Open ERP Book (Effective Management of Operations)

Effective Management of Operations

Your company is a closely interlinked jumble of people and processes that form the whole system. If you want it to be efficient, and to be able manage it effectively, you have to organize it, make it systematic, and optimize its major operations. Isolated spots of poor management can disturb the whole added value chain.

This part presents an approach to greater efficiency, showing concrete solutions by applying Open ERP to different problems in a services company. For each enterprise function, Open ERP enables you to automate the recurring tasks, systematize complex processes, simplify the transmission of information, and control all your operations.

Analytic Accounts

Organization of Human Resources

Services Management

Internal Organization and Project Management

Analytic Accounts

Sitting at the heart of your company’s processes, analytic accounts (or cost accounts) are indispensable tools for managing your operations well. Unlike your financial accounts they’re for more than accountants - they’re for general managers and project managers, too.

You need a common way of referring to each user, service, or document to integrate all your company’s processes effectively. Such a common basis is provided by analytic accounts (or management accounts, or cost accounts, as they’re also called) in Open ERP.

Analytic accounts are often presented as a foundation for strategic enterprise decisions. But because of all the information they pull together, Open ERP’s analytic accounts can be a useful management tool, at the center of most system processes

There are several reasons for this:

they reflect your entire management activity,

unlike the general accounts, the structure of the analytic accounts isn’t regulated by legal obligations, so each company can adapt it to its needs.

Note: Independence from general accounts

In some software packages, analytic accounts are managed as an extension of general accounts – for example, by using the two last digits of the account code to represent analytic accounts.

In Open ERP, analytic accounts are linked to general accounts but are treated totally independently. So you can enter various different analytic operations that have no counterpart in the general financial accounts.

While the structure of the general chart of accounts is imposed by law, the analytic chart of accounts is built to fit a company’s needs closely.

Just as in the general accounts, you’ll find accounting entries in the different analytic accounts. Each analytic entry can be linked to a general account, or not, as you wish. Conversely, an entry in a general account can be linked to one, several, or no corresponding analytic accounts.

You’ll discover many advantages of this independent representation below. For the more impatient, here are some of those advantages:

you can manage many different analytic operations,

you can modify an analytic plan on the fly, during the course of an activity, because of its independence,

you can avoid an explosion in the number of general accounts,

even those companies that don’t use Open ERP’s general accounts can use the analytic accounts for management.

Tip: Who benefits from analytic accounts?

Unlike general accounts, analytic accounts in Open ERP aren’t so much an accounting tool for Accounts as a management tool for everyone in the company. (That’s why they’re also called management accounts.)

The main users of analytic accounts should be the directors, general managers and project managers.

Analytic accounts make up a powerful tool that can be used in different ways. The trick is to create your own analytic structure for a chart of accounts that closely matches your company’s needs.

For this chapter you should start with a fresh database that includes demo data, with sale and its dependencies installed and no particular chart of accounts configured.

To each enterprise [its] own analytic chart

To illustrate analytic accounts clearly, you’ll follow three use cases, each in one of three different types of company:

1. An industrial manufacturing enterprise.

2. A law firm.

3. An IT services company.

Case 1: an industrial manufacturing enterprise

In industry, you’ll often find analytic charts of accounts structured into the departments and products that the company itself is built on.

So the objective is to examine the costs, sales and margins by department and by product. The first level of the structure comprises the different departments and the lower levels represent the product ranges that the company makes and sells.

Note: Analytic chart of accounts for an industrial manufacturing company

1. Marketing Department

2. Commercial Department

3. Administration Department

4. Production

Product Range 1

Sub-groups

Product Range 2

In daily use it’s useful to mark the analytic account on each purchase invoice. The analytic account is the one to which the costs of that purchase should be allocated. When the invoice is approved it will automatically generate the entries for both the general and the corresponding analytic accounts. So, for each entry on the general accounts there’s at least one analytic entry that allocates costs to the department that incurred them.

Here’s a possible breakdown of some general accounting entries for the example above, allocated to various analytic accounts:

Breakdown of general and analytic accounting entries (Case 1)

General accounts Analytic accounts

Title Account Debit Credit Account Value

Purchase of Raw Material 600 1500 Production / Range 1 1 500

Subcontractors 602 450 Production / Range 2 -450

Credit Note for defective materials 600 200 Production / Range 1 200

Transport charges 613 450 Production / Range 1 -450

Staff costs 6201 10000 Marketing -2 000

Commercial -3 000

Administrative -1 000

Production / Range 1 -2 000

Production / Range 2 2 000

PR 614 450 Marketing 450

The analytic representation by department enables you to investigate the costs allocated to each department in the company.

So the analytic chart of accounts shows the distribution of the company’s costs using the example above:

Analytic chart of accounts (Case 1)

Account Total

Marketing Department -2 450

Commercial Department -3 000

Administration Department -1 000

Production -6 200

Product Range 1 -3 750

Product Range 2 -2 450

In this example of a hierarchical structure in Open ERP you can analyze not only the costs of each product range but also the costs of the whole of production. The balance of a summary account ( Production ) is the sum of the balances of the child accounts.

A report that relates both general accounts and analytic accounts enables you to get a breakdown of costs within a given department. An analysis of the Production / Product Range 1 department is shown in this table:

Report merging both general and analytic accounts for a department (Case 1)

Production / Product Range 1

General Account Amount

600 – Raw Materials 1 300

613 – Transport charges - 450

6201 – Staff costs -2 000

Total -3 750

The examples above are based on a breakdown of the costs of the company. Analytic allocations can be just as effective for sales. That gives you the profitability (sales - costs) of different departments.

Note: Representation by unique product range

This analytic representation by department and by product range is usually used by trading companies and industries.

A variant of this is not to break it down by sales and marketing departments but to assign each cost to its corresponding product range. This will give you an analysis of the profitability of each product range.

Choosing one over the other depends on how you look at your marketing effort. Is it a global cost allocated in some general way or does each product range have responsibility for its own marketing costs?

Case 2: a law firm

Law firms generally adopt management by case where each case represents a current client file. All of the expenses and products are then attached to a given file.

A principal preoccupation of law firms is the invoicing of hours worked and the profitability by case and by employee.

Mechanisms used for encoding the hours worked will be covered in detail in the following chapter, Organization of Human Resources. Like most system processes, hours worked are integrated into the analytic accounting. Every time an employee enters a timesheet for a number of hours, that automatically generates analytic accounts corresponding to the cost of those hours in the case concerned. The hourly charge is a function of the employee’s salary.

So a law firm will opt for an analytic representation which reflects the management of the time that employees work on the different client cases.

Note: Example Representation of an analytic chart of accounts for a law firm

1. Absences

Paid Absences

Unpaid Absences

2. Internal Projects

Administrative

Others

3. Client cases

Client 1

Case 1.1

Case 1.2