Gary Cokins

Gary Cokins (Cornell University BS IE/OR, 1971; Northwestern University Kellogg MBA 1974) is an internationally recognized expert, speaker, and author in advanced cost management and enterprise performance and risk management systems. He is the founder of Analytics-Based Performance Management LLC, an advisory firm located in Cary, North Carolina at

He began his career in industry with a Fortune 100 company in CFO and operations roles. He then worked 15 years in consulting with Deloitte, KPMG, and EDS. From 1997 until recently Gary was a Principal Consultant with SAS, a leading provider of enterprise performance management and business analytics and intelligence software.

His two most recent books Performance Management: Finding the Missing Pieces to Close the Intelligence Gap (ISBN 0-471-57690-5) and Performance Management: Integrating Strategy Execution, Methodologies, Risk, and Analytics (ISBN 978-0-470-44998-1). Mr. Cokins can be contacted at .



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How Can We Deal with Misleading Management Accounting Data?

By Gary Cokins, Founder and CEO: Analytics-Based Performance Management LLC

A paradox which continues to puzzle me is how chief financial officers (CFOs) and controllers can be aware that their managerial accounting data is flawed and misleading, yet not take action to do anything about it.

Now, I’m not referring to the financial accounting data used for external reporting; that information passes strict audits. I’m referring to the managerial accounting used internally for analysis and decisions. For this data, there is no governmental regulatory agency enforcing rules, so the CFO can apply any accounting practice or cost allocation method that he or she likes.

Perils of poor navigation equipment

Perhaps some CFOs and controllers are simply lazy. They do not want to do any extra work or have two sets of books with potentially confusing product and service-line cost numbers. This counterintuitive phenomenon can be described this way:

Imagine that several centuries ago there was a navigator who served on a wooden sailing ship that regularly sailed through dangerous waters. It was the navigator’s job to make sure the captain safely and efficiently sailed the ship from one point to another. In the performance of his duties, the navigator relied on a set of sophisticated instruments. Without the effective functioning of these instruments, it would be impossible for him to chart the ship’s safest and most efficient course.

One day the navigator realized that one of his most important instruments was calibrated incorrectly. As a result, he provided the captain inaccurate navigational information. No one but the navigator knew of this calibration problem, and the navigator decided not to inform the captain. He was afraid that the captain would blame him for not detecting the problem sooner and then require him to find a way to report the measurements more accurately. That would require a lot of work.

As a result, the navigator always made sure he slept near a lifeboat so that if the erroneous navigational information led to a disaster, he wouldn’t go down with the ship.  Eventually, the ship hit a reef that the captain believed to be miles away. The ship was lost, the cargo was lost, and many sailors lost their lives.  The navigator, always in close proximity to the lifeboats, survived the sinking and later became the navigator on another ship.

Perils of poor managerial accounting

Can a similar story be told in today’s times? Centuries later, there was a management accountant who worked for a company in which a great deal of money was invested. It was this management accountant’s job to provide information on how the company had performed.

One day the management accountant realized that the calculations and practices on which the cost system was based were incorrect. It did not reflect the economic realities of the company. The input data was correct, but the reported information was flawed. A broadly averaged cost allocation factor was used with no causal relationship to the outputs being costed. As a result, the current and forward-looking information he provided to support the president’s decision making was incorrect. No one but the management accountant knew this problem existed. He decided not to inform the president. He was afraid that the president would blame him for not detecting the problem sooner and then require him to go through the agonizing effort of developing and implementing a new, more accurate and relevant cost system using activity based costing (ABC) principles. That would require a lot of work. Wouldn’t it?

Meanwhile, the management accountant always made sure he kept his network with other professionals intact in case he had to find another position. Not surprisingly, the president’s poorly informed pricing, investment, and other decisions led the company into bankruptcy. The company went out of business, the owners lost their investment, creditors incurred financial losses, and many hard-working employees lost their jobs. However, the management accountant easily found a job at another company.

The accountant as a bad navigator

Why do so many accountants behave so irresponsibly? The list of answers is long. Some believe the costing error is not that big. Some think that extra administrative effort required to collect and calculate the new information will not offset the benefits of better decision making. Some think costs don’t matter because the focus should be on sales growth. Whatever reasons are cited, accountants’ resistance to change is based less on ignorance and more on misconceptions about what determines and influences accurate costing. 

