Tuesday, July 28, 2015


Well I am starting again one of the largest series of case studies of cost accounting under the new dimension standing as on 2015. This article is prelude to the same to give an idea why and what is the reason of the birth of this series. Gone are the days when cost accountants have to spend huge number of hours for extrapolating data from the various departments to derive various cost accounting analytical works. Technology has replaced the cumbersome process of taking data and roaming around the doors of the various department heads. Audit practices have also become radically changed where more focus are being given to give new directions to the company management. So where we are standing today among these so many changes and also competition form other profession. Cost Accounting is no longer that old traditional costing, its now decision making tool and improving and identifying the new opportunities and profitability form efficient implementation of resources.  

One must understand that cost accounting across the globe has changed its focus areas and we the newly passed cost accountants are far from that place. We need to develop decision making aspects of the profession the tools and its silent words of decision making. ABC, TQM, Budgeting etc all are now based on Technology and hence we need to create human interference where we will create new industries and opportunities. We must understand that Technology is replacing old industries and new industries are being created randomly across the globe. Traditional practices are being replaced with new ones and hence we cost accountants now need to focus on case studies so that we get an idea about every industry. Don’t make an understanding that cost accounting is only about cutting down cost. After the recession of 2008 there have been huge cost reduction activities across the globe. Hence we need cost increase process also since growth comes from re-alignment of resources and not from cutting down of resources.  Only cutting down cost and controlling excessive cost many time leads to death or closure of the industry.

The biggest challenge one will face is that how we can develop our decision making skill when we are just fresher’s. Experience comes form case studies and hence one needs first of all to read many industries case studies of cost management.  The more your study and read diverse industries their patterns, their reports of their supply chain management (which is key for cost management), sales process, and manufacturing process then only one will get an idea about its business process. When you get a conceptualised idea about every industry and you increase your cost accounting acumen then only you will get an opportunity to think and develop your own thoughts.

Every company has come up with its own CRM support system and also internal data driven process system.  Now as a cost accountant you only need to extrapolate the data and derive a new strategy for the company which will improve either its margins, profitability, cost efficiency or improve customer satisfaction. We are all aware of all the term but we are not ware about customer satisfaction. Today all companies are competing across all segments to improve customer satisfaction and hence your costing management decision making should be to improve the margins of the company. You have all the data of various departments but how you will improve the customer satisfaction through the data. Well use Balance score card to develop the decision making. Hence one needs to read and understand that how BSC could help you to develop customer satisfaction and minimize key areas of cost increase.

How the application of an costing tool will improve the efficiency or will create new channels are the key demand for the industries. Technology has replaced every segment of the industry and hence its process of reporting also needs to be changed. We need to understand that when a cost account is being hired then what is being expected by the company or the industry compared to the competition in the market from other profession in same lines.  Competition is fierce and hence we need to change our attitude towards the profession. It will time consuming about reading so many books and developing case studies but once the whole process is completed you are on the drivers seat.

Sunday, July 26, 2015


In continuation to my previous articles on cost accounting profession I will be discussing about the new segment of strategic cost management where those cost accountants who are employed needs to focus. As we cost accountants are now in the mode of decision making we need to develop strategies breaking the traditional strategies.  The Time has again come when the Indian economy is trying hard to get back on track and macro factors are also working in favor of the business and industry. It might take few more quarters to get the real numbers coming up in the profit loss and cash-flow statements but prior to that I find the strategic cost management division should focus aggressively on increasing revenue. It has been found that by just saying cost management one gets a image of only cost reduction. Well the period of cost reduction and cost efficiency have been achieved much during the slowdown phase of the Indian economy over the past several years. The time has now come when we need to focus on efficient application of resource and design strategic cost management to maximize the returns during these macroeconomic growths.  We have found that many companies suffer from high sales but poor margins and profitability. This is article is expected to solve a certain part of this issue.

