RCA Discussion: RCA Modeling Basics

1. RCA Discussion: RCA Modeling Basics Larry R. White, CMA, CFM, CPA, CGFM Executive Director Resource Consumption Accounting Institute

2. Capacity Analysis and Management Process Analysis and Management RCA Resource view Advantages Process view Advantages ABC GPK Activity-Focused Capacity-Focused Resource Consumption Accounting • RCA Inherits Core Principles from German Cost Management (GPK) • Practiced since the Late 1940’s • Used in 3,000+ Companies • GPK Strengths: • Cost and Capacity Planning • Marginal Profitability Analysis • Focus: • Internal Management Decision Making

3. Inputs: Resources CAUSALITY ANALOGY Information Use Concepts Modeling Concepts Output: Information For Decisions Operational Model Costed Baseline Optimization Information

4. Inputs: Resources CAUSALITY ANALOGY Concepts • Resource • Managerial Objective • Cost • Responsiveness • Traceability • Capacity • Work • Attributability • Homogeneity • Integrated Data Orientation Information Use Concepts Concepts Modeling Concepts • Avoidability • Divisibility • Interdependence • Interchangeability Output: Information For Decisions Operational Model Costed Baseline Optimization Information Constraints • Impartiality • Congruence Constraints • Objectivity • Accuracy • Verifiability • Measurability • Materiality

5. Resources

6. Define as Resource PoolsBased on Output (and Capability)

7. Resources • Capability • Qualitative Characteristics • Capacity • Productive • Non-Productive • Idle/Excess • Consumption Characteristics • Relationship to Output • Operational Quantity and Cost RCA Institute All Rights Reserved

8. Model Resource Relationships Output

9. Responsiveness Prod Line A Prod Line B

10. Variability

11. Relationship of Resources to Output& Summarize Primary Consumption Relationships

12. Relationship of Resources to Output Primary Consumption Relationships

13. RCA Information

14. Define as Resource PoolsBased on Output (and Capability)

15. Trace Consumption Relationships between Resource Pools Secondary Consumption Relationships Primary Consumption Relationships

16. RCA Information

17. Summarize Secondary Consumption Relationships Primary Consumption Relationships

18. The RCA Model • Identify the Resources • Identify the organization’s highest level managerial objectives • Identify the resources that produce those objectives • Identify the support resources • Capture any other organizational resources • Resources are grouped into logical resource pools based on their characteristics, output, and relationship to managerial objectives • Identify the Resource Relationships • Map the cause and effect relationships between resources • Map the flow of resources between resource pools to final managerial objectives • Track fixed and proportional relationships RCA Institute All Rights Reserved

19. The RCA Model • At this point, you have created a cause and effect based model of your operations. • You can see resource capacity issues and opportunities. • Apply Costs to the Model • Resource costs are determined and applied to the modeled relationships You can see the cost of operations and have the operational, capacity, and cost information for decisions and planning. RCA Institute All Rights Reserved

20. Simple Example Indirect 1 Indirect 2 Direct Non-causal Costs Activity 1 Service/ Product Dimensional P&L Service, Customer, Etc. RCA Institute All Rights Reserved

21. RCA Storyboard Presentation at MESA US Conference Metrics Makeover Contest

22. RCA Recognition Activity Based Costing Traditional Standard Costing Copied from IFAC Information Paper: Evaluating The Costing Journey: A Costing Levels Continuum Maturity Model. Diagram from IFAC Information Paper: Evaluating The Costing Journey: A Costing Levels Continuum Maturity Model www.ifac.org RCA Institute All Rights Reserved

23. www.RCAInstitute.org lwhite@rcainstitute.org 757 288 6082