ABCo’s accounting section finalizes an $8,000 invoice for Job 143 but offers a 5% discount due to delays, sending a $7,600 invoice to the customer. Despite having advanced commercial software and qualified personnel, the company’s management is unaware that their productivity is running at 15,000 billable hours instead of the planned 20,000 hours, leading to a potential shortfall of $250,000.

This lack of awareness highlights the challenges businesses face in staying updated and informed, even with modern tools. The initial belief that businesses only needed monthly financial reports and a few Key Performance Indicators (KPIs) was misleading. This realization led to the development of Proactive Management Contribution Analysis (PMCA).

In the late 1960s, Small and Medium-sized Enterprises (SMEs) made up over 94% of all businesses and contributed over 50% of the GDP. However, there was limited reference to SMEs in management literature. Over time, the needs of SMEs were recognized, and business advisory agencies were established to cater to them. Traditional accounting methods were not effective for SMEs, and there was a need for a more tailored approach.

The solution was found in a printing firm’s case, where the manager couldn’t understand the discrepancy between his markup and the actual profit. This led to the development of the “Proactive Management Contribution Analysis” or PMCA methodology, which focuses on the billable production-hour and its connection with the invoiced sale. The Charged Unit Benchmark Index (CUBI) became a key derivative of PMCA, providing a benchmark for businesses.

The PMCA approach was applied to various businesses, revealing the importance of tracking units of activity and contribution. The method was met with skepticism by traditional accountants but proved effective in practice. The PMCA methodology emphasizes the importance of regular action meetings to review performance and plan ahead.

In conclusion, the PMCA and CUBI methodologies provide businesses with tools to improve productivity and profitability by focusing on real-time performance and potential performance. Regular reviews and action meetings ensure effective follow-through and better decision-making.

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by: Lindsay Alston