We need to design the sales compensation package which is the key force behind driving the revenue of the organization. The time has come when companies would brace up for recruiting and expanding its sales forces. But only expansion will not help neither strategically expanding the branch network. We need the model of compensation for driving sales. It’s high time to shred the old strategies of sales compensation and focus aggressively for the strategies which will drive the revenue growth of the organization. Further we need to include and promote the hunger for earnings strategically designing it with sales of the organization. Sales force should be compensated either on monthly or quarterly revenue based targets. Their targets should not be linked with sales. This is the key area where today’s cost accountants needs to understand that designing sales force to run aggressively is the key target for improving the margins of the company and its various products.  Sales target based compensation needs to be based on product wise where the sales team must be aware about the key areas where product based profitability of the company will increase. 

Hence gross sales of all products should not be taken into account. This approach will give a clear idea to the sales forces about the profitability product mix and its margin mix which will boost up the revenues.  The sales team should not be asked only to sale the high margin products since that will be detrimental to new product innovations and will innovation process. Further sales mix should be designed according to region specific so that business loss due to geographical location change doesn’t happen. Well every company has multiple products hence strategies accordingly to maximize the revenue as well as the compensation packages of the sales force.  At the same time the sales force needs to be taught about the newly designed matrixes so that they can plan their areas of compensation earning accordingly.  Dont forget that today every organisation is facing the problem of getting right talent and also high levels of attrition. Hence we cost accountants needs to design strategic structure for compensation aligning with the long term objective of cash flow and profitability growth improving the margins of the organisation.

Focusing on the margins rather than on the gross sales would be more productive in the long term.  This process will eliminate the loopholes in low profitability despite of high sales. many organisation are suffering frowm this problem that despite of high sales their margins are low.Even slightest vague approach of explain the sale force can be big opportunity loss. This segment have been often ignored but one needs to keep in mind that all product don’t find same market hence product specific ,revenue specific matrixes needs to be designed. We need to train the sales team about the revenue and product based profitability matrix. Further the sale team needs to be compensated on monthly or quarterly basis rather than waiting for a yearly compensation packages where salary hikes and bonuses etc comes into play.  This strategic change will drive aggressively the sales force which will boost the revenues of the company.

Often I have found the back office team also has client resources and they often try to pitch the product but they become reluctant to move ahead as sales is not part of their job role. Corporate must understand that sales are not limited to a particular segment. Hence in order to make the organization more driven towards the corporate profitability objective we need to introduce compensation packages for the back office or operational team without any target.  Without target but with compensation will drive the operation or back office team to understand more of the products and will innovate ways to present or market the product. This uplifts the organizational knowledge and also innovation levels coming from all segments without asking anyone to contribute.  Hence my cost accountants develop new strategies for increasing revenue and efficient use of resources. 


Much of the suicide cases in the Indian society are due to financial issues. A sudden disease cost or an accident can eradicate life style of a middle class society. If you read carefully the news papers every day you find dozens of advertisement for where kidney donation and also kidney sellers advertise about their kidney. The one who donates and the one who gives advertisement willing to donate his kidney are none other the people whom we see in the middle class segment of society. They need money for various reasons, for their children education, for prolonged unemployment crisis of liquidity, or for treatment of any of the family members. This is the true story behind every donator. Lacks of proper financial knowledge and investment advice have eradicated these peoples life that have no other way but to opt for these avenues.  Either you die or either you sell your body part to save your family.You can’t blame poverty neither for taking birth in the middle class. Lack of education is the prime reason for the widening income inequalities among the society.

 In today’s world the cost of medical expenses become a nightmare for a family. Often facebook we find pictures with tag line asking for funds to save children. Salaman Khan the most famous reputed star and may other film star often come forward to save the poor Child for raising funds for their treatments. But this is also limited to number of cases of financial problems arising due to medical cause.  The lucky is the ones who get the help of an NGO but that’s too limited. My brother in law preferred to die since the cost of treatment of cancer was too high which was diagnosed at later stage just 5 months before he passed away. He was sole bread earner for his family with a child who has just qualified the 10th standard exam with flying colors. In India we find that income inequality is a generation based legacy passed over by the grand fathers to their grand Child. Very few cases we find where a middle class have raised up into the bracket to rich society segment. Financial planning and efficient asset allocation are the key tools to solve the problem of income inequality and developing the society to a better living space.

