Management control consulting

Our positioning in management control

We work with a wide variety of clients, mostly financial departments and management control departments (or performance departments, a term that is becoming more and more common). Akeance Consulting has been contacted for this type of assistance by companies of all sizes and in all economic areas.

Approach and content

The management control vocabulary often raises questions and covers different definitions and contents.
However, margin and performance analysis are core activities for the management control department (with exception of the banking transformation businesses where the transformation margin, known as the "ALM margin", is questionable).
In the manufacturing industry, to calculate the cost price is an issue. For other industries, whatever the service, the margin analysis systematically refers to allocation of direct and indirect costs and structural costs to give a full cost. This analysis is more or less mature depending on the companies. The difficulty lies in being able to make the numbers tell the real reasons behind the evolution of a margin.
Our approach therefore consists in reviewing the assumptions made as the margin is calculated in order to systematically challenge it : homogeneity of the perimeters, homogeneity between different products and services, reliability of the distribution key, changes in the distribution key, etc.
Beside these margin analysis missions, other missions are related to choosing and sharing the implementation of the management control tool.

Some convictions

Margin analysis should remain at a gross level of aggregation

In the end, few companies have a clear rule (or even a conviction) on margin analysis and cost allocation.
However, margin analysis is a kind of "Russian doll" of costs. The further we move away from the direct cost, the more the indirect cost allocation becomes dependent on a distribution key that is itself more and more distant from the product or service (we end up distributing in proportion of the workforce...).
This seemingly complete and serious approach entails two risks.
The first risk is that the analysis may become a too distorted due to the stacking of allocation keys.
The other risk is that the analysis of the evolution of a margin is sensitive because the analysis is produced at a gross level of contribution to the margin.
For instance, this is obvious in "people business" where the team occupancy rate represents the contribution to the margin made from income minus direct payroll costs.
Finally, inter-company invoicing rules, where applicable, can only disrupt such analyses.

The trap of the allocation keys

We have seen the risk of stacking distribution keys in margin analyses and cost allocation.
Now we need to look at the second pitfall of allocation keys, more hidden than the first. In many cases, allocation keys are inherently well thought out.
They are based on the reality of a particular cost, a surface area, a volume, etc. But the update of these allocation keys according to the company's evolution is rarely done. With as consequence, an endogenous distortion of the distribution keys.
The only good news is that analyses remain comparable over time...

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