Today commercial ABC software and their associated analytics have dramatically reduced the effort to report good managerial accounting information, and the benefits are widely heralded. Furthermore, the preferred ABC implementation method is rapid prototyping with iteratively scaled modeling, which has destroyed myths about implementing ABC as being too complicated and lengthy. An ABC system can be implemented in a few weeks, not months. 

Reasonably accurate cost and profit information is one of the pillars of performance management’s portfolio of integrated methodologies. Accountants unwilling to adopt logical costing methods, and managers who tolerate the perpetuation of flawed reporting, should change their ways. Stay on the ship or get off the ship before real damage is done.

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Exceptional EPM/CPM Systems are an Exception

By Gary Cokins, Founder and CEO: Analytics-Based Performance Management LLC

Quite naturally, many organizations over-rate the quality of their enterprise and corporate performance management (EPM/CPM) practices and systems. In reality, they lack in being comprehensive and how integrated they are. For example, when you ask executives how well they measure and report either costs or non-financial performance measures, most proudly boast that they are very good. Again, this is inconsistent and conflicts with surveys where anonymous replies from mid-level managers candidly score them as “needs much improvement.”

Every organization cannot be above average!

What makes exceptionally good EPM/CPM systems exceptional?

Let’s not attempt to be a sociologist or psychologist and explain the incongruities between executives boasting superiority while anonymously answered surveys reveal inferiority.  Rather let’s simply describe the full vision of an effective EPM/CPM system that organizations should aspire to possess.

First, we need to clarify some terminology and related confusion. EPM/CPM is not solely a system or a process. It is instead the integration of multiple managerial methods – and most of them have been around for decades arguably even before there were computers. EPM/CPM is also not just a CFO initiative with a bunch of scorecard and dashboard dials. It is much broader. Its purpose is not about monitoring the dials but rather moving the dials.

What makes for exceptionally good EPM/CPM is that its multiple managerial methods are not only individually effective, but they are also seamlessly integrated and embedded with analytics of all flavors. Examples of analytics are segmentation, clustering, regression, and correlation analysis.      

EPM/CPM is like musical instruments in an orchestra

I like to think of the various EPM/CPM methods as an analogy of musical instruments in an orchestra. An orchestra’s conductor does not raise their baton to the strings, woodwinds, percussion, and brass and say, “Now everyone plays loud.” They seek balance and guide the symphony composer’s fluctuations in harmony, rhythm and tone. 

Here are my six main groupings of the EPM/CPM methods – its musical instrument sections:

  • Strategic planning and execution – This is where a strategy map and its associated balanced scorecard fits in. Together they serve to translate the executive team’s strategy into navigation aids necessary for the organization to fulfill its vision and mission. The executives’ role is to set the strategic direction to answer the question “Where do we want to go?” Through the use of correctly defined key performance indicators (KPIs) with targets then the employees’ priorities, actions, projects, and processes are aligned with the executives’ formulated strategy.
  • Cost visibility and driver behavior – For commercial companies, this is where profitability analysis fits in for products, standard services, channels, and customers. For public sector government organizations this is where understanding how processes consume resource expense in the delivery of services and report the costs, including the per-unit cost, of their services. Activity-based costing (ABC) principles model cause-and-effect relationships based on business and cost drivers. This involves progressive, not traditional, managerial accounting such as ABC rather than broadly averaged cost factors without causal relationships.    
  • Customer Management Performance – This is where powerful marketing and sales methods are applied to retain, grow, win-back, and acquire profitable, not unprofitable, customers. The tools are often referenced as customer relationship management (CRM) software applications. But the CRM data is merely a foundation. Analytical tools, supported by software, that leverage CRM data can further identify actions that will create more profit lift from customers. These actions simultaneously shift customers from not only being satisfied to being loyal supporters. 
  • Forecasting, planning, and predictive analytics – Data mining typically examine historical data “through the rear-view mirror.” This EPM/CPM group directs attention forward to look at the road through the windshield. The benefit of more accurate forecasts is to reduce uncertainty. Forecasts for the future volume and mix quantities of customer purchased products and services are core independent variables.  Based on those forecasts that so many dependent variables have relationships with, therefore process-related costs derived from the resource expenses can be calculated and managed. Examples of dependent variables are the future headcount workforce and spending levels. CFOs increasingly look to driver-based budgeting and rolling financial forecasts grounded in ABC principles using this group. 
  • Enterprise risk management (ERM) – This cannot be omitted from the main group of EPM/CPM. ERM serves as a brake to the potentially unbridled gas pedal that EPM/CPM methods are designed to step hard on. Risk mitigation projects and insurance requires spending which reduces profits and also steers expenses from resources the executive team would prefer to earn larger compensation bonuses.  So it takes discipline to ensure adequate attention is placed on appropriate risk management practices.
  • Process improvement – This is where lean management and Six Sigma quality initiatives fit in. Their purpose is to remove waste and streamline processes to accelerate and reduce cycle-times. They create productivity and efficiency improvements.

