Justifying retrofit projects

Article Abstract:

Projects that convert existing manufacturing capacity to new uses, known as retrofit projects, can lead to overstated returns on investment (ROI) and to the creation of an unintended subsidy. Accounting for these retrofit projects is complex. Such accounting is explained. There are two approaches for determining the true incremental value of ROI: (1) incorporating an investment penalty equal to the replacement cost of the assets in the accounting calculations related to displaced production capacity; and (2) penalizing the earnings stream of the retrofit project to reflect losses incurred due to the displacement of existing productivity. The advantages and disadvantages of each of these accounting techniques are discussed relative to varying business situations and occasions necessitating a retrofit.

Industrial project management, Project management, Return on investment, Rate of return, Industrial engineering

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What professional services firms can learn from manufacturing

Article Abstract:

Professional services firms are experiencing increasing competition as well as growth in size and organizational complexity. Such firms need management accounting systems comparable to those used by manufacturers. Typical accounting systems for professional services firms simply state financial positions and fail to address such issues as optimal use of resources or non-financial indicators of long-term profitability. Manufacturing firms have management accounting systems that include cost control features as well as performance and quality measurement. Professional service firms can benefit from similar capabilities, enabling them to perform such functions as prioritizing work, formulating hiring and training policies, forecasting demand, and monitoring customer service.

Manufacturing industry, Manufacturing industries, Services industry, Service industries

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