MANAGING BUSINESS PROCESSES Analyze business processes Design a new or redesign an existing business process Continuously improve a business process Set up control systems for business process Monitor and evaluate performance of B.P. Develop high performance workforce

PRIMARY FUNCTIONS OF MANAGEMENT ACCOUNTING Process technology Performance evaluation Pricing Product mix Resource allocation Inventory valuation

TRADITIONAL MANAGERIAL (COST) ACCOUNTING SYSTEM Product costing & allocation of indirect cost Job order costing Process costing Standard costing & variance analysis Cost distortion Quantity distortion Price distortion

ENVIRONMENT FOR MORE SOPHISTICATED SYSTEM

A BLUE PRINT FOR WORLD CLASS MANAGEMENT ACCOUNTING BY THOMAS JOHNSON Problems of traditional costing Distorted cost - Wrong product mix Mgt of cost does not pin point the source of waist “Attention on the recorded costs themselves rather than the resource consuming activities that ultimately cause costs” Importance of quality and flexibility in addition to cost “Managers can achieve high quality, low cost, and flexibility simultaneously by focusing operational control on generators of non-value activities”

ACTIVITY-BASED-COSTING (MANAGEMENT) CHARACTERISTICS Overhead cost is assigned to the products that caused the activities No clear distinction between manufacturing and non-manufacturing cost High measurement cost Cannot be used for financial reporting ADVANTAGES Accurate product costing - Better decision Incentive to cut cost

ACTIBITY-BASED-COSTING STEPS TO IMPLEMENT A.B.C. 1.Identify activities and activity pools 2.Assign costs to activity cost pools 3.Computation of activity rates 4.Assign costs to cost objects

WHEN DO I NEED ABC SYSTEM? BY ROBIN COOPER BUSINESS ENVIRONMENT CHANGES: More distortion of cost Increasing cost of errors Decreasing cost of measurement “Redesign cost should be less than benefits from improved system”

BALANCED SCORECARD SYSTEM Importance of performance measure Performance measure - Behavior - Performance Problems of traditional performance measure - ROI, Profit and Cost Mainly focus on cost reduction Measurement is not precise Only financial measures BSS focuses on activities that drive long-term performance BSS helps to translate company’s goal to performance measure

BSS Continued Contents: A. Mission, Vision B. Strategies Quality of services Quality of employees Customer satisfaction Growth/Improvement Shareholder expectation

BSS continued C. Tangible goals and actions (e.g., Airliner) Financial perspective: ROI, Profitability, Cash flows Customer perspective: Air fare, Customer satisfaction, # of complaints Internal business perspective: On time arrival/departure, Luggage loss rate, Safety incident index, Staff morale, Employee turnover Growth/Innovation perspective: % of revenue from new route, # of employee suggestions, revenue per employee

ANOTHER HIDDEN EDGE BY HIROMOTO “ In Japan, accounting plays more of an influencing role than an informing role.” “Japanese use accounting system to motivate employees to act in accordance with company’s long-term strategies rather than to provide data on cost, variance and profit.” “Performance measures include non financial measure….”