Strategic Accounting for R&D

An accounting profile of a business does not consider a technology involved, or whether it is a manufacturing or service business, but rather it quantifies the relative contribution of each cost, volume and price factor to the profit margin of the business, using a discounted cash flow return on investment as the yardstick. In effect, this allows comparing apples with oranges for best investments. But each kind of business has its own specific profile, in which different factors are the most important in determining best operation. Conventional accounting systems are no longer adequate, alone, to meet the requirements for managing either manufacturing or service-type businesses, or for simulating the cost/volume price factors that must be met before making major R&D investments in new business opportunity. A sensitivity analysis can provide inputs and allow simulation of multiple variables and tradeoffs among the factors to achieve optimum results.