This document summarizes a presentation given to the Finance Leaders Association on strategic cost management. It discusses various global economic and political drivers that impact strategic costs, such as commodity prices, trade agreements, and banking regulations. It also outlines considerations for current strategic costs, such as healthcare reforms, deficit reduction proposals, and trade discussions. Finally, it discusses the role of strategic cost management in impacted decisions regarding product design and distribution channel choices.
The document discusses strategic cost management (SCM) as an important tool for gaining competitive advantage. SCM analyzes costs in the broader context of a firm's overall value chain. It helps firms understand their cost structures to develop superior strategies. SCM uses tools like value chain analysis, activity-based costing, and analysis of cost drivers to examine how firms can configure activities to reduce costs or pursue different competitive strategies like cost leadership or differentiation.
This document discusses value chain analysis, which was first proposed by Michael Porter in 1985. It involves identifying a firm's primary and support activities that add value to its products or services and analyzing them to reduce costs or increase differentiation. The key stages of value chain analysis for strategic cost management are identifying activities, establishing their costs and importance, comparing costs, identifying cost drivers, and finding opportunities to reduce costs or improve value through internal and external linkages. This allows firms to assess their competitive positioning and strategically improve quality, reduce time and costs, and increase benefits for both the firm and partners in the value chain.
Strategic cost management is a program that businesses use to regularly identify and analyze cost drivers to lower costs and maximize value. It allows businesses to not only lower costs but gain a competitive advantage. Strategic cost management involves creating a strategic plan, prioritizing operations, and ensuring efficient use of resources. Once implemented, it brings transparency to costs and allows managers to make timely cost decisions. It can also show which customers are most or least profitable. The framework includes core functions, value-adding activities, and support activities. Effective strategic cost management requires support from top management, integrated information systems, and cross-functional teams.
Cost-benefit analysis is used to determine if a planned action will have positive or negative outcomes. It quantifies all the benefits and costs to calculate the net impact. Some key applications include deciding whether to hire additional staff, purchase new equipment, or invest cash. A proper cost-benefit analysis involves identifying and monetizing all relevant costs and benefits to help make efficient decisions.
BP Presentation. Strategic Cost Management - A Profitability Tool, ICPAS Nort...Barrett Peterson
This document provides an overview of strategic cost management concepts presented by Barrett Peterson to the ICPAS North Shore Chapter on August 18, 2015. It discusses cost management resources, environmental factors, current considerations, the role of strategic cost management in impacted decisions, cost and profit management time frames, costing methods, product costing, and other costing applications and examples.
The document discusses strategic cost management, cost reduction, and value engineering. It defines strategic cost management as using cost information to develop superior strategies. It describes cost reduction as permanently lowering unit costs without compromising quality or suitability. Value engineering is defined as systematically analyzing functions to explore ways to improve performance and increase the value of products and services.
Strategic cost management as a recession survival tool in the nigerian manufa...Alexander Decker
The document discusses strategic cost management as a recession survival tool in Nigeria. It aims to determine if Nigerian companies use strategic cost management techniques, the extent of their use in manufacturing and financial services, factors influencing adoption, and if it can be used as a competitive strategy for survival in recessions. The research found that while Nigerian companies are receptive to strategic cost management philosophies, challenges inhibit adoption and implementation. Manufacturing concerns utilize the tools more than financial services. Companies were encouraged to adopt strategic cost management and the government to create an enabling environment for adoption.
This is a summary of an article by John K. Shank. Mind you, this was back in 1989, therefore should serve the purpose of historical trace.
Management Accountants were lagging to embark in the issues of strategy. When SCM finally defined, was it really a new concept, or just an old wine with a new bottle?
The document discusses strategic cost management (SCM) as an important tool for gaining competitive advantage. SCM analyzes costs in the broader context of a firm's overall value chain. It helps firms understand their cost structures to develop superior strategies. SCM uses tools like value chain analysis, activity-based costing, and analysis of cost drivers to examine how firms can configure activities to reduce costs or pursue different competitive strategies like cost leadership or differentiation.
This document discusses value chain analysis, which was first proposed by Michael Porter in 1985. It involves identifying a firm's primary and support activities that add value to its products or services and analyzing them to reduce costs or increase differentiation. The key stages of value chain analysis for strategic cost management are identifying activities, establishing their costs and importance, comparing costs, identifying cost drivers, and finding opportunities to reduce costs or improve value through internal and external linkages. This allows firms to assess their competitive positioning and strategically improve quality, reduce time and costs, and increase benefits for both the firm and partners in the value chain.
Strategic cost management is a program that businesses use to regularly identify and analyze cost drivers to lower costs and maximize value. It allows businesses to not only lower costs but gain a competitive advantage. Strategic cost management involves creating a strategic plan, prioritizing operations, and ensuring efficient use of resources. Once implemented, it brings transparency to costs and allows managers to make timely cost decisions. It can also show which customers are most or least profitable. The framework includes core functions, value-adding activities, and support activities. Effective strategic cost management requires support from top management, integrated information systems, and cross-functional teams.
Cost-benefit analysis is used to determine if a planned action will have positive or negative outcomes. It quantifies all the benefits and costs to calculate the net impact. Some key applications include deciding whether to hire additional staff, purchase new equipment, or invest cash. A proper cost-benefit analysis involves identifying and monetizing all relevant costs and benefits to help make efficient decisions.
BP Presentation. Strategic Cost Management - A Profitability Tool, ICPAS Nort...Barrett Peterson
This document provides an overview of strategic cost management concepts presented by Barrett Peterson to the ICPAS North Shore Chapter on August 18, 2015. It discusses cost management resources, environmental factors, current considerations, the role of strategic cost management in impacted decisions, cost and profit management time frames, costing methods, product costing, and other costing applications and examples.
