Advanced Cost Management-Fall 2002

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Advanced Cost Management
Professor William F. OBrien, MBA,
CPA
Fall 2002
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Introduction
Cost Management
Financial
Non-Financial
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Financial Management
Evolution
DATA
INFORMATION
ANALYSIS
IMPLEMENTATION
Todays
Corporate
Focus is on
Results!
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Company
F/S
Users
Economic
Decisions
Financial
Impact
(useful &
relevant)
Financial Accounting Model
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Managerial Accounting Model
Plan
Implement
Monitor
Adjust Accounting
Information
Communication Environment
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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 Functions
another 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 Skills
The What
Business Perspective
Organizational Focus
Bias for Action
Communication Excellence
People Proficiency
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Financial Management Guidelines
The How
Cc
KTT
MBWA
R R
3

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. 12, 2002
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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 Model
from Michael E. Porters Competitive
Advantage
Firm Infrastructure (General Management)
Human Resource Management
Technology Development
Procurement
Inbound
Logistics
Ops.
Outbound
Logistics
Sales &
Marketing
Service and
Support
PRIMARY ACTIVITIES
SUPPORT
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