Advanced Cost Management

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Advanced Cost Management

• Professor William F. OBrien, MBA, CPA

Fall 2001
2
Introduction

• Cost Management
• Financial
• Non-Financial

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Financial Management Evolution
DATA
Todays Corporate Focus is on Results!
INFORMATION
ANALYSIS
IMPLEMENTATION
4
Financial Accounting Model
(useful relevant)
Company
Users
F/S
Economic Decisions
Financial Impact
5
Managerial Accounting Model
Communication Environment
Plan
Adjust
Accounting Information
Implement
Monitor
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Managerial vs. Financial Accounting

• Managerial
• Internally oriented
• Prospective
• Operational and financial focus
• Timely
• Not required
• Non-GAAP
• Relevant
• Sub-unit orientation

• Financial
• Externally oriented
• Historical
• Financial focus only
• Accurate
• Required
• GAAP
• Objective
• Entire entity orientation

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Four Management Functionsanother Perspective

• Strategic Management
• Planning and Decision Making
• Management and Operational Control
• F/S Preparation
• How is Cost Management Info Used?

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Strategic Cost Management

• Strategic cost management is the development of
  cost management information to facilitate the
  principal management function--strategic
  management.

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Factors Influencing Todays Business Environment

• Global competition
• Manufacturing and IT advances
• Customer focus
• Revised organizational structures
• Social, political and cultural changes

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Contemporary Mgt. Techniques

• Benchmarking
• Total Quality Management (TQM)
• Continuous Improvement
• Activity-Based Costing (ABC) and Mgt. (ABM)
• Reengineering
• Theory of Constraints (TOC)
• Mass Customization
• Target Costing
• Life-cycle Costing
• The Balanced Scorecard

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Professional Organizations

• Regulatory
• IRS
• FTC
• SEC
• FASB
• CASB

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Professional Organizations

• Associations
• IMA
• SMA, Canada
• AICPA
• FEI
• IIA

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Ethics

• Lack of ethics--everyone loses
• South Florida Bermuda Triangle of Ethics
• Sensormatic
• W.R. Grace
• Bausch and Lomb
• Sunbeam

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Ethics and You

• You will face an ethical challenge
• It could impact
• Your job
• Your family
• Your relationships
• Your financial stability
• Your physical well-being
• You have only ONE reputation...

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Accounting Business SkillsThe What

• Business Perspective
• Organizational Focus
• Bias for Action
• Communication Excellence
• People Proficiency

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Financial Management GuidelinesThe How

• Cc
• KTT
• MBWA
• R R3
• responsiveness
• reliability
• relevance

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Just Say No to...
A
B
C
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Scarlet Letter of Accounting

• Lacks Reality
• Distraction
• Lacks Cost Mgt.

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Ansari SMA

• Strategic Triangle (QCT)
• Competition based on quality, cost Time
• Mgt. Acctg. Triangle (TBC)
• Impacts technical, behavioral cultural aspects
• Mgt. Acctg. Links Strategy with Action
• It is not an end unto itself
• It is an integrating tool

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SMA, cont.

• The two triangles are dependent upon each other
• This process is a framework to ensure that our
  management accounting tools possess the
  attributes necessary to achieve our strategic
  goals

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SMA, cont.

• QCT Triangle
• Self evident
• TBC Triangle
• Provides Technical insight
• Encourages Behavioral changes
• Supports Cultural beliefs

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Strategic Analysis

• Costan economic sacrifice

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Competitive Strategy

• Strategic Planning Mission Stmt.
• Cost Analysis
• Shift from Stewardship to Catalyst
• Shift from Corp. Cop to Business Partner

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Porters Value Processes

• Core Competency
• Cost Advantage

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Types of Competitive Strategy

• Cost Leadershipcost advantage
• Differentiationcore competency
• Focuspre-requisite to the first two

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Sustainable Competitive Strategy Process

• Complete a SWOT Analysis and CSF Identification
• CSF Measurement
• CSF Reporting

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SWOT Analysis

• Internal Factors
• Strengths
• Weaknesses
• External Factors
• Opportunities
• Threats

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Critical Success Factors

• CSFs can be defined in a variety of ways
• iesomething that must be done well right now!

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A Changed Perspective

• Results of Operations vs.
• operating information for results

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Balanced Scorecard

• A Vehicle for Reporting CSFs
• 4-Parts
• More on Nov. 6, 2001

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Value Chain Analysis

• Multiple Approaches
• Porters approachsee next slide
• BCL approach
• Drivers
• Cost
• Core Competency
• MAG 41 approach

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Porters Value-Chain

• Developed in 1985 by Michael E. Porter in
  Competitive Advantage
• Highlights Cost Advantages and Distinctive
  Capabilities
• Value Chain Model
• Value Chain Elements

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Value Chain Modelfrom Michael E. Porters
Competitive Advantage
SUPPORT ACTIVITIES
Firm Infrastructure (General Management)
Human Resource Management
Customer Value
Margin
Technology Development
Procurement
Inbound Logistics
Outbound Logistics
Sales Marketing
Service and Support
Ops.
Margin
Customer Value
PRIMARY ACTIVITIES
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Value Chain Elements

• Customer Value Added
• Margin Orientation
• Primary Activities
• Inbound Logistics
• Operations
• Outbound Logistics
• Sales and Marketing
• Service and Support

• Support Activities
• Firm Infrastructure
• Human Resources
• Tech. Development
• Procurement

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Strategic Cost Mgt. Implications

• Non-traditional reporting
• Long-term focus
• Cross-functional perspective

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Four Key Tools

• SWOT Analysis
• CSFs
• Balanced Scorecard
• Value Chain Analysis