The document discusses strategic cost management, cost reduction, and value engineering. It defines strategic cost management as using cost information to develop superior strategies. It describes cost reduction as permanently lowering unit costs without compromising quality or suitability. Value engineering is defined as systematically analyzing functions to explore ways to improve performance and increase the value of products and services.
Strategic cost management as a recession survival tool in the nigerian manufa...Alexander Decker
The document discusses strategic cost management as a recession survival tool in Nigeria. It aims to determine if Nigerian companies use strategic cost management techniques, the extent of their use in manufacturing and financial services, factors influencing adoption, and if it can be used as a competitive strategy for survival in recessions. The research found that while Nigerian companies are receptive to strategic cost management philosophies, challenges inhibit adoption and implementation. Manufacturing concerns utilize the tools more than financial services. Companies were encouraged to adopt strategic cost management and the government to create an enabling environment for adoption.
This is a summary of an article by John K. Shank. Mind you, this was back in 1989, therefore should serve the purpose of historical trace.
Management Accountants were lagging to embark in the issues of strategy. When SCM finally defined, was it really a new concept, or just an old wine with a new bottle?
Managing for Quality and Performance Excellence 8th Edition Evans Solutions M...Teaganer
Full download : http://alibabadownload.com/product/managing-for-quality-and-performance-excellence-8th-edition-evans-solutions-manual/ Managing for Quality and Performance Excellence 8th Edition Evans Solutions Manual
Trimming the fat - Traditional Vs. Strategic Cost Management StrategiesGeorge Varghese
The document discusses traditional versus strategic approaches to cost management. Traditional cost cutting involves indiscriminately cutting expenses through means like reducing employee headcount, product components, or maintenance which can damage a brand. Strategic cost cutting aligns reductions with business objectives and strategy to improve profitability and competitive position in a controlled manner. While traditional approaches are reactive and uncertain, strategic cuts are planned and aim to support long-term wins. The document advises determining the root cause of cost issues and establishing goals before deciding between traditional short-term or strategic long-term approaches.
This document discusses benchmarking logistics processes. It defines competitive benchmarking as measuring products, services, processes, and practices against industry leaders. Benchmarking the logistics process involves mapping out the supply chain as a series of steps, identifying critical points where issues could disrupt the entire process, and using benchmarking to improve these points. Key aspects to benchmark include suppliers, distributors, interfaces, and setting logistics performance indicators to continuously monitor critical measures of success.
This presentation covers introduction,meaning,definition,characteristics,objectives,advantages,limitations,essential conditions for an effective system & methods of standard costing.
The document provides an introduction to strategic cost management (SCM). It discusses the limitations of traditional cost management including its short-term outlook, excessive focus on cost reduction, and reliance on internal factors. SCM is presented as having a long-term dynamic approach focused on achieving sustainable competitive advantages through product differentiation or cost leadership. The value chain concept is introduced as a way to identify value-adding and non-value adding activities within a company's processes. Porter's value chain model is described including primary and support activities.
With a relatively poor economy, many companies are now looking to enhance their bottom line through cost cutting. Often, the finance function is one part of G&A subject to this cost cutting exercise. This presentatio shares with you how companies are looking at finance and evaluating where and how much to cut.
This document discusses cost drivers and their use in strategic cost management. It defines a cost driver as any factor that causes a change in total cost. Costs are grouped into cost pools and then assigned to cost objects using cost drivers. There are four types of cost drivers: volume-based, activity-based, structural, and executional. Volume-based drivers look at aggregate costs, while activity-based drivers examine costs at a more detailed operational level. Structural drivers influence long-term strategic decisions, while executional drivers affect short-term operational decisions. Understanding a company's value chain, strategic positioning, and relevant cost drivers provides insights into cost behavior.
This document discusses approaches to quality improvement and cost reduction. It outlines the costs of sporadic and chronic quality problems and recommends taking a project-based approach to address chronic issues. The key steps in the project approach include proving the need for the project, identifying the project, organizing a project team, verifying the need and mission, diagnosing causes, providing and proving remedies, and instituting long-term controls. Management approval requires justifying the size and costs of quality problems and showing potential benefits. Successful projects typically address chronic cross-department issues, have modest costs, and are completed within 6 months.
This document discusses approaches to addressing chronic quality problems through quality improvement projects. It states that chronic problems are gradual issues that occur over long periods of time and are often difficult to detect and solve compared to sporadic problems. It recommends selecting specific chronic quality issues to focus quality improvement projects on. These projects should verify the need, diagnose causes, provide and prove remedies, address resistance to change, and institute controls to maintain gains.
The control process involves establishing standards, measuring actual performance, comparing performance to standards, and taking corrective action. There are three main types of control: feedforward focuses on resources before actions; feedback focuses on outputs after actions; and concurrent monitors ongoing activities. Standards can be physical, cost-related, capital-related, revenue-related, intangible, goals, or strategic. Effective control systems are accurate, reasonable, timely, economical, flexible, understandable, emphasize exceptions, and use multiple criteria with corrective action. Control tools include information systems, financial tools like budgets and ratios, analytical tools, and traditional tools like reports.
This document will deal with several cost reduction techniques such as target costing, life cycle costing, Pareto analysis etc.
Further, it consist a quick view of environmental cost management and accounting.
This document discusses 10 key performance indicators (KPIs) that are widely used to measure procurement organization performance. The KPIs include total cost savings, quality, delivery, cost avoidance, implemented cost reduction savings, procurement cycle time, percentage of spend from top suppliers, procurement ROI, managed spend as a percentage of total spend, and contract compliance. Regular measurement of these KPIs promotes continuous improvement, benchmarking against best practices, and identification of opportunities within the supply base.
