An Improved Accounting and

Control System
for Pipeline Integrity
Department
Agenda
• Overview of Proposed Change
• Today’s status
• Finding Cost Opportunities
• Define Accountabilities and Cost Allocation
• Key Spending Areas and Company’s wide rate
• Budget Accuracy
• Key Objectives and Critical Success Factors
• Top Issues Facing Us
• Goals for Next Stage
• Review of and Progress Against Prior Goals
• Summary - Call for a Change
Overview of Proposed Change
• Accounting and Control
Systems to be revamped
to align with business
strategy
Why??
• To Enable the
organization to achieve
performance targets
Today’s Status
• Our current system focuses on reporting cost after
its incurred
• It is typically lagging by 3 to 6 months
• It is not a real time reflection of spending
• It provides financial statement to the Board and
external stakeholders without strong basis of
estimates
This approach is typically late for
management or Board to make
timely decisions for correction
Finding Cost Opportunities
• Integrity Program is one of the highest spending
business units
• 2016 approved budget – $250MM
• Spending up to Date – $234.12MM

• Did the spend budget cover the planned scope?

• Are we going to complete all required work
within the approved budget?
• How can we look into cost saving opportunities
• How can we check if our progress and spends are
meaningful?
Finding Cost Opportunities
Planning

Budget

Control

Accounting
System

Performance
Check

Reward
Finding Cost Opportunities
• In order to fine cost opportunities, we need:
• Defined scope of work
• Cost Measurement basis
• Activities progress against planned budget – and target
productivities
• Operating unit cost
• Cost breakdown Structure and Method of bucketing
• Rules of credits and Allocation rules
• Reporting Structure

Or … customized Accounting and Control System to fit

the Pipeline Integrity Program
Define Accountabilities and Cost
Allocation
• Department Structure:

Engineering
Manager-
Execution
Construction
Director

Project Field Cost

Control Lead Analyst

Who is authorized and who is accountable for what?

Define Accountabilities and Cost
Allocation
• The current system does not define signing
authority for spending – no incentives for good
work
• The costs is not allocated by roles and activities-
no one is responsible for overrun
• We have issues with forecast - we blame the
system and cost analyst
• The system needs to be more structured
To define accountability, authority and cost of
activities needs to be allocated and linked to a
role
Balanced Scorecard

• Performance measure has a direct impact on

employees behaviors (Norton, 2014).
• We need build a strong effective measurement
tool - Balanced Scorecard
• Balanced Scorecard is a translation of
department’s goals
• It helps keeping the team focused
• It motivates them
Linking our vision, strategies with our finance,
customers, internal and growth plans is essential
for our continuous success
Balanced Scorecard

Financial

Internal
Customers Success Processes

Learning
Balanced Scorecard

Action
Structured
KPI WBS
Within Accurate
budget Budget
Efficient Continuous
Objectives Monitor and
Safe Control
operation Correcting
Variances
Gaps in Current System – Chaos
• Project managers and Cost analyst have
difficulties measuring progress performance
• Cost is being tracked after its spent, forecast is
hard and
• Qualitative objectives are not measured
• Lack of clarity on priorities
Balanced Scorecard - Development
1. Kickoff – by in from Executive
2. Assessment of current system
3. Build strategy
4. Map objectives
5. Link them to companies strategies
6. Define milestones and target
7. Define measuring strategies
8. Define input needs
9. Build the tool
10. Run awareness and training
11. Evaluate results
Again - Our Key Objectives
Objectives:
• Accurate cost report
• Allow for accurate analysis
• Planning budget
• Reporting accurately
• Measuring progress and earned value
• Forecasting
• Measure performance and reward accordingly
• Solving problems
• Find cost saving opportunities and increase efficiency
• Facilitate rational economical decisions
Budget – Plan vs Actual – Sample

Q1 Budgeted
Actual Q1 Deficit:
Surplus: $1,273K
$161K
Budget Issues
• Assumptions used in Budget preparation are not
solid
• Individual responsible for the funds were not part
of developing it
• Budget is not allocated to activities or work
structure
• Risks are not accounted for
• No contingency allowed
Cost Allocation
We need to develop a cost allocation system to
allow us to provide
• Meaningful reports
• Appropriate planning
• Monitor activities cost
• Separate departments cost
• Control variances
• Immediate problems tackling
• Alternatives evaluation
• Corrections and decisions
Cost Allocation
Activity Based Costing
• Helps in performance measure
• Helps forecasting with external variances and
fluctuation
• Helps provide information about internal processes
• Helps provide information about clients satisfaction
• Open opportunities for improvement and learning
(Agbonlahor & Oyekan, 2008)
Activity Based Costing
• In order for the group to provide a more accurate
budget for the program, we need to develop a
bottom-up work breakdown structure and allocate
cost to each activities
Activities costing:
1. Internal Indirect
2. Land and Permitting
3. Engineering
4. Material – piping
5. Earth Work
6. Welding and Pipe Repair
7. Land Reclamation
Activity Based Costing
Operating Cost represents 40% of the budget. This
overhead cost is considered high
• To ensure proper monitor and control of operating cost,
further breakdown is proposed by services
• Forecasting should be correlated to the amount of work
required by each department
• Unit pricing should be developed and used as standard cost
• This will enable management measure department
efficiencies
• Gross inefficiencies can also be identified if unit cost
exceed external price
• Will ensure services departments are charging to the right
project and not over spend specific budget
 Operating Unit
Diving into department cost for each
services to monitor and control
resources and time:
1. Project management
2. Project control
3. Land
4. Environment
5. Integrity engineering
6. Supply Chain
7. Construction
1. Direct labor
2. Indirect
Call for Action - Goals for Next Period
• Develop Implantation Plan with effective change
management process
• Continue running the current system until
new system is build and tested
• Develop reporting format
• Obtain management review and approval
on the new system
• Develop communication plan
• Conduct training to all department
• Develop incentive and reword program
for employees
Incentives and Rewards
Distinguish between the high performers and the
free riders based on evaluation of each employees
contribution to the balanced scorecard and added
 Summary
• Improved accounting system will improve
accounting information in the Pipeline
Integrity department
• Non-financial information added to the BSC
related to the cost can be measured and controlled
• Standard costing system can be utilized to
support strategic planning
• Funds required for the department will be more
accurate
• Internal processes can be improved
• Stakeholders will be satisfied with the
transparency
 References
ACCA, for exams in 2010. (2010). London: BPP Learning Media.

Agbonlahor, R., & Oyekan, O. (2008). An assessment of the preparedness of

the Institute of Chartered Accountants of Nigeria (ICAN) students for use
of information and communication technology in professional
practice. Information Technologist (The), 5(1). doi:10.4314/ict.v5i1.31998

Norton, R. S. (2014, August 01). The Balanced Scorecard-Measures that Drive

Performance. Retrieved October 27, 2017, from
https://hbr.org/1992/01/the-balanced-scorecard-measures-that-drive-
performance-2

Zimmerman, Jerold (2017). Accounting for Decision Making and

Control. (9th Edition). McGraw-Hil.