Advanced Cost Management-Fall Advanced Cost Management Professor William F. O’Brien, MBA, CPA Fall 2002

Advanced Cost Management-Fall Introduction Cost Management Financial Non-Financial

Advanced Cost Management-Fall Financial Management Evolution DATA INFORMATION ANALYSIS IMPLEMENTATION Today’s Corporate Focus is on Results!

Advanced Cost Management-Fall Company F/S Users Economic Decisions Financial Impact (useful & relevant) Financial Accounting Model

Advanced Cost Management-Fall Managerial Accounting Model Plan Implement Monitor Adjust Accounting Information Communication Environment

Advanced Cost Management-Fall 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

Advanced Cost Management-Fall Four Management Functions …another Perspective Strategic Management Planning and Decision Making Management and Operational Control F/S Preparation How is Cost Management Info Used?

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

Advanced Cost Management-Fall Factors Influencing Today’s Business Environment Global competition Manufacturing and IT advances Customer focus Revised organizational structures Social, political and cultural changes

Advanced Cost Management-Fall 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

Advanced Cost Management-Fall Professional Organizations Regulatory IRS FTC SEC FASB CASB

Advanced Cost Management-Fall Professional Organizations Associations IMA SMA, Canada AICPA FEI IIA

Advanced Cost Management-Fall Ethics Lack of ethics--everyone loses South Florida Bermuda Triangle of Ethics Sensormatic W.R. Grace Bausch and Lomb Sunbeam

Advanced Cost Management-Fall 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...

Advanced Cost Management-Fall Accounting Business Skills “The What” Business Perspective Organizational Focus Bias for Action Communication Excellence People Proficiency

Advanced Cost Management-Fall Financial Management Guidelines “The How” Cc KTT MBWA R ƒ R 3 responsiveness reliability relevance

Advanced Cost Management-Fall Just Say “No” to... A B C

Advanced Cost Management-Fall Scarlet Letter of Accounting Lacks Reality Distraction Lacks Cost Mgt.

Advanced Cost Management-Fall 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

Advanced Cost Management-Fall 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

Advanced Cost Management-Fall SMA, cont. QCT Triangle Self evident TBC Triangle Provides Technical insight Encourages Behavioral changes Supports Cultural beliefs

Advanced Cost Management-Fall Strategic Analysis Cost…an economic sacrifice

Advanced Cost Management-Fall Competitive Strategy Strategic Planning: Mission Stmt. Cost Analysis Shift from Stewardship to Catalyst Shift from Corp. Cop to Business Partner

Advanced Cost Management-Fall Porter’s Value Processes Core Competency Cost Advantage

Advanced Cost Management-Fall Types of Competitive Strategy Cost Leadership…cost advantage Differentiation…core competency Focus…pre-requisite to the first two

Advanced Cost Management-Fall Sustainable Competitive Strategy Process Complete a SWOT Analysis and CSF Identification CSF Measurement CSF Reporting

Advanced Cost Management-Fall SWOT Analysis Internal Factors Strengths Weaknesses External Factors Opportunities Threats

Advanced Cost Management-Fall Critical Success Factors CSF’s can be defined in a variety of ways ie…something that must be done well right now!

Advanced Cost Management-Fall A Changed Perspective Results of Operations vs. operating information for results

Advanced Cost Management-Fall Balanced Scorecard A Vehicle for Reporting CSF’s 4-Parts More on Nov. 12, 2002

Advanced Cost Management-Fall Value Chain Analysis Multiple Approaches Porter’s approach…see next slide BCL approach Drivers Cost Core Competency MAG 41 approach

Advanced Cost Management-Fall 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

Advanced Cost Management-Fall Value Chain Model from Michael E. Porter’s 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 Customer Value Margin

Advanced Cost Management-Fall 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

Advanced Cost Management-Fall Strategic Cost Mgt. Implications Non-traditional reporting Long-term focus Cross-functional perspective

Advanced Cost Management-Fall Four Key Tools SWOT Analysis CSF’s Balanced Scorecard Value Chain Analysis