This document provides information on cost accounting, cost-effectiveness analysis, and auditing in nursing. It defines cost accounting as collecting, recording, and analyzing costs to help management with decision making. Cost-effectiveness analysis compares the costs and outcomes of different programs or interventions. The key steps in a cost-effectiveness analysis are identifying alternatives, determining costs and outcomes, and comparing cost-outcome ratios. Auditing ensures adequate cost accounting information for nurses to perform administrative and managerial roles effectively.
This document discusses transfer pricing, which refers to the prices charged for goods, services, or assets transferred between divisions within the same company. It covers several key points:
1. Transfer pricing is important for performance evaluation and goal congruence between divisions. Various transfer pricing methods can be used, including cost-plus, negotiated prices, and market prices.
2. The choice of transfer pricing method impacts divisional behavior and incentives. Cost-based methods may not incentivize cost reductions, while market prices promote competitiveness.
3. Internationally, transfer prices must comply with the arm's length principle of being comparable to prices charged between unrelated parties. Application of this standard varies between countries.
The document discusses logistics management and supply chain management. It defines logistics management as planning and implementing effective movement and storage of goods and information from origin to destination to meet customer demands. The key objectives of logistics management are reducing costs, improving customer service, increasing sales, and establishing competitive advantages. The document also discusses international marketing, supply chain trends, third-party logistics, and fourth-party logistics.
Standard costing is a method of determining costs by establishing standards for materials, labor, and overhead and comparing actual costs to the standards. It identifies variances between actual and standard costs that are then analyzed to determine where remedial action is needed. Standards are set based on past performance, technical estimates, time and motion studies, and consideration of an efficient level of activity and performance that is reasonably attainable. Standards must be set for direct materials, direct labor, fixed overhead, variable overhead, and sales.
ALL THE DETAILS ARE MENTIONED IN THE DOCUMENT RELATED TO ALL 4 PERSPECTIVES OF BSC.
-REFERRED MAINLY FOR STRATEGIC COST MANAGEMENT.
-INCLUDES ALL THE EXPLANATION WITH APPROPRIATE EXAMPLES & CASE STUDY
Standard costing is a method for determining costs using predetermined standards for materials, labor, and overhead costs. It involves setting standards, comparing actual costs to standards, and analyzing variances. Standards are set based on careful estimation of efficient operations and are used as benchmarks to measure performance and identify areas needing improvement. Standard costs are determined for direct materials, direct labor, and overhead costs by considering factors like past data, technical estimates, and market trends. The analysis of variances between actual and standard costs provides management important information for decision making.
A presentation by Steven A. Melnyk, Professor of Operations and Supply Chain Management, Michigan State University, USA.
Delivered during the 38th annual SAPICS event for supply chain professionals in Sun City, South Africa.
Performance measurement plays a critical role in every organization. It is also undergoing a dramatic transformation. This presentation explores the changes taking place and the implication of these changes for the supply chain manager. It identifies and investigates the critical changes – from control to communication; from being backwards oriented to feedforwarding.
This document discusses key concepts in cost accounting. It defines cost accounting as recording, classifying, and summarizing costs to determine product or service costs, plan and control costs, and provide management with information for decision making. It also covers cost classification methods, costing techniques like absorption and marginal costing, the relationship between cost and financial accounting, and the purposes and advantages of cost accounting for management decision making.
Cost Accounting-
-Meaning of Cost Accounting
-Scope of Cost Accounting
-Nature of Cost Accounting
-Relationship b/w Financial Accounting & Cost Accounting
-Cost Accounting v/s Management Accounting
-Objectives of cost accounting
-Function of cost accountant
-Essentials of cost accounting
-Advantages of cost accounting
-Limitations of cost accounting
-Role of cost in cost accounting
-Cost Unit & Cost Centre
-Cost Techniques
-Costing Systems
-Costing Methods
-Cost Classification
-Components of total cost
-Cost Sheet.
Managing for Quality and Performance Excellence 8th Edition Evans Solutions M...Teaganer
Full download : http://alibabadownload.com/product/managing-for-quality-and-performance-excellence-8th-edition-evans-solutions-manual/ Managing for Quality and Performance Excellence 8th Edition Evans Solutions Manual
Trimming the fat - Traditional Vs. Strategic Cost Management StrategiesGeorge Varghese
The document discusses traditional versus strategic approaches to cost management. Traditional cost cutting involves indiscriminately cutting expenses through means like reducing employee headcount, product components, or maintenance which can damage a brand. Strategic cost cutting aligns reductions with business objectives and strategy to improve profitability and competitive position in a controlled manner. While traditional approaches are reactive and uncertain, strategic cuts are planned and aim to support long-term wins. The document advises determining the root cause of cost issues and establishing goals before deciding between traditional short-term or strategic long-term approaches.
This document discusses benchmarking logistics processes. It defines competitive benchmarking as measuring products, services, processes, and practices against industry leaders. Benchmarking the logistics process involves mapping out the supply chain as a series of steps, identifying critical points where issues could disrupt the entire process, and using benchmarking to improve these points. Key aspects to benchmark include suppliers, distributors, interfaces, and setting logistics performance indicators to continuously monitor critical measures of success.
This presentation covers introduction,meaning,definition,characteristics,objectives,advantages,limitations,essential conditions for an effective system & methods of standard costing.
The document provides an introduction to strategic cost management (SCM). It discusses the limitations of traditional cost management including its short-term outlook, excessive focus on cost reduction, and reliance on internal factors. SCM is presented as having a long-term dynamic approach focused on achieving sustainable competitive advantages through product differentiation or cost leadership. The value chain concept is introduced as a way to identify value-adding and non-value adding activities within a company's processes. Porter's value chain model is described including primary and support activities.
With a relatively poor economy, many companies are now looking to enhance their bottom line through cost cutting. Often, the finance function is one part of G&A subject to this cost cutting exercise. This presentatio shares with you how companies are looking at finance and evaluating where and how much to cut.
