Episode #112: Interview with Reginald Tomas Lee

Biography

Dr. Reginald Tomas Lee is an advisor and researcher in the areas of cash flow, capacity management, and profitability. Using a deep background in engineering and math, he has created tools and models that have helped executives in businesses of all types improve the management of cash flow and other financial data.

Professionally, Reginald has worked in industry, academia, and consulting including leading global companies such as EY, GM, IBM, and Oracle.

He has advised many marquee names such as Bristol Myers Squibb, Disney, DuPont, Home Depot, Lockheed, Office Depot, Raytheon, Toyota, and United Healthcare.

Reginald has a PhD in mechanical engineering from the University of Dayton, and is the author of three books and over 40 published articles and white papers. He is a feature writer for Journal of Corporate Accounting & Finance and a contributor to the Cincinnati Business Courier.

Resources by and about Dr. Lee

Lies, Damned Lies, and Cost Accounting: How Capacity Management Enables Improved Cost and Cash Flow Management, 2016

Explicit Cost Dynamics: An Alternative to Activity-Based Costing, 2001

Article: Three steps to improving project ROI performance

Article: Making technology pay

Dr. Lee’s Website, The Cash Innovation Lab

Discussion Topics

Three reasons cost accounting is a bad practice

  1. Creates and forces math and relationships that don’t exist
  2. You lose touch with operations
  3. Creates meaningless numbers that people consider gospel

Accounting reports financial performance, they doesn’t model cash flow

  • Cash flow is most important
  • Accounting not good proxy for managing cash flow
  • Idea and importance of capacity

Capacity = Largest Expenditure

  • Hotels, Airlines, Cruise ships, don’t do cost accounting
  • They invest in yield management—value/pricing side

You can calculate different costs from same data, and it has nothing to do with cash

  • Standard, ABC, Lean, Full-Absorption, Marginal costing, all lead to different results
  • Yet all methods are sanctioned by GAAP
  • Segal’s Law: a man with a watch knows what time it is. A man with two watches has no idea.
  • A single representation of an artificial reality

Companies are spending a lot of money managing costs that have nothing to do with money

  • Dr. Lee distinguishes between: Cost C (cash) and Costs NC (non-cash)
  • Cost is an opinion; cash is a fact!

Costing and cost accounting create false relationships and inappropriate use of math

  • No relationship to buying time and what you do with it
  • Cheaper to make 20 pens than 5? How?
  • Economies of scale?

Capacity modeling: unifying concepts of finance, accounting, and operations

  • Contribution margin analysis won’t predict need for additional capacity
  • Overstate ROI because of Costs NC—hospital example

Other resources

In his seminal book, Profit Beyond Measure: Extraordinary Results through Attention to Work and PeopleH. Thomas Johnson revels how Toyota doesn’t use standard cost accounting.

The Goal: A Process of Ongoing Improvement, by Eliyahu M. Goldratt. He is another critic of cost accounting, as seen in this Youtube video:

3 Comments

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.