EPM/CPM as integrated suite of improvement methods

CFOs often view financial planning and analysis (FP&A) as synonymous with EPM/CPM. It is better to view FP&A as a subset. And although better cost management and process improvements are noble goals, an organization cannot reduce its costs forever to achieve long-term prosperity.

The important message here is that EPM/CPM is not just about the CFO’s organization; but it is also the integration of all the often silo-ed functions like marketing, operations, sales, and strategy. Look again at the six main EPM/CPM groups I listed above. Imagine if the information produced and analyzed in each of them were to be seamlessly integrated. Imagine if they are each embedded with analytics – especially predictive analytics. Then powerful decision support is provided for insight, foresight, and actions. That is the full vision of EPM/CPM to which we should aim to aspire in order to achieve the best possible performance.    

Today exceptional EPM/CPM systems are an exception despite what many executives proclaim. If we all work hard and smart enough, in the future they will be standard practices. 

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Movie Sequel – “Accountant Pirates of the Caribbean”

By Gary Cokins, Founder and CEO: Analytics-Based Performance Management LLC

FP&A Tags: 

Please forgive me for my persistent rant and criticism against accountants who budget poorly or continue to calculate the substantial and growing high indirect and shared costs originating from resource expenses such as salaries, supplies, power, information technologies, and travel. I cannot seem to hold back my frustration. 

When I observe managerial accounting practices and methods that ignore driver-based budgeting principles or simply allocate indirect and shared expenses typically as large combined “pool” using a single broad-brushed cost allocation base (e.g., number of units produced, sales amounts, direct labor input hours, head count, square feet/meters), I do not know if I should laugh or cry!

An excellent reference for best budgeting practices is this “Budgeting Best Practice e-book” written by Alan Whitehouse, Chief Solution Architect with TrueSky Inc. It is at:  

Accountants as pirates

The cost allocation methods just described violate what should now be well known by accountants as the “causality principle.” Expenses should not be “allocated” implying using any convenient base denominator in the calculation that converts 100% of the expenses into 100% of costs. Expenses should be “assigned and traced” in proportion to how the expenses are consumed. This means that the various work activity costs that belong to end-to-end and cross-department processes should be disaggregated and re-assigned using a quantity or volume metric that reflects the consumption rate.

Now at this point, some readers of this article have stopped reading and gone off to do other things like process journal entries and admire how elegant their debit and credit T-accounts look. Many of them suspect they are going to hear another heralding of the virtues of activity-based costing (ABC). That's fine. Let me write to the rest of you.

First, what were pirates and what is piracy? A definition for piracy is an act of robbery typically at sea but also applicable on land. It refers to raids across land borders. Can I use a pirate analogy for misguided accountants? I believe I can if you allow me to use some imagination. 

When accountants mis-allocate calculating past period historical costs (e.g. product costing), the result is simultaneously over- and under-costing compared to the economic reality because re-assigning expenses and costs is a zero-sum-error calculation. Are the accountants “robbing” anyone? Yes. At one level they are acting like Robin Hood taking from some (i.e., product costs) to give to others. At a more personal level, they are “robbing” managers and employee teams from having reasonable cost accuracy from which to draw insights for decisions such as product, service-line, channel, and customer rationalization. Accurate reported output costs and profit margins lead to a better understanding for determining how much and what types of resources to use to maximize the organization’s mission to stockholders (commercial companies) and stakeholders (in the government public sector).