This document discusses cost drivers and their use in strategic cost management. It defines a cost driver as any factor that causes a change in total cost. Costs are grouped into cost pools and then assigned to cost objects using cost drivers. There are four types of cost drivers: volume-based, activity-based, structural, and executional. Volume-based drivers look at aggregate costs, while activity-based drivers examine costs at a more detailed operational level. Structural drivers influence long-term strategic decisions, while executional drivers affect short-term operational decisions. Understanding a company's value chain, strategic positioning, and relevant cost drivers provides insights into cost behavior.
This document discusses approaches to quality improvement and cost reduction. It outlines the costs of sporadic and chronic quality problems and recommends taking a project-based approach to address chronic issues. The key steps in the project approach include proving the need for the project, identifying the project, organizing a project team, verifying the need and mission, diagnosing causes, providing and proving remedies, and instituting long-term controls. Management approval requires justifying the size and costs of quality problems and showing potential benefits. Successful projects typically address chronic cross-department issues, have modest costs, and are completed within 6 months.
This document discusses approaches to addressing chronic quality problems through quality improvement projects. It states that chronic problems are gradual issues that occur over long periods of time and are often difficult to detect and solve compared to sporadic problems. It recommends selecting specific chronic quality issues to focus quality improvement projects on. These projects should verify the need, diagnose causes, provide and prove remedies, address resistance to change, and institute controls to maintain gains.
The control process involves establishing standards, measuring actual performance, comparing performance to standards, and taking corrective action. There are three main types of control: feedforward focuses on resources before actions; feedback focuses on outputs after actions; and concurrent monitors ongoing activities. Standards can be physical, cost-related, capital-related, revenue-related, intangible, goals, or strategic. Effective control systems are accurate, reasonable, timely, economical, flexible, understandable, emphasize exceptions, and use multiple criteria with corrective action. Control tools include information systems, financial tools like budgets and ratios, analytical tools, and traditional tools like reports.
This document will deal with several cost reduction techniques such as target costing, life cycle costing, Pareto analysis etc.
Further, it consist a quick view of environmental cost management and accounting.
This document discusses 10 key performance indicators (KPIs) that are widely used to measure procurement organization performance. The KPIs include total cost savings, quality, delivery, cost avoidance, implemented cost reduction savings, procurement cycle time, percentage of spend from top suppliers, procurement ROI, managed spend as a percentage of total spend, and contract compliance. Regular measurement of these KPIs promotes continuous improvement, benchmarking against best practices, and identification of opportunities within the supply base.
This document provides information on cost accounting, cost-effectiveness analysis, and auditing in nursing. It defines cost accounting as collecting, recording, and analyzing costs to help management with decision making. Cost-effectiveness analysis compares the costs and outcomes of different programs or interventions. The key steps in a cost-effectiveness analysis are identifying alternatives, determining costs and outcomes, and comparing cost-outcome ratios. Auditing ensures adequate cost accounting information for nurses to perform administrative and managerial roles effectively.
This document discusses transfer pricing, which refers to the prices charged for goods, services, or assets transferred between divisions within the same company. It covers several key points:
1. Transfer pricing is important for performance evaluation and goal congruence between divisions. Various transfer pricing methods can be used, including cost-plus, negotiated prices, and market prices.
2. The choice of transfer pricing method impacts divisional behavior and incentives. Cost-based methods may not incentivize cost reductions, while market prices promote competitiveness.
3. Internationally, transfer prices must comply with the arm's length principle of being comparable to prices charged between unrelated parties. Application of this standard varies between countries.
The document discusses logistics management and supply chain management. It defines logistics management as planning and implementing effective movement and storage of goods and information from origin to destination to meet customer demands. The key objectives of logistics management are reducing costs, improving customer service, increasing sales, and establishing competitive advantages. The document also discusses international marketing, supply chain trends, third-party logistics, and fourth-party logistics.
Standard costing is a method of determining costs by establishing standards for materials, labor, and overhead and comparing actual costs to the standards. It identifies variances between actual and standard costs that are then analyzed to determine where remedial action is needed. Standards are set based on past performance, technical estimates, time and motion studies, and consideration of an efficient level of activity and performance that is reasonably attainable. Standards must be set for direct materials, direct labor, fixed overhead, variable overhead, and sales.
ALL THE DETAILS ARE MENTIONED IN THE DOCUMENT RELATED TO ALL 4 PERSPECTIVES OF BSC.
-REFERRED MAINLY FOR STRATEGIC COST MANAGEMENT.
-INCLUDES ALL THE EXPLANATION WITH APPROPRIATE EXAMPLES & CASE STUDY
Standard costing is a method for determining costs using predetermined standards for materials, labor, and overhead costs. It involves setting standards, comparing actual costs to standards, and analyzing variances. Standards are set based on careful estimation of efficient operations and are used as benchmarks to measure performance and identify areas needing improvement. Standard costs are determined for direct materials, direct labor, and overhead costs by considering factors like past data, technical estimates, and market trends. The analysis of variances between actual and standard costs provides management important information for decision making.
A presentation by Steven A. Melnyk, Professor of Operations and Supply Chain Management, Michigan State University, USA.
Delivered during the 38th annual SAPICS event for supply chain professionals in Sun City, South Africa.
Performance measurement plays a critical role in every organization. It is also undergoing a dramatic transformation. This presentation explores the changes taking place and the implication of these changes for the supply chain manager. It identifies and investigates the critical changes – from control to communication; from being backwards oriented to feedforwarding.
This document discusses key concepts in cost accounting. It defines cost accounting as recording, classifying, and summarizing costs to determine product or service costs, plan and control costs, and provide management with information for decision making. It also covers cost classification methods, costing techniques like absorption and marginal costing, the relationship between cost and financial accounting, and the purposes and advantages of cost accounting for management decision making.
