How Boeing tracks costs, A to Z.

• Author: Bowlby, Robert J.
• Position: Includes related article

When Boeing's internal customers clamored for better cost information, the company decided to empower its business units by giving them more responsibility for their own costs.

A few years ago, two of Boeing's internal customers, engineering and operations, told the finance department they weren't getting the cost information they needed to manage airplane design and production. They lacked relevant economic information on which to base their decisions.

When we heard that, we knew we had to do something to remedy the situation. Boeing's cost-accounting system worked for tax and financial accounting and could be used to determine product cost and profitability at an airplane model level. But we realized that at an operating level, we were giving our engineering and operations organizations budgets for only a few cost elements.

Further, the cost information we provided individual managers didn't align with their responsibilities or areas they could control or influence. Engineering and operations couldn't use the cost information they routinely received to perform reliable economic-design trade studies or to make economically sound investment decisions. They had to generate such information almost exclusively by special analysis.

At Boeing, we've committed ourselves to continuously improving our processes so we can stay ahead of the competition and maintain or increase our long-term market share. We are rethinking and reshaping our corporate strategies, the cornerstone of which is "Customer In," a concept that means we continually seek input from our internal and external customers through internal feedback, customer-satisfaction surveys and market research.

With this type of strategy, finance must be a partner in all aspects of a business, from marketing and product design to production and customer support. One of finance's most important jobs is to help create a systematic framework of financial and nonfinancial information and measures that contribute to making the decisions that ensure the enterprise's success.

Therefore, to improve the cost-management process, Boeing finance, operations and engineering decided to team together to study and rethink our managers' real information needs with respect to unit costs. The team spent some time identifying and reviewing "best practices" by studying industry, academia and our own internal practices. We came up with several key concepts aimed at improving the relevancy of our cost-management information.

FRONT-END ALIGNMENT

First, we decided to align our accounting practices to support the way we manage the enterprise. This includes being flexible and responsive enough so that we can change or redirect the system to enhance continuous process improvement, even in the middle of an accounting period.

Also, we realized we had to routinely provide the financial data that management needs to improve our processes and ultimately our products. We agreed that this data, which...