2. Topic
• Cost Model in BPR
• Activity based costing (ABC)
• Executive information system (EIS)
Business Process & Financial Re -engineering 2
3. What is Cost Model ?
A Cost model is a set of rules,
methods and matrices that tell the
application how to allocate
expenses to the accounts in the
hierarchy.
Cost Model 3
4. Types Of Cost Model
1.Bottom Top Cost Modelling – This type of cost model
is often used in early stage of project planning when
detailed information about the project is not yet
available.
2.Bottom Top Cost Modelling – This approach starts
with estimating the total project costs and then
allocates this estimates to individual components or
activities. This method is used when the more detailed
information about the project is available.
5. 3.Parametric Cost Model – this approach use
mathematical relationships between input parameter (
such as weight,size,complexity) and output costs to
estimate the total project cost.
4.Activity Based Costing – this approach assign cost to
activities based on consumption of resources ( labour,
material, equipment) and find the total cost of activities
necessary to make a project.
5.Life cycle costing - this approach considers all costs
associated with a product or system over its entire life
cycle, from development through to disposal.
6. .
Activity Based Costing (
ABC)
6
The Activity Based costing (ABC) system is a
method of accounting you can use to find the
total cost of activities necessary to make a
product.
Or
ABC as an accounting method which
identified the activities which a firm performs
and then assign indirect cost to cost object.
7. Objective of Activity Based Costing
To identify value added activities in
transections.
To focus high cost activities.
To distribute overheads on the basis of
activities.
To identify the opportunities for
improvement and reduction of costs,
To validate the success of the quality
drive with ABC.
To ensure accurate product costing for
decision making.
To use information to improve product
mix and pricing decisions.
ABC 7
8. Steps in Activity based Costing system
Activity Based costing ( ABC ) 8
Identify the functional areas
involved in the production
example;- direct labour related
activities, various support
act., receiving material
handling, packing etc.
1.Identify Activities
Cost centers created for each
activity. After activities identifies
the cost of resources consumed
over a specified period must be
assigned to each activity.
2.Assigning cost to
activity cost centers
The cost drivers is used to
describe the significant
determinant of the cost of the
activity.
3.Selecting appropriate
Cost drivers
The final stage is to trace the
cost of each activities to
products according to each
products demand for these
activities using cost drivers as
a measures of demand.
4.Assigning the cost of
the activities and trace
9. Pros and Cons of ABC System
Pros
Helps to reduce cost by providing
meaningful information to
management.
ABC helps to determining the price
policy of any product.
Its helps to take decisions to make or
buys and transfer pricing.
Cons
Its based on historical cost , while planning
decisions are more relevant.
ABC system does not partition variable
and fixed elements of overhead cost.
ABC system tends to be more costly than
the traditional method of applying costs to
products.
Activity Based costing ( ABC ) 9
10. Executive Information System
( EIS )
An executive system is a kind of decision
support system used in organisation to help
executive in decision making. Its used for
monitoring company performance in many
types of organisation as well as for
identifying opportunities and problems.
Executive Information System (EIS) 10
11. Characteristics of Executive information system
EIS 11
1.Detailed Data - EIS Provides
absolute data from its existing
database.
5. Integrate internal and external
data – EIS integrates internal and
external data. The external data
collect from various sources.
3. Presenting Information – EIS
represents available data in
graphical form which helps to
analyze it easily.
4. Trend Analysis- EIS helps
executive of the organisation to data
protection based on trend data.
2. Easy to Use – It is a very simplest
system to use.
12. Advantages and Disadvantages of EIS
Advantages
EIS drive market success by providing
real time data analytics, and strategic
insights for agile decision making and
competitive advantage.
EIS developed the managerial
leadership skills for taking decisions.
Its help to improve decision making
skills.
Simple to use by senior executive.
Better reporting method.
Disadvantages
Due to technical functions, not to easy to
use by everyone.
Executive may encounter overload of
information.
Difficult to manage database due to the
large size of data.
Excessive costs for small business
organizations.
Executive Information system (EIS) 12