Cost Accounting-
-Meaning of Cost Accounting
-Scope of Cost Accounting
-Nature of Cost Accounting
-Relationship b/w Financial Accounting & Cost Accounting
-Cost Accounting v/s Management Accounting
-Objectives of cost accounting
-Function of cost accountant
-Essentials of cost accounting
-Advantages of cost accounting
-Limitations of cost accounting
-Role of cost in cost accounting
-Cost Unit & Cost Centre
-Cost Techniques
-Costing Systems
-Costing Methods
-Cost Classification
-Components of total cost
-Cost Sheet.
END RESULT ! Whether it is the end result of your audit or you want to audit the end result of the orgaization\'s activities - both are relevent ! Please view this presentation for a more clear understanding...
This document defines key concepts in cost accounting and cost management. It discusses how cost accounting provides information for both management and financial accounting by measuring and reporting costs. It also describes different types of costs like direct, indirect, fixed and variable costs. Finally, it summarizes standard costing and analysis of variance, which are techniques used to evaluate actual performance against pre-established cost standards.
Activity-based costing (ABC) assigns overhead costs to products and services based on their use of resources such as machine hours or labor hours. It was developed to more accurately assign indirect costs than traditional costing methods. ABC identifies activities performed in an organization and assigns costs to these activities using cost drivers. The costs of activities are then assigned to products or services based on their use of each activity. This provides managers with more accurate product costs to make better-informed decisions.
The document discusses activity-based costing (ABC). It provides an example of calculating activity rates for a purchase invoice processing activity. It shows calculating the activity usage and unused activity amounts as well as the total cost of resources supplied broken into usage and unused amounts. The document also provides an example comparing traditional overhead allocation and ABC for two products. ABC results in more accurate product costs that reflect resource usage compared to traditional methods.
The document discusses activity-based costing (ABC). It provides an example of calculating activity rates for a purchase invoice processing activity. It shows calculating the activity usage and unused activity amounts as well as the total cost of resources supplied broken into usage and unused amounts. The document also provides an example comparing traditional overhead allocation and ABC for two products. ABC results in more accurate product costs than traditional methods.
Cost accounting is the process of tracking and recording costs associated with manufacturing or producing goods and services. It helps management make informed business decisions and set prices through cost analysis and control. The key objectives of cost accounting are to determine the actual cost of products, identify inefficiencies, provide cost comparisons, and analyze trends to help set production policies and programs. Maintaining an effective cost accounting system provides businesses with valuable information for activities like profitability analysis, inventory valuation, budgeting, and financial reporting.
Cost Reduction Strategies:Focus and TechniquesThomas Tanel
This is a highly concentrated presentation that addresses the differences among price, cost, and TCO; what cost reduction strategies to focus on; and an overview of various techniques, as well as when and where to use them. Faced with excruciating competitive pressures, many senior C-Level executives require maximum effort from every part of their organization to survive. Today, purchasing, acquisition, procurement, contracting, and supply management professionals must be the most progressive cost reduction oriented group in the company.
For many organizations, senior C-Level executives set forth annual purchasing, acquisition, procurement, contracting, and supply management goals that mandate cost reductions. Regardless of the cost savings, avoidances, or containments achieved previously, you are faced with new cost reduction initiatives and objectives.
To make the goal of cost reduction a reality, we cannot focus solely on the price. We must examine the total cost of ownership to your organization, which means moving beyond the organizational environs to include suppliers, internal customers, other allied business functional entities, and external customers. By working both internally and externally with these stakeholders, cost reduction opportunities will become visible.
A typical purchasing, acquisition, procurement, contracting, or supply management professional will help reduce supplier prices and avoid incremental costs. A good purchasing, acquisition, procurement, contracting, or supply management professional will reduce costs by lowering both costs of acquisition and risks of supply. A great purchasing, acquisition, procurement, contracting, or supply management professional will reduce total costs across the board, increase service levels to the internal customer, make a significant contribution to the bottom line, seek value-added opportunities, and help to delight the organization’s customer. This type of professional also balances supply related costs and cycle time for the lowest overall cost, at the best value, while seeking risk optimization rather than risk minimization strategies.
Cost accounting is the process of recording, classifying, analyzing, summarizing, and allocating costs associated with a process, and then developing various courses of action to control the costs.
Cost accounting is the process of capturing, recording, and analyzing a company's costs. It helps determine the costs of products, services, activities, and processes. Cost accounting provides information to management to help with planning, control, and decision making. Some key aspects covered include cost classification, cost allocation, cost ascertainment, standard costing, cost units, cost centers, and cost objects. Cost accounting data is essential for managerial decision making, cost control, inventory valuation, and financial reporting.
The document outlines the steps to build a business case for a technology project, including defining the initial scope and costs, reviewing functionality, measuring benefits, and covering the entire lifecycle of the solution. It provides examples of tangible benefits that can be quantified, such as cost reductions and process improvements, as well as strategic benefits like standardization, improved information flow, and regulatory compliance.
Activity based costing (ABC) assigns costs to activities and products based on their actual consumption of resources. It identifies major activities, determines their costs, and assigns costs to products based on cost drivers. ABC provides more accurate product costs than traditional absorption costing. It helps identify non-value adding activities to control costs and supports decision making.
Target costing is a technique where the target cost of a product is determined based on the desired selling price minus the target profit. It involves setting cost reduction targets during product planning and development to achieve the target cost. The benefits of target costing include increased profitability of new products and providing information to forecast future costs.
