Technology is turning accounting and finance into such a complex blend of business insights, mathematics, and philosophy that it has outgrown its own terminology
In the honest attempt to find words to describe the complex ebb and flow of money in and out of and through today's businesses, accounting and finance has gradually assembled a sizeable collection of jargon and acronyms. Now, in addition to the well-known (if not well-loved) general ledger lexicon of return on investment (ROI), net present value and payback, there are new terms, as broad and multifaceted as the systems they struggle to succinctly describe.
Just a cursory look at some of today's terminology is revealing. It shows what truck fleet owners already know only too well: that technology is transforming the very nature of business to the point that even the comfortable, traditional language of commerce can feel as tight and confining as your old high school letter jacket. See for yourself:
Activity-based costing (ABC). Traces costs from resources actually used (such as people, computers, tooling, buildings) to activities and processes, and then to specific products or services and customers. The purpose is to provide a strategic view of the standard and sustainable economics of producing and delivering a product or service to a customer.
Balanced scorecard. A system developed by Robert Kaplan and David Norton to translate business strategy into action by summarizing leading and lagging performance indicators into a single document. Financial measures are augmented by three other perspectives - the customer, business efficiency, and growth and development - to create a more complete view of a company's performance as measured against its strategy.
Economic value added (EVA). Credit goes to consulting firm Stern Stewart for this trademarked method of evaluating corporate performance based on return on capital employed. The core formula: EVA equals operating profit minus cost of capital.
Integrated cost systems. A concept for linking Activity-Based Costing with the more traditional Operational Control Methods in a real-time system, in which managers receive daily, on-line cost information instead of the current monthly and quarterly reports.
IT profit model. Developed by the Beta Group, this concept is intended to tie IT activity to company profit. Basic tenets: That IT produces profit by improving the company's business, that this improvement is accomplished by improving the performance of "profit-drivers," and that a cause and effect link can and must be established between IT activities and key indicators of business performance.
Just fix it (JFI). An intuitive, real-time assessment/response, linked to account erosion or other loss indicators.
Multi-attribute decision model (MADM). A method for assigning a weight or value to various factors so they can be ranked and compared, even when the attributes cannot be expressed in dollars. MADM is especially helpful in deciding between technology alternatives or a new system and the status quo.
Strategic alignment. The concept that information technology plans and projects must be aligned with a company's overall business plan. J.C. Henderson and N. Venkatramon are credited with creating the popular "Strategic Alignment Model" that describes the interrelationships of four business domains of strategic choice.
No matter what language you use, technology is transforming finance and accounting. Even classic measures like ROI and payback are being stretched and pulled to take into account complex, interrelated systems.
You and your calculator don't have to grapple with all this alone, however. Support is available from a growing number of suppliers. Ruan Transportation Management Systems, The Holland Group, Lanier Worldwide Inc., Meritor Automotive Inc., and TMW Systems, for example, offer customers the kind of assistance in identifying costs and valuing benefits that you'd expect to pay an independent consultant to provide, and that adds up to good news.
[Editor's note: For more information, see truck.com feature on page 51, "Technology And Profit: Crunching More Than The Numbers."]