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Advanced Cost Management Professor William F. O’Brien, MBA, CPA Fall 2001 Introduction Cost Management Financial Non-Financial Financial Management Evolution DATA Today’s Corporate Focus is on Results! INFORMATION ANALYSIS IMPLEMENTATION Financial Accounting Model (useful &

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advanced cost management

Advanced Cost Management

Professor William F. O’Brien, MBA, CPA

Fall 2001

introduction
Introduction
  • Cost Management
    • Financial
    • Non-Financial
financial management evolution
Financial Management Evolution

DATA

Today’s

Corporate

Focus is on

Results!

INFORMATION

ANALYSIS

IMPLEMENTATION

slide4

Financial Accounting Model

(useful &

relevant)

Company

Users

F/S

Financial

Impact

Economic

Decisions

slide5

Managerial Accounting Model

Communication Environment

Plan

Adjust

Accounting

Information

Implement

Monitor

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

Managerial vs. Financial Accounting
four management functions another perspective
Four Management Functions…another Perspective
  • Strategic Management
  • Planning and Decision Making
  • Management and Operational Control
  • F/S Preparation
  • How is Cost Management Info Used?
strategic cost management
Strategic Cost Management
  • Strategic cost management is the development of cost management information to facilitate the principal management function--strategic management.
factors influencing today s business environment
Factors Influencing Today’s Business Environment
  • Global competition
  • Manufacturing and IT advances
  • Customer focus
  • Revised organizational structures
  • Social, political and cultural changes
contemporary mgt techniques
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
professional organizations
Professional Organizations
  • Regulatory
    • IRS
    • FTC
    • SEC
    • FASB
    • CASB
professional organizations12
Professional Organizations
  • Associations
    • IMA
    • SMA, Canada
    • AICPA
    • FEI
    • IIA
ethics
Ethics
  • Lack of ethics--everyone loses
  • South Florida Bermuda Triangle of Ethics
    • Sensormatic
    • W.R. Grace
    • Bausch and Lomb
    • Sunbeam
ethics and you
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...
accounting business skills the what
Accounting Business Skills“The What”
  • Business Perspective
  • Organizational Focus
  • Bias for Action
  • Communication Excellence
  • People Proficiency
financial management guidelines the how
Financial Management Guidelines“The How”
  • Cc
  • KTT
  • MBWA
  • R ƒ R3
    • responsiveness
    • reliability
    • relevance
scarlet letter of accounting
Scarlet Letter of Accounting
  • Lacks Reality
  • Distraction
  • Lacks Cost Mgt.
ansari sma
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
sma cont
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
sma cont21
SMA, cont.
  • QCT Triangle
    • Self evident
  • TBC Triangle
    • Provides Technical insight
    • Encourages Behavioral changes
    • Supports Cultural beliefs
strategic analysis
Strategic Analysis
  • Cost…an economic sacrifice
competitive strategy
Competitive Strategy
  • Strategic Planning: Mission Stmt.
  • Cost Analysis
    • Shift from Stewardship to Catalyst
    • Shift from Corp. Cop to Business Partner
porter s value processes
Porter’s Value Processes
  • Core Competency
  • Cost Advantage
types of competitive strategy
Types of Competitive Strategy
  • Cost Leadership…cost advantage
  • Differentiation…core competency
  • Focus…pre-requisite to the first two
sustainable competitive strategy process
Sustainable Competitive Strategy Process
  • Complete a SWOT Analysis and CSF Identification
  • CSF Measurement
  • CSF Reporting
swot analysis
SWOT Analysis
  • Internal Factors
    • Strengths
    • Weaknesses
  • External Factors
    • Opportunities
    • Threats
critical success factors
Critical Success Factors
  • CSF’s can be defined in a variety of ways
  • ie…something that must be done well right now!
a changed perspective
A Changed Perspective
  • Results of Operations vs.

operating information for results

balanced scorecard
Balanced Scorecard
  • A Vehicle for Reporting CSF’s
  • 4-Parts
  • More on Nov. 6, 2001
value chain analysis
Value Chain Analysis
  • Multiple Approaches
    • Porter’s approach…see next slide
    • BCL approach
      • Drivers
        • Cost
        • Core Competency
    • MAG 41 approach
porter s value chain
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
value chain model from michael e porter s competitive advantage
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

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

Value Chain Elements
strategic cost mgt implications
Strategic Cost Mgt. Implications
  • Non-traditional reporting
  • Long-term focus
  • Cross-functional perspective
four key tools
Four Key Tools
  • SWOT Analysis
  • CSF’s
  • Balanced Scorecard
  • Value Chain Analysis