Financial advisors thinks that what a fee a middle class will pay since the fee is linked either on a certain fixed percentage over the asset of the investor being managed or a fixed fee. Now a middle class people earning meager salary of 20 k each money and who might be having a barely an asset of   more than 5 lacs. Hence hardly any financial advisor would come forward to help these middle class but just calculate that how much one can get an opportunity to help these middle class to train them about financial planning. You might say that financial planners are the ones who have to tools and knowledge about bridging the gap of income inequalities over the generations. All we need is to step ahead.

Did we ever think that today countries like Europe, US are struggling with income inequality and legacy of debt and poor living mentality is being passed to the young generation?  But they had one of the best financial advisors in their country with expertise knowledge far better compared to India. Then why they are having high income inequality.  Well financial ADVISORS only advised them to live for themselves and less for their grand children’s. They pushed products which were of high margin followed with high return but at the end the return only depleted the assets of the family and dragged them below the middle class segment into the poor segment. So what we should expect form an advisor who is advising. We need advise which will bridge the gap of the income inequality and brings up a family from the poor segment to the middle class and form middle class to an segment where any risk is covered to protect from falling below the middle class. Rising income inequality and wealth is due to poor lack of risk management in financial planning. Risk management can only be done when the financial advisors educate the people about risk management and the damages to their life. Most of the suicides happens due to poor risk management due to lack of financial knowledge.

When a middle class gets a job and start earning they don’t have the knowledge that they need to start SIP or invest in mutual funds. They don’t have the knowledge that after their marriage AND AFTER THEIR CHILD THEY NEED A family floater policy. They don’t know that how asset allocation can be designed and risk can be reduced. They know only that an LIC policy would be enough to take care of their family. In fact 90% of the Indians don’t know what insurance policy they have taken from LIC. They only find the answere from the LIC agent who has sold them the policy.

When an accident or a disease happens they sell their property their assets even they sale kidney to get money for their family crisis. Income inequalities could only be reduced through proper financial knowledge and we financial advisors holds a tremendous responsibility towards the society.  We need to understand that we don’t belong to the community of capitalist and hence our profession should not be a mere revenue earning based on only focusing towards the rich. We need to bridge the income inequalities and also upgrading the level of the society.

Saturday, July 25, 2015


Taking birth in a middle class family is always a pain since you die more of pains of not getting thing which you dream rather of hunger. People say time has changed but city in Kolkata remains the same for an middle class. Since a middle class takes lot of courage to come out of the circle and get into rich class. Education is the only help through which one changes his fate. But how much we are educated in terms of financial education savings? Major part of the society is well uneducated. I am not discussing about the rich well grown capitalist/rich wealth accumulators part of the society, neither I am going to draw examples from Sarada Chit Fund ponzi scheme scam. But according to analysis of the whole situation it can be proclaimed that un-education have been the advantage of certain class of the society. Middle class of the society have always being ignored and also the same has suffered lot of pains due to lack of knowledge and support from the educated segment.  Everyone is busy in attracting the upper class of society and rich part of the same. Less focus and attention is being given to those who earn less that Rs.50000 pm. All knowledge related to finance is  only being kept as reserved asset for the upper class of the society.

