Advanced Cost Management

1. Advanced Cost Management Professor William F. O’Brien, MBA, CPA Fall 2001

2. Introduction • Cost Management • Financial • Non-Financial

3. Financial Management Evolution DATA Today’s Corporate Focus is on Results! INFORMATION ANALYSIS IMPLEMENTATION

4. Financial Accounting Model (useful & relevant) Company Users F/S Financial Impact Economic Decisions

5. Managerial Accounting Model Communication Environment Plan Adjust Accounting Information Implement Monitor

6. 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 Managerial vs. Financial Accounting

7. Four Management Functions…another Perspective • Strategic Management • Planning and Decision Making • Management and Operational Control • F/S Preparation • How is Cost Management Info Used?

8. Strategic Cost Management • Strategic cost management is the development of cost management information to facilitate the principal management function--strategic management.

9. Factors Influencing Today’s Business Environment • Global competition • Manufacturing and IT advances • Customer focus • Revised organizational structures • Social, political and cultural changes

10. 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

11. Professional Organizations • Regulatory • IRS • FTC • SEC • FASB • CASB

12. Professional Organizations • Associations • IMA • SMA, Canada • AICPA • FEI • IIA

13. Ethics • Lack of ethics--everyone loses • South Florida Bermuda Triangle of Ethics • Sensormatic • W.R. Grace • Bausch and Lomb • Sunbeam

14. 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...

15. Accounting Business Skills“The What” • Business Perspective • Organizational Focus • Bias for Action • Communication Excellence • People Proficiency

16. Financial Management Guidelines“The How” • Cc • KTT • MBWA • R ƒ R3 • responsiveness • reliability • relevance

17. Just Say “No” to... A B C

18. Scarlet Letter of Accounting • Lacks Reality • Distraction • Lacks Cost Mgt.

19. 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

20. 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

21. SMA, cont. • QCT Triangle • Self evident • TBC Triangle • Provides Technical insight • Encourages Behavioral changes • Supports Cultural beliefs

22. Strategic Analysis • Cost…an economic sacrifice

23. Competitive Strategy • Strategic Planning: Mission Stmt. • Cost Analysis • Shift from Stewardship to Catalyst • Shift from Corp. Cop to Business Partner

24. Porter’s Value Processes • Core Competency • Cost Advantage

25. Types of Competitive Strategy • Cost Leadership…cost advantage • Differentiation…core competency • Focus…pre-requisite to the first two

26. Sustainable Competitive Strategy Process • Complete a SWOT Analysis and CSF Identification • CSF Measurement • CSF Reporting

27. SWOT Analysis • Internal Factors • Strengths • Weaknesses • External Factors • Opportunities • Threats

28. Critical Success Factors • CSF’s can be defined in a variety of ways • ie…something that must be done well right now!

29. A Changed Perspective • Results of Operations vs. operating information for results

30. Balanced Scorecard • A Vehicle for Reporting CSF’s • 4-Parts • More on Nov. 6, 2001

31. Value Chain Analysis • Multiple Approaches • Porter’s approach…see next slide • BCL approach • Drivers • Cost • Core Competency • MAG 41 approach

32. Porter’s Value-Chain • Developed in 1985 by Michael E. Porter in Competitive Advantage • Highlights Cost Advantages and Distinctive Capabilities • Value Chain Model • Value Chain Elements

33. Value Chain Modelfrom Michael E. Porter’s Competitive Advantage SUPPORT ACTIVITIES Firm Infrastructure (General Management) Human Resource Management Customer Value Margin Technology Development Procurement Inbound Logistics Outbound Logistics Sales & Marketing Service and Support Ops. Margin Customer Value PRIMARY ACTIVITIES

34. 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 Value Chain Elements

35. Strategic Cost Mgt. Implications • Non-traditional reporting • Long-term focus • Cross-functional perspective

36. Four Key Tools • SWOT Analysis • CSF’s • Balanced Scorecard • Value Chain Analysis