Life cycle costing accumulates costs over the entire
Cost accounting is a quantitative method that accumulates, classifies, summarizes and interprets financial and non-financial information for three purposes: ascertaining product or service costs, operational planning and control, and decision making. It is defined as the part of management accounting that establishes budgets, standard costs, and actual costs of operations, processes, departments or products and analyzes variances. There are different types of costs such as historical, estimated, standard, average, marginal, replacement, opportunity, sunk, and controllable costs that are relevant to aiding specific management decisions. Cost accounting differs from financial accounting in its purpose, form of accounts, periodicity of reporting, analysis of profit, and reporting of costs.
This document discusses key concepts in cost accounting, including the meaning and objectives of cost accounting, the relationship between cost accounting and other types of accounting, elements of cost like direct and indirect costs, and cost classification. It defines important cost accounting terms and concepts, explains the general principles and advantages/limitations of cost accounting, and describes how a cost sheet is used to analyze costs.
Operational Transformation in Banking OperationsRajeev De Roy
This document discusses various aspects of operational transformation for organizations. It covers topics like lean process transformation, productivity enhancement, resource rationalization, operational policies, procedures, and control checklists. The goal is to improve efficiency, reduce costs, enhance revenue, and manage risks through operational excellence initiatives. Various tools and approaches are mentioned that can help analyze processes, optimize resources, standardize operations, and monitor performance. Case studies show benefits organizations have realized in areas like productivity, costs, quality and turnaround times through operational transformation.
Managing costs & mcs by bhawani nandan prasad iim calcuttaBhawani N Prasad
This document provides an overview of managing costs and management control systems. It discusses:
1. The role of cost information in problem solving, record keeping, and directing attention.
2. Changes in the operating environment such as information technology, shortened product lifecycles, and increased customer focus that impact cost management.
3. Classifications of costs including direct vs indirect, variable vs fixed, and historical vs budgeted costs. It also discusses cost objects like products, departments, and specific units that costs can be assigned to.
The document provides an overview of operations management. It discusses what operations management is, its key functions like production and operations, and why studying it is important. It also summarizes some of the main areas operations management covers such as process design, quality management, forecasting, and product design.
Controlling involves checking current performance against plans to ensure adequate progress and satisfactory performance. It is a continuous process that involves establishing standards, measuring performance, comparing to standards, and taking corrective action. Various control techniques can be used including budgetary control, quality control, and maintenance control. Information technology also supports controlling through management information systems. The overall goal of controlling is to monitor operations and ensure goals are being met.
Controlling involves checking current performance against plans to ensure adequate progress. It includes establishing standards, measuring performance, comparing to standards, and taking corrective action. Various control techniques exist such as budgetary control, quality control, and maintenance control. Information technology also aids controlling through management information systems. The overall goal of controlling is to monitor operations and ensure goals are met.
Similar to Strategic Cost Management – A Profitability Tool, Bp, Fla, November 20, 2010 (20)
BP Presentation Retirement Benefits Promises and Challenges North Shore, Nove...Barrett Peterson
The document summarizes a presentation on public retirement benefit plans and their promises and challenges. It discusses the objectives of pension and other post-employment benefit (OPEB) plans. It outlines the environment for public plans, including electoral politics, state laws, accounting standards, and cash basis reporting. It covers issues like defined benefit vs defined contribution plans, funding sources, and plan design considerations. It provides an overview of actuarial concepts and terms. It discusses pension accounting fundamentals, including estimating liabilities, assigning costs, and measuring funded status. It summarizes the large unfunded liabilities of Illinois public pension plans and the Teachers' Retirement System (TRS) in particular. It analyzes drivers of TRS's
Bp presentation business intelligence and advanced data analytics september ...Barrett Peterson
This document provides an overview of business intelligence and advanced analytics. It defines business intelligence as a system that collects, cleans, stores, and analyzes data to provide decision-useful information through knowledge management and analytical tools. Advanced analytics builds on this by discovering new patterns in large, diverse datasets including unstructured data. The document outlines the key hardware, software, data, and analytical elements required and provides examples of uses across various industries.
Bp presentation ifrs large and small icpas chicago south presentation marc…Barrett Peterson
This document provides an overview of International Financial Reporting Standards (IFRS) including differences between full IFRS and IFRS for Small- and Medium-sized Entities (SMEs). It discusses reasons for adopting IFRS, key differences between full IFRS and US GAAP, and options for smaller entities to use IFRS for SMEs or other frameworks such as one proposed by the AICPA for SMEs.
Bp Presentation, Ifrs Large And Small Icpas North Shore Presentation November...Barrett Peterson
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Strategic Cost Management – A Profitability Tool, Bp, Fla, November 20, 2010
1. Presented to Finance Leaders Association
November 20, 2010
Buffalo Grove, Illinois
Barrett Peterson, C.P.A.
Manager, Accounting Standards, Procedures & Analysis
TTX
2.
Political risks – laws, regulations, changes in officials
Global financial system
Central bank actions and agreements; the impossible trinity
“Hot capital “flows
Global trade
Wage rates and wage arbitrage – outsourcing/off-shoring
Comparative advantage
Emerging consumer markets’ growth rates
Commodity distribution and economic power
Oil
Gas
Coal
Rare earths minerals
Cadmium [think batteries]
Fresh Water – a problem now and growing
Strategic Cost Management – Global
Drivers
3. Quantitative Easing 2 and U.S. long-term interest rates:
advantage commodity prices
U.S. Health care act [including 1099 political error]
US deficit reduction committee chairmen’s “proposal”
U.S. new consumer protection agency
U.S. near term legislative prospects and the budget
Basel III increased capital requirements
Swiss capital requirement increases
Turkey capital increases aimed to reduce “hot capital”
Bank capital {equity and near equity} requirements
Global Trade
G-20 “rebalancing” and trade discussions
South Korea trade agreement
Commodity prices, including “rare earths”
Strategic Costs – Select Current
Considerations
4.