What about “raids across land borders?” If you continue with this piracy analogy, one can substitute the borders of the organization chart with land borders. We all acknowledge that organizational silos exist at some level despite the Lean and Six Sigma quality management community’s pursuit to eradicate the self-serving behavior of and organization’s departments. When accountants focus on departmental cost center reporting of actual versus budget spending, they make managers either happy or sad, but rarely any smarter. Managers rarely see or sufficiently understand the cross-departmental costs of activities. And the reported costs of the products and service-lines that consume these expenses are flawed and misleading due to non-causal broad-brushed averaging earlier described.

Unethical or irresponsible? Shame on versus shaming accountants

I recently posted a question in the website discussion group of one of the professional accounting institutes. Based on this institute’s definition of code of ethics, which now has higher interest based on financial scandals like Enron, I asked if accountants are behaving unethically or just irresponsibly when they basically and most likely knowingly miscalculate output costs. There was a range of responses including several who defended accountants as simply just “doing their job” and that the total costs do perfectly reconcile without error. (Now there is an auditor’s mentality. Correct in the whole, and everywhere incorrect in the parts.)

What about my behavior in writing this article? Am I placing shame on accountants or shaming them. There is a difference. Shame exists when one admits they have a committed act and therefore are dishonorable. Shaming is an assault on the worth of an individual. Shame results in the accused diminished self-esteem and at the extreme to be dismissed and banished from the organization they were a member of – a harsh penalty. 

If I am shaming an accountant for their lack of caring to provide their managers and workforce with reliably valid information for decision making, if they already have low self-esteem then I might cause them to have an irreversible downward spiral. I certainly do not want that to happen. But I will maintain my position and assign shame to those accountants who themselves know who they are. They know they are admittedly using misallocating cost calculations that violate costing’s causality principle. It is a principle. The causality principle is not a law like they can be handed a traffic ticket from a policeman.  

Why does any of this matter?

Why am I standing my ground and persistent? Management accounting has an imminent important task ahead. Most commercial companies are shifting from being product-centric to customer-centric for a whole host of reasons including that customers now view most suppliers as selling commodities. This means a supplier’s competitive edge will come from offering differentiated services to increasingly granular micro-segmented types of customers. It is no longer about just increasing market share and growing sales. It is about growing profitable sales. If accountants do not have mastery on tracing expenses to channels and customers they place their company at peril and risk.

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Management Accounting for FP&A

To most FP&A professionals and accountants there is confusion and a lack of consensus on how to allocate costs to products and service lines. I refer to this as “a mystery in a box to accountants”. To solve this mystery here are three lectures to accounting students from a skilled and experienced accountant – me – that explains the problem and how to solve it. For those who have already graduated from college and may even have a CPA, I encourage you to sit in the back of the lecture hall and audit these classes.

Management Accounting 101

Welcome, accounting class, to Management Accounting 101. No need to take your seats. All you need to know is this: Do not allocate indirect expenses to products and service lines using cost allocation factors like spreading butter across bread. Examples of factors are the amount of sales, number of units produced, number of employees, number of labor hours, or square feet or meters. None of those comply with costing’s causality principle

Trace and assign indirect expenses into calculated costs using driver quantities so that they are similar to direct costs. Your line managers and executives will appreciate you because you will have unhidden the costs by making them visible and substantially more accurate. This will enable your colleagues to gain insights and make better decisions. Class dismissed. 

Management Accounting 102

Welcome back, accounting class, to Management Accounting 102. This brief lecture is intended to inspire you. It ends with a pop quiz.

Let’s reflect on the giants of the scientific revolution from past centuries. Copernicus shocked the world by placing the Sun rather than the Earth at the center of the universe. Galileo Galilei was the father of the scientific method and applied the telescope to test theories. Johannes Kepler then described planetary motion with our planets, including the Earth, orbiting around the Sun. His work helped Isaac Newton develop his theory about gravity that every particle attracts every other particle in the universe with a force that is directly proportional to the multiplicative product of their masses and inversely proportional to the square of the distance between their centers. Albert Einstein then refined Newton’s work with his general theory of relativity describing gravity as a geometric property of space and time - spacetime. 

