One key finding of a recent research project to identify best practice in integrated design and management accounting was that medium-sized firms whose performance improved over the time of the study had financial managers who were more involved in their design processes (1). Encouraging management accountants to become more active in this area could therefore be one way to improve performance in other medium-sized firms. But how do the designers feel about this? And are the accountants interested in getting more involved?
In an effort to answer these questions, we developed a series of "design statements" to identify the level of accord--or otherwise--between the two parties. We asked management accountants and designers to rate their response to the statements on a scale of one (strong agreement) to six (strong disagreement). The scores for each statement were then averaged for both disciplines.
The table below shows four statements that highlighted the main differences of opinion between financial managers and designers. The respondents differed most on the first statement: "Financial policies that treat design as an expense rather than an investment with a measurable return have discouraged some very profitable design projects." This was strongly refuted by the accountants, but the designers strongly agreed with it. The second statement--"design funding is too often given a low priority"--was again disputed by the accountants and supported by the designers.
These first two results could account for the apparent reluctance of the designers to involve accountants in the design process, as shown by their strong disagreement with statement three: "Accountants should be more actively involved in defining and justifying design expenditure" Their agreement with statement four--"the involvement of management accountants in the design process is counterproductive to the creative work of designers"--reiterates the designers' negative attitude to the accountants.
Why this negativity? Could it be that the designers aren't aware of the benefits that management accountants can bring to the process? As far as many designers are concerned, they already take cost information into consideration when developing their products and services by using tools such as DFA (design for assembly) and part databases contained within their computer-aided design packages. If some extra cost information is needed, they can request that data without having to involve a management accountant. As one designer asked US: "What Other accounting data could management accountants bring to the design process by being more actively involved?"
There are in fact several techniques that management accountants can use at various stages of the design process to aid the development of products and services (2). They include:
* determining which designs will minimise assembly and service times and costs;
* evaluating the impact of different design possibilities on the cost of developing, producing, owning and operating a product;
* appraising alternatives to solve technical, management and scheduling problems;
* balancing the inherent tensions that exist among the needs of customers, suppliers, operators, financiers and senior managers;
* communicating much of the tacit corporate knowledge that affects the filtering of ideas and proposals in the early "fuzzy front end" of the development process;
* making the "go or kill" spending decisions that the development process entails;
* developing a performance measurement system that lets managers assess the performance of projects and the contribution of all departments' activities towards the attainment of strategic objectives;
* helping to communicate to, he senior management team not only the value of the work done by the design department but also the amount of resources required to make a product successful.
For there to be an integrated approach to design and management accounting, each discipline needs to understand what skills the other can offer. Financial managers want to be more active in the design process and research has shown that their involvement has been beneficial, certainly in the manufacturing sector. But designers are afraid that their involvement will be counterproductive to their creative work.
For management accountants there are numerous ways to improve the relationship. First, they can explain exactly what they can offer at each stage of the process. They can help to change their image from cost-cutters to value-adders by using case studies from within their organisations to help the designers relate to them better. In the service sector, they can embrace the tools, techniques and technologies used by designers in order to establish more common ground. Lastly, they can co-ordinate with designers on the measurement methods they choose for evaluating the product and service design functions so that everyone is using the same cost justification systems.
But it's not only designers (see panel, right) and financial managers who need to change. Chief executives can also encourage greater integration between the two disciplines. It's within their power to develop a culture of innovation that stimulates accountants and designers to co-operate and adopt a flexible, creative attitude to costs and other financial measures early on in the design process without fear of chastisement later.
Further research is needed to encourage greater involvement of financial managers in design. Such studies should aim to:
* Expose the mystique surrounding the activities of management accountants to provide a full list of what they can offer at various stages of the process.
* Specify the benefits, costs and valuation methods that can help in determining the "screening" factors that distinguish winning products or services from losers at each stage of the design process.
* Investigate methods for use by both designers and accountants that can better aid the different operating structures that are inherent in service-sector enterprises. Most of the methods available have been geared to the requirements of manufacturing firms and, although there are certain tools, techniques and technologies that are mutually applicable, there may be a need to develop methods that can be applied specifically to the service sector.
* Look into smaller firms that haven't yet used management accountants to ascertain how they can develop management accounting methods to support the design process. Creating ways to aid the integration of accounting and design early on in a business's life may help to overcome problems later on in its development.
WHAT THE DESIGNERS CAN DO
* Consider what information they can supply that would help management accountants to determine the viability of new products and services more effectively.
* Encourage the involvement of management accountants before the design process--for example, in the compilation of customer surveys used at the ideas-generation stage.
* Let management accountants see the design specification documents, which detail the information that the designers use in developing a new product or service, so that the accountants understand the type, accuracy and format o[ the data that's needed, and when it's required.
* Co-ordinate with management accountants on the measurement methods for evaluating the product anti service design functions so that everyone is using the same cost justification systems.
DESIGN STATEMENTS RATED (1 = agree strongly; 6 = disagree strongly) Statement Designers Management Difference accountants 1 Financial policies that treat 2.31 4.36 2.05 design as an expense rather than an investment with a measurable return have discouraged some very profitable design projects 2 Design funding is too often 2.64 4.40 1.76 given a low priority 3 Accountants should be more 4.64 3.27 1.37 actively involved in defining and justifying design expenditure 4 The involvement of management 2.86 4.20 1.34 accountants in the design process is counterproductive to the creative work of designers
(1) P Larsen and R Tonge, "identifying best-practice design and management accounting processes", CIMA Research Update, autumn/winter 2001.
(2) B Nixon, J Innes and J Rabinowitz, "Management accounting for design", Management September 1997.
Povl Larsen is senior research officer at the National Centre for Product Design and Development Research at the University or Wales Institute, Cardiff. Alan Lewis is the centre's director of research and enterprise…