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EXECUTIVE SUMMARY
When a new engineering project begins, there often are lengthy discussions and disagreements over how to set up the financial cost codes to be used. This situation can be compounded by a high staff turnover on engineering projects. We found that discussions about coding held 20 years ago are mostly unchanged from those today, though the needs of projects and their cost accounting are often separate fromfirms' long-term asset management financial requirements. Here we provide insights for the structuring of cost codes to better manage and understand projects so that engineering risks are properly mitigated and project resources can be deployed more effectively. These lessons can be applied in many other areas of the planning, monitoring and controlling aspects of management.
Considerable effort is devoted in organizations to the tracking and analysis of cash flows. A primary metric used to evaluate the effectiveness of a management team is the financial performance of the organization.
Following the prison sentences of senior management at Enron, it became easier to obtain the resources from senior management to manipulate accounting data in the manner desired by departments in control of financial reporting. The level of manipulation can become highly sophisticated, including processes such as producing algorithms to allocate specific fixed costs to the various activities directly involved in the value-adding performance of the business.
Before 2000, the accounting and cost systems available in most organizations were much simpler than todays. Many legacy accounting platforms had been adapted from the first computers from decades before and it was considered by most organizations to be too costly to overhaul their data systems. These costs typically ran up to $300 million for multinational corporations.
Concerns over the "Y2K bug" provided the narrative to convince executives to take the leap to convert to integrated enterprise resource planning (ERP) systems to control financial operations. At the time, it was realized that the high short-term costs of these upgrades to more sophisticated ERP systems would not have an immediate payback considering the loss in productivity as workers learned the new system. But it was speculated that the learning curve and adaption to the capabilities of the ERP systems would provide long-term net benefits. In our experience, these analyses did not include the...