Sfm module iv


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Sfm module iv

  1. 1. Cost reduction • An organized and planned one-time or continuous initiative taken with the goal to reduce business costs from a current level to a desired lower level. • Cost reduction may be targeted to one specific cost (account), a selection of costs (accounts) or organization-wide.
  2. 2. Cost control • An ordered and intentional effort to limit the growth of costs within specific accounts. • The management practice of putting lock limits on accounts.
  3. 3. Life Cycle Cost
  4. 4. Life Cycle Cost (LCC) • Life cycle costing, LCC, is the process of economic analysis to asses the total cost of ownership of a product, including its cost of installation, operation, maintenance, conversion, and/or decommission.
  5. 5. Life Cycle Cost (LCC) • By using LCC, total cost of the product can be calculated over the total span of product life cycle.
  6. 6. Life Cycle Cost (LCC) • LCC is a economic tool which combines both engineering art and science to make logical business decision. • This analysis provides important inputs in the decision making process in the product design, development and use.
  7. 7. LCC for product supplier • By using LCC, product suppliers can optimize their design by evaluation of alternatives and by performing trade-off studies. • By using LCC, product suppliers can evaluate various operating and maintenance cost strategies (to assist product users).
  8. 8. LCC for customer • By using LCC, customers can evaluate and compare alternative products. • By using LCC, customers can assess economic viability of projects or products.
  9. 9. Why use LCC? Typical conflict in most of the company: • Project Engineering wants to minimize capital costs as the only criteria, • Maintenance Engineering wants to minimize repair hours as the only criteria, • Production wants to maximize operation hours as the only criteria, • Reliability Engineering wants to nullify failures as the only criteria, • Accounting wants to maximize project net present value as the only criteria, • Shareholders want to increase stockholder wealth as the only criteria.
  10. 10. Why use LCC? • LCC can be used as a management decision tool for synchronizing the divisional conflicts by focusing on facts, money, and time.
  11. 11. Why use LCC? • Why should engineers be concerned about cost elements? It is important for engineers to think like managers and act like engineers for a profit maximizing organization. Money Does Matter!!!
  12. 12. Cost element • For an equipment, there are TWO cost elements: 1) Initial Cost, and 2) Operation & Maintenance Cost • The identification of cost elements and their sub- division are based on the purpose and scope of the LCC study.
  13. 13. Cost element • Initial Cost: –Design & development cost, –Investment on asset, or cost of equipment, –Installation cost or erection & commission cost.
  14. 14. Cost element • Operation & Maintenance Cost: –Labour cost, –Energy cost, –Spare & maintenance cost, –Raw material cost.
  15. 15. KAIZEN- AN INTRODUCTION • Masaaki Imai is known as the developer of Kaizen.
  16. 16. Kai Change Zen Better CHANGE FOR THE BETTER
  17. 17. Indian Connection Small Drops of Water together Ultimately result in a lake
  18. 18. Implementing Kaizen- few rules • List your own Problems • Grade problems as to minor, difficult and major • Start with the smallest minor problem • Move on to next graded problem and so on • Remember improvement is part of daily routine • Never accept status quo • Never reject any idea before trying • Eliminate tried but failed experiments • Highlight problems rather than hiding
  19. 19. Kaizen Philosophy Approach to Traditional Organization Kaizen Environment Attitude Employees Information Interpersonal Relationship Managerial Belief Management Culture Management Function Management Stress Let it go Cost Restricted Commercial Routine Bureaucratic Control Functional Continuous Improvement Assets Shared Human Change Participative Supportive Cross functional
  20. 20. Procedure For Implementation • Form small groups from 6-10 persons • Give them numbers-Kaizen 1,Kaizen-2… • Appoint an evaluator of the group • Arrange weekly meetings of group (6-12 months) • Submit progress of improvement in writing • Allow each member to express • No disturbance when others are speaking • However Clarifications can be sought instantly
  21. 21. Evaluation • 0 Marks for no improvement made • 0 to 30 Marks depends upon improvement tried but failed • 30 to 50 Marks for small to moderate improvement • 50 to 75 Marks for good improvement • > 75 Marks for extraordinary improvement
  22. 22. Evaluation Other factors • A – Attitude • S – Safety • P- Productivity • E - Energy Saving • M - Money Saving
  23. 23. Benefits of Kaizen Reduction in Production Time Reduction in Rejection Energy Saving Improved Quality Tangible Benefits Motivation Team Building Sense of belongingness Environment Conservation Change in attitude Intangible Benefits
  24. 24. Reasons for Failure of KAIZEN • Lack of interest and support from management • Lack of training of : – Listening skills, Presentation Skill, Communication Skill • Criticism of failure from fellow members • Ignoring Basic Concept ( Improvement is part of daily routine) • Work Pressure –sidelining the Kaizen
  25. 25. PIT FALLS IN KAIZEN • Resistance to change • Lack of proper procedure to implement • Too much suggestion may lead to confusion and time wastage
  26. 26. Kaizen Costing • Cost Reduction in – Design of the Product – Development of the Product – Production Of the Product
  27. 27. Kaizen Costing-definition Kaizen costing is the maintenance of present levels for products Currently being manufactured via systematic efforts to achieve the desired cost level. KC is applied to product that is already under Production Time prior to KC is Target Costing
  28. 28. • Kaizen Costing Calls….. Establishment of cost reduction target amount and its accomplishment through Kaizen activities---continuous improvement.
