1 RCA Discussion: RCA’s Focus on Consumption Larry R. White, CMA, CFM, CPA, CGFM Executive Director Resource Consumption Accounting Institute

2 Simple Process Resource Pool Another Resource Pool (s) Or Final Product/Service Organizational Element (Support or Production) Material/Commodity Labor Equipment Operating Budget Material Services (Reflecting Resources Applied) Fixed OUTPUT Proportional Resource Quantities Drive Monetary Quantities

3 More Realistic Resource Flows Final Output 1 Final Output 2 Final Output 3 Final Output 4 Resource Pool A Resource Pool E Resource Pool H Resource Pool F Resource Pool G Resource Pool B Resource Pool C Resource Pool D

4 What Characteristics of Consumption? Proportional Relationship with Output –Output Increases, Resource is busier Fixed Relationship with Output –Output Increases, Resource is still necessary but activity level relatively unchanged. No Relationship with Output –The Resource use has no relationship with an output. –Excess Capacity –Don’t allocate. Apply to a responsibility/results level that is responsible for capacity decisions.

1/15/2016RCA Institute All Rights Reserved5 Product AProduct B Service 1Service 2Service 3 Total Volume $’s Change in Total $’s Due to a Change in Total Volume Fixed Cost Variable Cost Traditional Approach Variability

1/15/2016RCA Institute All Rights Reserved6 Product AProduct B Service 1 Service 2Service 3 An Output Inputs & their $’s Fixed Inputs Proportional Inputs An Output Inputs & their $’s Fixed Inputs Proportional Inputs An Output Inputs & their $’s Fixed Inputs Proportional Inputs An Output Inputs & their $’s Fixed Inputs Proportional Inputs An Output Inputs & their $’s Fixed Inputs Proportional Inputs RCA Approach -Responsiveness

Example Fire Inspection Resource Pool Inspections - Clean Inspections – Fines & Penalty Re-Inspections - Clean Output: Inspector Labor Hrs Bldg Space IT Support Motor Pool HR & Pay Procurement SQFT # WS # Cars # Miles HR Events # PO’s Hearings/Court Appearances Re-Inspections – Fines & Penalty FD Internal Affairs Bldg Space IT Support Motor Pool HR & Pay # Man hrs

Example Primary Costs:OutputFixed QtyProp QtyFixed $Prop $ SupervisorMan Hrs2,000 hrs75,000 Inspectors Man Hrs6,000hrs180,000 Clerk Man Hrs2,000 hrs30,000 Operating BudgetDollars100,00025,000 Secondary Costs: Bldg SpaceSQFT1,200120,000 IT SupportWk St8024,000 Motor PoolF:Cars P:Miles 330,0009,00018,000 HR& PayHR Events ,050 ProcurementPO’s60243,0002,400 FD Internal AffMan Hrs1206,000

Example Fire Inspectors Fire Investigators Fire Stations Training Center Internal Affairs Fire Chief/Staff Bldg Space IT Support Motor Pool HR & Pay Procurement Inspections Investigations Readiness Fire Safety Mission Product/Services Results Segment Idle/Excess Capacity

Consumption Relationships -Quantity Consumption with Values -Resource Interrelationships - Activities Consumed by the Resources that the Services are Provided for -Activities Consumed by a Cost Objects 1/15/2016 2:43 PM10© RCA Institute 2010

11 Resource Consumption Accounting RCA Inherits Core Principles from German Cost Management (GPK) –GPK is a Well Developed Standard Costing System –Principles Applied in Practice since the Late 1940’s –Principles Implemented by 3,000+ Companies RCA Integrates –Activity-based Costing and Throughput Concepts RCA Creates an Integrated Economic Model of Operations for Decision Making –Enterprise Optimization –Principle Based –Superior Marginal Analytics RCA Resource view Advantages Process view Advantages GPK ABC Capacity Analysis and Management Process Analysis and Management Capacity- Focused Activity- Focused

13 RCA Storyboard Product Support Cost S: Ancillary Production Equipment S: Administration Human Resources & Accounting S: Quality Assurance RP: Dryer (Hours) Capacity: 100 Output Qty: 100 S: Plant Engineering and Maintenance RP: Plant Maintenance (Maint. Labor) Capacity: 30,000 Output Qty: 30,000 P: Extrusion Line RP: Extrusion Labor (Labor hours) Capacity; 32,000 Output Qty: 30,000 Product P & L’s Department Resource Pool Abbreviated RP Activ ity RP: Chiller (Hours) Capacity: 50,000 Output Qty: 50,000 Perfor m Accou nting Perfor m Admin QA Testin g Legend S-Support P- Production Common Fixed Costs Produ ct Retur ns RP: Extrusion Machine1 (Machine hours) Capacity; 17,520 Output Qty: 10,000 Manufacturing Costs Budgeted Products RP: QA Labor (Labor hours) Capacity: 14,000 Output Qty: 14,000 RP: Admin Labor (Labor hours) Capacity: 17,000 Output Qty: 17,000 Perfor m HR

14 Resource Consumption Accounting Pillar 1: Focus on Resources & their Consumption  Understand your Resources & Their Consumption….Understand Cost  Provides a Framework for Capacity Management Pillar 2: Quantity Structure for Resource Consumption  Operational Quantities Drive Costs  Model the Operation & Use of Resources….then Apply Cost  Enables Resource Capacity Management  Demonstrates Causality of Value Chain Relationships Pillar 3: Recognizing the Inherent and Changing Nature of Costs  Resource Pools Start with an Inherent Cost Structure  As Resources are Consumed, the Nature of their Costs Change  Costs that are Initially Proportional by Nature can Change from Proportional to Fixed Based on Consumption Patterns  Allows Value Chain Modeling of Resource Cost Responsiveness

15 RCA Information

Connects Operations & Finance Resource/Resource Pools Processes/Value Streams Intermediate Outputs Products/Services Operational View Financial View Real Time Action Oriented Internally Focused FR Time Report Oriented Externally Focused