempt on the driving test But
I slipped the guy the D M V of fifty
and well they let it slide Think of those examples
like cost accounting more detailed different audience And Benny is
well just writing it for himself An internal audience like
his confessional riel sausage getting made type of information What