All of these advances replaced misconceptions with reality. Wisdom is knowledge tempered with judgement.

Pop Quiz – In what decade in this 21st century will accountants replace distorting and misleading cost allocations with reality based on cost accounting’s causality principle?

Please hand in your paper with your answer.

Management Accounting 103

Welcome back, accounting class, to Management Accounting 103. This is my final lecture. It will describe how to resolve the “cost allocation” problem that I described in my 101 class. If what I now teach you is followed it will propel CFOs and accountants out of the 1960s into the 21st century. The solution is activity-based costing (ABC).

I refer to ABC with this: “Break the GAAP rules to find the jewels”. Here is how and why.

But first as background, there has been a slow adoption by accountants to apply ABC as a replacement for the flawed and misleading traditional “cost allocation” methods for indirect expenses (commonly referred to as “overhead”) from standard cost accounting systems. As I mentioned in my 101 lecture, they allocate indirect expenses like spreading butter across bread using non-causal and broadly averaged cost allocation factors. Examples are the number or amount of direct labor input hours or currency, units produced, sales volume, headcount, or square feet/meters. None of those reflect the true consumption of expenses that unique and diverse products and service lines consume of the end-to-end processes and the work activities that belong to the processes.

After ABC decomposes the single and typically large indirect cost pool into multiple cost pools – the work activities – and traces and assigns them based on a cause-and-effect relationship there is no surprise to those managers who have always been suspicious. What is discovered, compared to the traditional costing, is that some of the products and service lines are being over-costed and the others must be under-costed because cost allocations have zero-sum error. It is true that traditional costing does exactly reconcile the indirect expenses in total into the product and service line costs. That satisfies the auditors for external financial regulatory and statutory reporting, but the costs are wrong in the parts. This means that CFOs and accountants are providing their managers and executives those flawed and misleading costs I mentioned which means the profit margins are also wrong.   

The benefits from applying ABC in comparison to traditional cost allocation methods that violate “costing’s causality principle” are numerous. Key benefits are: (1) extremely more accurate profit and cost reporting of outputs, products, services, channels and customers; (2) transparency and visibility of the “drivers” for work activities and their magnitude; and (3) past period calibrated cost consumption rates that are essential to multiply against future forecasted demand volume and mix that determine resource capacity requirements – workforce headcounts and spending amounts. These rates are needed for what-if scenario analysis, make-versus-buy decisions, and capacity-sensitive driver-based rolling financial forecasts and budgets.

Causality is at the heart of ABC. For example, if the quantity of the activity driver increases 20% then its activity cost should also increase 20%. The work activities are what consume the resource capacity expenses. Any CFO, financial controller, or FP&A analyst who are using traditional cost allocation methods and are not using ABC where it is applicable (which is for most organizations) is being irresponsible in their duty to provide valid information to managers and employees. The information they are providing is faulty, distorted and deceiving. Line managers deserve better from their CFO to support their decisions.

Are CFOs and accountants being irresponsible or worse yet unethical when they misallocate costs? Statutory and regulatory compliance for external financial reports is defined as requiring adherence to the letter of the law. CFOs do that. But ethics is about practicing honesty and treating people fairly. With this definition, a case can be made that CFOs who fail to use progressive management accounting techniques, including ABC, are being unethical.

Thank you for taking my management accounting 101, 102, and 103 courses. You will soon graduate. I wish you success as you join an employer to act not as an accounting “bean counter” but to be a “bean grower” to help your organization with insights and making better decisions than with stale and arcane cost allocation methods from the 1960s. 

Class is dismissed.

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Are Certified Accountants Joining the Dark Side?

The reputation of certified accountants, perhaps exaggerated, is that they are precise, introverted, and conservative. (Certified accountants are those who have successfully passed qualification examinations.) Whether they are employed by a public auditing firm or by an organization, a certified accountant’s traditional responsibilities have been financial stewardship and assurance of financial accounting compliance with regulatory, statutory, and tax agencies and typically report past historical data.

Generally, certified accountants have not had a reputation for deep involvement with operations, marketing, and sales management nor being a strategic advisor to their executive team, although articles by the media, consulting firms, and IT analysts have been claiming this is a trend and direction for them.