  29. 29. Introduction to Benchmarking
  30. 30. What is Benchmarking • Benchmarking is an improvement process that is used to identify best practice within a peer group and facilitate it’s incorporation into your organization
  31. 31. Continuous Ongoing Long-term Benchmarking is a Organizational comparison Organizational improvement Meeting or surpassing industry best practices Developing product/process objectives Establishing priorities, targets, goals Systematic Structured Formal Analytical Organized Organizations Companies Institutions Process Evaluating Understanding Assessing Measuring Comparing Recognized Acknowledged Identified Best-in-class World-class Representing best practices For the that are as for the purpose of
  32. 32. General Principles for Involvement • The more people involved, the more different views and perspectives brought to bear. • The more ideas generated, the better the chance of making significant changes. • The more people in the benchmarking process, the less difficult it is to sell the concept and any results to the workforce.
  33. 33. Types of Benchmarking • Internal benchmarking • Competitive benchmarking • Industry or Functional benchmarking • Process or Generic benchmarking
  34. 34. Internal Benchmarking • Similar activities in different locations, departments etc Advantages: – “Sharing” - Communication – Data easy to get – Good results, immediate benefit – Good practice Disadvantages: – Limited focus – Internal bias – “Miss the boat”
  35. 35. Competitive Benchmarking • Direct Competitors, same customer base Advantages: – Directly relevant – Comparable practices & technologies – History of information Disadvantages – Data collection difficulties – Ethical issues – rivalry
  36. 36. Industry or Functional Benchmarking • Leaders in Similar Industry Advantages • – Willing partners • – Readily Transferable Disadvantages – Cost – Some “willing partners” not so willing!
  37. 37. Process or Generic Benchmarking • State of the art Processes/products/services • Break the company into generic functions Advantages – Breakthrough ideas – Network development – High potential for innovation Disadvantages: – Hard to do! – Transferring practices (learning!) – Some information not transferable – Time consuming
  38. 38. Benchmarking: Is/Is Not IS IS Not • Continuous process • Provides valuable information • Learning • Time-consuming • Viable tool, generically applicable • One-time event • Provides simple answers • Copying, imitating • Quick & easy • A buzzword, or fad
  39. 39. Organizations who consider it vital to their survival and growth • AT&T • American Cancer Society • American Express • Anderson Consulting • Cisco • Dow Chemical • Ernst and Young • General Motors • Harley Davidson • Intel • Johnson & Johnson • Kellogg
  40. 40. Benefits of Benchmarking • Benchmarking helps identify the gaps between the organization that is undertaking the benchmarking assessment and best practice. • Undertaking benchmarking can lead to improvements being incorporated into processes and systems delivering gains in efficiency and effectiveness • Benchmarking can help align improvement activity with strategic goals and objectives
  41. 41. The Benchmarking process • Benchmarking has a defined process 1. Identify the process that will be benchmarked – consider what metrics will be measured 2. Measure results in own organization 3. Identify a benchmarking partner (look for one with favourable results or to the metric being measured or known best practice) 4. Measure the process 5. Analyze the conditions that determine the favourable results 6. Determine an action plan to take your organization to the favourable results 7. Review Benchmarking results and conduct regular reviews with your peer(s).
  42. 42. Problems with Benchmarking • Problems with benchmarking occur where – Data is not obtained for the process being measured – and analysis becomes subjective – No peer group/best practice identified (including data available) – The gap between current state and best practice is captured but nothing is done about it – Assumed best practice isn't best practice – Benchmarking happens as a one off event and not reviewed periodically
  43. 43. What is BPR? • Reengineering is the fundamental rethinking and redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service and speed. (Hammer & Champy, 1993)
  44. 44. BPR is Not? • Automation • Downsizing • Outsourcing
  45. 45. Why Reengineer? • Customers – Demanding – Sophistication – Changing Needs • Competition – Local – Global
  46. 46. Why Organizations Don’t Reengineer? • self-righteousness • Political Resistance(conflict) • New Developments • Fear of Unknown and Failure
  47. 47. Management Control Systems A management control system is a means of gathering and using information. It guides the behavior of managers and employees.
  48. 48. 48 Basic Concepts Elements of a control system consists of: 1. A detector 2. An assessor 3. An effector 4. A communication network
  49. 49. 49 1. A detector or sensor is a device that measure what is actually happening in the process being controlled. 2. An assessor is a device that determines the significance of what is actually happening by comparing it with some standards or expectations of what should happen. 3. An effector (feedback) is a device that alters behavior if the assessor indicates the need to do so. 4. A communications network consist of devices that transmit information between the detector and the assessor and between the assessor and the effector.
  50. 50. 50 Example: You are driving a car • Detectors= Your eyes • Assessor= Your brain • Effector= Your foot • Communication network= Your nerves system
  51. 51. 51 • Your eyes (detectors) measure actual speed by observing the speedometer. • Your brain (assessor) compares actual speed with desired speed (standard: the highest speed is 80 km/hour) to detect a deviation from standard. • Your brain (assessor) directs your foot (effector) to ease up the accelerator if actual speed (90 km/hour) is faster than the standard speed (80 km/hour), press down the accelerator if the actual speed (70 km/hour) is slower than standard speed (80 km/hour). • And, your nerves (communication network) form the communication system that transmits information from eyes (detectors) to brain (assessor) and brain (assessor) to foot (effectors).
  52. 52. Management Control Systems Financial data Formal control system Nonfinancial data Informal control system
  53. 53. Evaluating Management Control Systems Motivation Goal congruence Effort Lead to rewards Monetary Nonmonetary
  54. 54. Organization Structure Total decentralization Total centralization
  55. 55. Benefits of Decentralization Creates greater responsiveness to local needs Leads to gains from quicker decision making Increases motivation of subunit managers Assists management development and learning Sharpens the focus of subunit managers
  56. 56. Decentralization in Multinational Companies Decentralization enables country managers to make decisions that exploit their knowledge of local business and political conditions. Multinational corporations often rotate managers between foreign locations and corporate headquarters.