Value Creation

In Chapter 10, management accountants used linear regression and historic cost data to estimate costs and to understand cost drivers. Understanding how costs behaved helped managers make better decisions. In this chapter, the focus is on predicting future revenues and costs. The methods of prediction help managers and management accountants understand cost drivers, but this is not the primary goal.

Management accountants work with data scientists to create value across all parts of the value chain. For example, they use data to identify what product design decisions and manufacturing parameters result in product defects. They then do a cost–benefit analysis to evaluate whether the company should spend additional resources to change designs or implement new manufacturing controls. Consider these specific examples:

• At Busbud, a travel site that sells bus tickets, management accountants work with data scientists to assess whether paying Google for advertising keywords helps drive more sales.
• At Kroger grocery stores, management accountants work with data scientists to help determine how much of each product to stock at each location and which location should be used to fulfill online orders based on demand predictions.
• At Visa, management accountants work with data scientists to determine how much to spend on detecting credit card fraud.
• At Whirlpool, management accountants work with data scientists to evaluate the costs and benefits of making a sale and extending credit to a customer based on predicted default risk.
• At Novartis, management accountants partner with data scientists to forecast sales and cash flow for prescription medicines based on internal and market information and also recommend how best to allocate marketing and sales resources.

Concepts in Action: Carnival Uses Big Data and Machine Learning to Sail Toward Greater Profitability describes the application of data science tools to manage revenues and costs in the cruise ship industry. As several of these examples illustrate, engaging with data science broadens the set of problems management accountants can engage with to create value. In particular, it helps management accountants to contribute to activities that increase revenues rather than focusing largely on managing costs.