My 5 year child is suffering with cancer. He needs a bone marrow transplant and that cost Rs 6 lacs even under the support of local politician who had little mercy to give a signed letter. My salary is Rs 16000 and my wife is house wife. Little savings we have since major part of the salary gets into medicine and food for my child where as we starve majority of the days.   What do you think that I would be begging or get into some political gang and start doing bomb attacks etc. or my wife should get into prostitution to get some healthy earnings. Well prostitution is also now very much competitive hence rates are not so better. It will take hundred may be more to sleep by the side to earn half the money of the treatment. In most of the cases a homicide happens and they get small space in the right or left side of the news paper. This is how a middle class family comes to an end. Facebook, Twitter and others hardly come to save and even if they come they come only to fortunate.
 Well in the above situation does any financial education would be of any help. Will any financial advisor would come forward with a plan but remember he doesn’t have millions to pay the fee. This segment of the society is untapped and ignored. Financial planning and advisory should be not being limited for wealthy class. Its an education and we are teachers of the same. 

We need to teach and educate people about the same. If the family brought a medical insurance and some insurance specific to critical diseases they might have saved themselves from the current fate. Insurance agents markets have been converted into cheaters and financial education is not for these types of people. We the educated financial advisers don’t think about this class of the society.  Just imagine if you have the knowledge then why you are limiting yourselves to the certain class of the society. We financial advisers have a big responsibility towards the society but we don’t go ahead with it. Today financial products are linked with targets and not commission. Sellers are it uneducated and hence they don’t know what they are selling. They don’t know the reality of pains in family when the save money for the insurance.

Financial advisors are the best persons who can guide and help an middle class to achieve a dream despite of not having a take home of Rs 50000/- or Rs 1 lac p.m. Financial planning and advisory can be designed for an even a fellow earning Rs 10000 per month. There is no limitation of financial planning for a family having fewer earnings.  But I find the society particularly the middle class is quite unaware of the financial planning and unaware about how to protect and build wealth being an middle class.

Well his child will pass away nobody will cry but did you ever think that one day you might face the same situation in your life. Educate people, educate the society. If you keep counting the penny remember someone else is counting double of it.  We financial advisers have a great responsibility towards the society to bridge the income inequality..

Friday, July 3, 2015


The time has come when we can unveil that why OPEC and why others are expecting that H2 of 2015 is going to be a great turn around for the Global markets and demand will pick up. Economics have always being cooked with the flavor of politics. US interest rate hike is more driven by politics rather on economic numbers. Further the asset bubbles which have been created over the last 6 years are about to burst out and hence in order to save the same we need a blame child or reason for sacrifice to the global economy on through whom we can hide the true picture of US growth which is not growing actually and also the asset bubbles suddenly going for burst. US needs a concrete recipe for all the things so that asset bubbles goes burst, US elections gets  boost and safe asset class to park money till US elections. . On the other hand we also need an asset class where we could park the money from the bubble burst after the interest rate hikes. Well the rich populations of America which comprises of 20% who control the investment market have to plan accordingly.

A trigger for asset bubbles to burst is required at the same time a asset class to park the returns from the bubbles is US treasury where upon interest hike returns would be better. After the rate hike the US economy would not be able to sustain the hike and this would give Obam’s opponent party a clean highway to win the elections. He will become a superman. Don’t forget that FED Head plays a key role is US election and his position is under the always historically under pressure when new government plans to rule US. Indirectly they are interlinked.  Now coming to Europe and the Greece drama where one question raises that why did not the IMF and ECB did not accept Greece Terms. Well start thinking the reverse way and think why Greece problem was not resolved when we all knew that this problem would create more ripple effects on the global markets due to volatile effects.

ECB bond purchase drama has failed to keep Euro low. Now US interest rate hikes are near the corner hence a strong fresh round of ECB Bonds Purchase plan or QE is required so that the money from US flows into ECB Bonds or QE.  Further asset bubbles in US and Europe would also need some products where returns are safe and good over the next few years may be until US elections. So the best boy to be sacrificed is Greece based on which ECB will come up with more QE and would show the world market that to protect and save the 17 Euro states we are coming up with QE. The stage of Drama is set and we are just in the phase of curtain raiser where Greece advertisement have been played and now we are awaiting for the big movie.
Hence flood of liquidity of Funds into the market and asset bubbles coming down investments would grow and this would create new asset bubbles and demands.

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