Are the claims becoming reality?

Maybe there is now a glimmer of change. Perhaps certified accountants are increasing in numbers with their transition to expanding from being primarily financial accountants to management accountants and performing financial planning and analysis (FP&A). I have some evidence for this.

Here are some impressions I have from presenting at AICPA accounting conferences in the USA. (As many are aware the AICPA and CIMA created an alliance, the CGMA. I have authored two CGMA books). A first sign of change of this transition from “bean counter to bean grower” is that the number of FP&A sessions at AICPA conferences is increasing. 

However, a much better indicator is the common FP&A themes by the presenters, including myself. At a summary level these themes are:

  • The CFO and controller are indeed becoming more of a strategic advisor.
  • There should ideally be less emphasis on the annual budget and monitoring spending control and more emphasis on analysis, forecasting, and planning.
  • Enterprise risk management (ERM) should be integrated with enterprise and corporate performance management (EPM/CPM) methods.

Which “dark side” do I mean?

When I asked the question in this article’s title if certified accountants are now joining the “dark side” (as with Darth Vader from Star Wars), what I am referring to is the management accounting and FP&A’s side of accounting’s taxonomy neighbored with external financial and tax accounting.

To clarify, external financial accounting is intended for reporting to satisfy regulatory compliance, bankers, and the investment community. In contrast, internal management accounting is for reporting executives, managers, and employee teams to provide insights and to support better analysis and decisions. (Tax accounting is in my mind a digital game somewhat disconnected from economic reality.)

The AICPA has been the USA’s primary professional institute for external financial accounting. Similarly is the Association of Chartered Certified Accountants (ACCA) in the UK. However, in the past few years, both of these professional societies have established partner alliances with premier management accounting institutes. The ACCA with the USA’s Institute for Management Accounting (IMA), and, as earlier mentioned, the AICPA with the Chartered Institute of Management Accountants (CIMA) headquartered in London. Similar partnering has occurred with Canada’s accounting institutes.

My interpretation is that these new joint alliances reflect a shift in emphasis of certified accountants from “valuation” (i.e., external financial accounting) to the more critical need for “creating financial value” (i.e., internal management accounting) by providing insights and facilitating better decisions. 

Certified accountants joining the dark side?

To sum up, yes, this is good news that certified accountants are increasingly acquiring FP&A and management accounting skills and competencies. It is their “Force.” But to clarify the Star Wars “dark side” analogy represented by management accounting, it is actually the “bright side.” Why? Good management accounting, such as activity-based costing (ABC) practices, brings visibility and transparency to product, standard service-line, distribution channel, and customer-related costs and profit margins. Management accounting displays profit margin layers like in an onion skin that are typically hidden with GAAP reporting. With management accounting, internal managers and employee teams gain more insights and foresight to support better decision making.

It has been a long time coming for certified accountants to display high interest in FP&A and management accounting. Hopefully certified accountants will now be like the moths-to-the-flame pursuing analysis. Certified accountants are seeing the light and are expanding their FP&A and management accounting skills and competencies. It is a win-win for both them and the line function managers who they support and who thirst for better information.

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Author's Articles

January 29, 2020
FP&A Tags:

To most FP&A professionals and accountants there is confusion and a lack of consensus on how to allocate costs to products and service lines. I refer to this as “a mystery in a box to accountants”. To solve this mystery here are three lectures to accounting students from a skilled and experienced accountant – me – that explains the problem and how to solve it. For those who have already graduated from college and may even have a CPA, I encourage you to sit in the back of the lecture hall and audit these classes.

September 4, 2019

Generally, certified accountants have not had a reputation for deep involvement with operations, marketing, and sales management nor being a strategic advisor to their executive team, although articles by the media, consulting firms, and IT analysts have been claiming this is a trend and direction for them.

April 9, 2019

Business schools tend to divide their curriculum between hard quantitative-oriented courses, such as operations management and finance; and soft behavioral courses, such as change management, ethics and leadership. This separation of the curriculum is like chambers in a mansion.

February 13, 2019

This article is my sequel to my previously published “Can Accountants Grow the Beans Too?” article posted this past January, 2019.