Corporations are in business, for the most part, to make a profit. The way corporations measure whether they are profitable is through cost accounting systems. Years ago, these systems were comprised of hundreds of bookkeepers and accountants manually performing calculations. Today, computers do the bulk of the work. Other than that, the basic structure of cost accounting systems has changed very little over the years.

The executives we interviewed expressed great concern over the usefulness of the information they could gain from their cost accounting systems. They accepted that the cost accounting systems in their operations were necessary for reporting required financial data but did not feel that they provided much data that was relevant to their manufacturing operations. They appeared to believe that "most cost accounting systems are historical, oriented toward financial reporting, and inadequate to measure operational performance." ^[1]

Cost accounting systems evolved very little between about 1900 through the 1960s. The primary objective of these systems was to report to management and the financial community on the financial performance of companies in a way that was consistent across all companies and operations. This consistency of reporting was necessary to provide effective communication and comparisons of the financial performance of different companies and operations. Over this period, standard cost accounting principles and practices became very well defined and accepted.

From a manufacturing perspective, cost accounting systems had very little impact on the day-to-day operations. This may seem odd since a good percentage of the...