Thursday, August 19, 2004

Accounting & Product Manager

Recently, I ran across a question from a Product Manager: how should I develop a COGS model for software products? That question makes me ponder - how much of accounting that a Product Manager should know and if having accounting knowledge is an advantage or disadvantage?

Back to the COGS example, one of the answers was "taking the developers' time and allocating back to the products". That's a rather dangerous approach. Accounting dept. would be all over that answer since most of the time the salary of the developers (i.e. time) would fall under Payroll Liabilities account. COGS in definition is the direct fixed cost making that product.

May be the question above was to figure out the gross margin of the products with various pricing scenarios. If this is case, PM should be able to figure out using a rough COGS and Expense model from their cost and/or accounting dept's. That brings back to my thinking earlier - should PM understand accounting?

My bias is YES. PM should have some level of "managerial accounting". Just enough to be dangerous... Accounting is not that hard but it is tricky, especially when dealing with cost accounting. Coming from an engineering (hardware and software) background and having working with several consultants with formal accounting training, accounting is a lot less complicated than writing code or designing a board but it can get confusing quickly. Though knowing some accounting principals, I was able to create several business plans and launched a division in a process.

3 comments:

Therese Padilla said...

Budgeting is such a fundamental skill necessary for a product manager, I cannot image not having some background in finance. Even if it is simply remedial accounting knowledge. However, the more advanced knowledge would involve the ability to develop ROI metrics. Not to mention, the ability to navigate through the product life cycle by matching revenue to peak performance of the product/service. In new product development, there is an overwhelming need to front load costs acurately to determine "go/no go" decisions.

I cannot think of any disadvantages -- just advantages to more financial accumen.

- Therese

Thanh said...

Thanks, Therese... PMs always "run the numbers" so it will helpful if PMs understand some basic principals of accounting. Thanh

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