Product and Service Design
Product Line Planning
Process Design and Planning
Capacity Management
Market Segment Decisions
Sales and Marketing Channel Decisions
Logistics and Distribution
Outsourcing
The Role of Strategic Cost
Management – Impacted Decisions
5.
Single product entities can use just about any costing
method reliably
Entities with few products with little difference in
resource consumption patterns can use simple cost
allocation methods: Activity Based Costing will add
little or no value
Cost Management Simplification
6.
Price is an input unit measure
Driven by units acquired
Usually denominated as amount per unit acquired
Cost is an output measure
Usage inefficiency can drive waste, reducing output
volume, and dramatically increasing cost both directly
and by slow-down
Quality can affect waste and customer perception of
price, perhaps lowering price realization, reducing
margin [“increased cost”]
Cost –Key Reminder: Cost is not
equal to resource price
7.
Cost objects – key for today
Resources
Processes
Products
Cost Management Objectives
Effectiveness – doing the right things
Efficiency – doing things right
Economy – maximizing margin [can include cost
reductions, or improving revenues]
Strategic Cost Management Key
Aspects
8.
Resource Elements
People – employees, consultants, advisors
Facilities, owned or leased
Equipment, owned or leased
Materials
Services – insurance, banking, etc.
Capital – Equity, debt, leasing, hedging, etc.
Cost of Business – Elements &
Drivers
13. Drivers
Product Design, including features [market segments],
appearance, materials, packaging, and expected life
Process Design
Technology – Operations, Support Functions
Logistics Requirements
Marketing and Sales Methods
Capital Markets
Value Chain Position
Cultural Expectations and customs
Legal Compliance
Tax
Regulation
Financial Reporting
Conduct and Social Responsibility
Cost of Business – Elements &
Drivers
16.
Strategic/Long-Term
Target Costing
Activity Based Management (ABM)
Intermediate
Activity Based Costing/Management (ABC/M)
Marginal Analyses – direct costing
Tactical/Short-term
Margin Oriented – Grenzplankostenrechnung (GPK)
Full Absorption – Traditional or ABC
Cost & Profit Management Time
Frames
17.
Economic Trade-off based
Target Costing
Life Cycle Costing
Allocation Based Methods
Traditional Product Based Allocation – Fixed vs. Variable
Driver Based Allocation
Resource Consumption Accounting
Activity Based Costing (ABC) applied to product objects
Theory of Constraints (TOC)
“Costed” resource consumption analysis [“Pure RCA]
Allocation Free or Limited – Direct/Attributable Costing
Oriented
Marginal Analyses [Direct/Attributable Costing]
Grenzplankostenrechnung (GPK) [marginal plus fixed]
Cost Practices & Techniques
18.
Full absorption focused
Traditional – organization structure centered,
organized around organizational, often “siloed”,
departments
Process /Activity focused – relies on assigning costs
directly when possible, and using process drivers to
allocate indirect cots
Production Management focused
Marginal costing and process focused – GPK, although
GPK also contains a strong cost center focus
Cost Practices & Techniques
20.
External Financial Reporting – GAAP: focused on
aggregate inventory levels and consistency to inform
investment decisions by investors
Income Tax Compliance – generally similar focus as
external financial reporting plus “full absorption” to
establish tax liability
Profitability Management – Product, Channel, Customer
or Customer Class Focused
Performance Management – Operating Function,
Department, Process, Channel, Customer or Customer
Class Focused
Costing Method Objectives
21.
External parties
Capital provision determinations – costing at entity
level aggregation is all that is needed
Tax compliance – aggregate compliance at the tax
paying entity/group level to establish tax liability
Entity management
Allocations of resources among entities, products,
geographic operating areas
Planning and controlling performance management
Profit maximization/optimization
Costing Method Customers
22.
Assignment to accounting/management periods – some
large costs are inherently imprecise as to period;
depreciation; loss contingencies; pensions; facility
variable rentals and escalation provisions; hedging costs.
Assignment within accounting periods become
increasingly difficult as the level of the costing object
becomes smaller in size or time duration, as with
products.
Allocation techniques sufficient for entity level results are
not reliable for more detailed levels at which management
must plan and operate – the driver of “drivers”.
The Cost Management Challenge –
Assigning/Allocating Costs
23.
Direct costing always works, but many large dollar
costs are often not direct, particularly at the product
or product line level , introducing a level of
uncertainty to detail level decisions.
Time horizon improves the relative amount of costs
that are direct, but longer horizons provide reduced
tactical flexibility.
Direct margin analyses, at multiple levels, enables
comparison of long horizon planning and tactical
decision making.
The Cost Management Solution to
Assigning/Allocating Costs
24.
GAAP – ASC 330 [formerly FAS 151 & ARB 43]
Production [manufacturing]or acquisition [retail] costs
Full absorption
Consistency
IRS – Full Absorption [of production costs] focused
Code section 471 – Inventory
Code section 472 – LIFO [elimination considered]
Code section 263 – UNICAP [some costs in addition to
production costs]
Inventory Costs – GAAP & IRS
25.
Product [Inventory] and Product Line
Direct Costs
Identification of and allocation of indirect costs
Determine need, if any, to “tie” to financial reporting
Profitability Management
Operations Performance Management
Product design
Production Operations
Logistics, including Warehouse and Material
Handling
Product Costing – Today’s Focus
26.
What do these have in common?
Close is sufficient
Product
Costing
Method
27.
Product Design – Coordination with Manufacturing and
Marketing/Sales
Product Mix/Product Line Variations
Process Design
Complexity
Product Design
Manufacturing Techniques
Logistics and Material Handling Choices
Regulation and Compliance
Manufacturing Technology and Performance
Distribution and Logistics
Product Cost Drivers
28.
