Big Data and Data Analytics in Cost Accounting
When you think of data in accounting, perhaps you think of the reams of transactional information in the general ledger. The raw data of general ledger transactions are tamed and organized into a form more suitable for decision-making—financial statements. Similarly, cost accumulation, allocation, budgeting, and performance measurement data can also be harnessed for effective decision-making. The Institute of Management Accountants (IMA) completed two studies in 2019 to identify how cost and management accountants use data analytics, with the following significant findings.
- About 66% of the responding companies believed that using analytics would result in competitive advantages, but more than half of them were still determining how to do so.
- The top three areas companies wanted to improve with analytics were performance measurement, strategy formulation, and research and development.
- Almost 60% of respondents believed that accounting and finance processes have changed or will change due to advanced analytics techniques.
- More than half of responding firms used internal and external data to support strategy development and execution.
With the emphasis on data and data analytics, organizations are presented with a significant opportunity—to combine the traditional business skills of their workforce with newer technical skills. This will enable companies to harness the value in their data.
Imagine that you own one of the franchised restaurants to whet your appetite for the different types of data available for collection and interpretation. A short list of the information you need and collect includes:
a. The temperatures of the fryer and refrigerator at points throughout the day.
b. Forecasted customer demand by product line, by week.
c. Daily drive-thru sales performance.
d. Customer satisfaction ratings of your outlet, along with those from your neighboring competitors.
These examples require different types of data collection and analytical techniques to generate data and gather insights from the information for use in daily decision-making, like knowing how healthy equipment is operating, purchasing the optimal quantities of raw materials, tweaking drive-thru performance times, and assessing how customers rank your enterprise and the competition.
- Image from Farmer K. K. and Fredin A. (2022). Cost Accounting: With Integrated Data Analytics, 1st Edition. Wiley.
- Farmer K. K. and Fredin A. (2022). Cost Accounting: With Integrated Data Analytics, 1st Edition. Wiley.
- IMA. (2019). The Data Analytics Implementation Journey in Business and Finance.