Utilization Factors
Number of shifts – hours/day of use
Time paid not worked – holidays, vacations
Operations Performance Factors
Set-Up vs. Run Time
Speed/Quality Control of Set-Up and Run - Throughput
Maintenance – time used vs. production failure costs
Waste Driven Slowing of Production Process
Loss of time [slowdown, rework]
Waste
Defective Material
Production Losses
Costs Drivers to Analyze/Reflect
29.
Assign costs directly as much as possible
Determine costs pools for variable type indirect costs for
cost management and control
Define around key drivers for allocation based on resource
consumption
Include costs which reasonably attach to the pool category
Consider two [or three] allocation layers,” indirect” indirect
functions like tools, patterns, printing plates
Determine if “reciprocal” relationships will be used
Consider collecting assigning fixed type indirect costs
separately using best available allocation basis
Establish Operating Departments for management
responsibility evaluation – variable and fixed indirect
costs
Effective Cost Accounting
30.
Effective Cost Accounting - Drivers
Machine hours
Direct labor hours
Material costs
Pallets handled
Printing plates used
Tool forms used
Patterns used
QC tests performed
Cubic feet of compressed
air
Mixing tank hours
Mixing tank hours
Labels issued
KWH used
Orders processed
Space used
Miles traveled
Warehouse
insertions/extractions
Maintenance labor hours
Chiller hours
31.
“Methods” – Resource Consumption Accounting
(RCA), Grenzplankostenrechnung (GPK)
Based on consumption of resources (drivers)
Applied to indirect costs
The big differences in “pure” application – will not
“tie” to conventional financial reporting
Replacement cost depreciation , w/o added output
Capital charge based largely on the depreciation
[capital] consumed or similar measures
Cost Accounting Methods –
Resource Consumption Methods
32.
GPK in its fundamental form is a marginal costing system
Use “margin” level definitions, with differing levels of
allocation of indirect and fixed costs
Product margins
Contribution to production costs, including production
functions’ depreciation
Most useful for production scheduling
Use for channel scheduling
Calculate direct costs for both production or
manufacturing and for warehousing, distribution, and
logistics
Cost Related Decisions and Marginal
Costing
33.
Use, carefully, throughput measures – profitability,
not optimization, is the business objective
Minimize down time – set-up, maintenance, materials
not ready
Speed and efficacy of machine operation
Optimize margin dollars per month
Be very aware of system constraints [bottlenecks] &
consider Theory of Constraints – margin dollar
optimization will usually require optimizing the
constraint process, not all processes
Cost Measurement & Performance
Management
34.
Direct [final] departments – product volume variable
costs only
Separate each process containing different
cost/operations/unit output characteristics
Identify relevant output units
Fixed costs are separately collected and not assigned to
products
Indirect [primary] departments – variable costs only
Separate departments with different cost incurrence or
output patterns
Identify application basis or bases
To extent possible organize indirect cost pools with the
department structure
Product Cost System Design
Considerations – RCA/GPK
35.
General design aspects –
Consider replacement cost depreciation as more realistic
despite not readily reflecting potential process
improvements such as faster set-ups, or increased
throughput speed and accuracy/quality
Minimize design complexity by not allocating costs from
one indirect department to another indirect department,
unless significant to the product
Consider a cost of capital charge, as a function of
replacement cost depreciation
Derive a “full absorption” estimate by using percentage
reduction for capital charge and replacement cost
depreciation ratio to recorded depreciation [by included
processes]
Product Cost System Design
Considerations – RCA/GPK
36.
Best used for –
Product pricing decisions
Outsourcing evaluations
Product design evaluation
Manufacturing process improvements
Cost Design System – RCA/GPK
37.
Similar to GPK, except that the system is “full
absorption” focused and thus assigns depreciation –
usually actual book depreciation – to direct and
indirect departments
Costs are the sum of:
Direct costs
Direct operating departments costs – including fixed
costs - assigned by a relevant driver
Indirect departments costs – including fixed costs -
assigned by one or more drivers consumed by the
product or the direct process
Cost System Design – Activity Based
Costing (ABC)
38.
Target Costing – cost management and planning,
follows six principles:
Price-led costing
Customer focus
Focus on design of products and processes [point at
which most life cycle costs are effectively committed]
Cross-functional teams [for comprehensive
perspective]
Life cycle cost reduction
Value chain involvement
Costing – Other Important
Applications
39.
Attempts to address:
What are the sources of idle capacity?
How much unused capacity is assigned to product
cost?
How large of a threat is the hidden unused capacity?
Who is responsible for capacity management?
How are manufacturing activities communicated in a
common language?
How can we obtain more capacity without buying it?
Costing – Capacity Management
40.
Productive
Good production
New product
Process development
Non-productive
Standby, waste, maintenance, and setup
Process balance & variability; scrap; rework and yield
Scheduled & unscheduled maintenance: time, volume,
changeover
Idle
Marketable (idle) and non-marketable (excess)
Off limits; legal, contractual, management policy
Costing – Capacity Management –
Categories of Capacity Utilization
41.
Hydrox Laboratories: production and purchasing
Production planning and scheduling
Waste reduction through process improvement
Capital to improve quality – capping equipment
Bulk purchasing of hydrogen peroxide
Components purchasing
Hydrox Laboratories: logistics – per pallet shipping cost
reduction by altering truck load factor [per pallet, LTL,
truckload]
Graphic Direct
Printing press speed
Scheduling by cut-off and color similarity
Personalization sizing test [MWWWWM]
Sorting and envelop filling speed improvements with more
experienced personnel
Cost and Margin Management
Examples
42.
www.goldratt.com
www.tocc.com
www.cam-i.org
www.bpminstitute.org
www.supplychainmetric.com
www.rcainstitute.org
http://www.focusedmanagement.com/knowledge_base
/articles/fmi_articles/middle/German_Cost_Accounting
_pt2.pdf
Google text string: GPK accounting
Google text string: Resource consumption accounting
Cost Management Resources