1. RCA Discussion: RCA Modeling, Part 2
Larry R. White, CMA, CFM, CPA, CGFM
Executive Director
Resource Consumption Accounting Institute

2. Resource Consumption Accounting
RCA Inherits Core Principles from German Cost Management (GPK)
Practiced since the Late 1940’s
Used in 3,000+ Companies
GPK Strengths:
Cost and Capacity Planning
Marginal Profitability Analysis
Focus:
Internal Management Decision Making
RCA
Resource view
Advantages
Process view
GPK
ABC
Capacity Analysis and Management
Process Analysis and Management
Capacity-Focused
Activity-Focused

3. RCA Recognition Activity Based Costing Traditional Standard Costing
The International Federation of Accountants completed an International Good Practice Guide on Costing in July In doing this they created a maturity model for approaches to doing costing.
To the left are the costing approaches that meet basic financial reporting requirements.
To the right are approaches that provide the information for forward looking modeling and planning.
IFAC rated RCA as the most mature costing approach short of doing full simulation, and simulation requires the techniques used in RCA.
Copied from IFAC Information Paper: Evaluating The Costing
Journey: A Costing Levels Continuum Maturity Model.
Diagram from IFAC Information Paper:
Evaluating The Costing Journey: A Costing
Levels Continuum Maturity Model
RCA Institute All Rights Reserved

4. CAUSALITY ANALOGY Information Use Concepts Modeling Concepts Inputs:
Resources
Output:
Information
For
Decisions
CAUSALITY
ANALOGY
Information
Use
Concepts
Modeling
Concepts
Operational
Model
Costed
Baseline
Optimization
Information

5. CAUSALITY ANALOGY Information Use Concepts Modeling Concepts Inputs:
Resources
Output:
Information
For
Decisions
CAUSALITY
ANALOGY
Concepts
Resource
Managerial Objective
Cost
Responsiveness
Traceability
Capacity
Work
Attributability
Homogeneity
Integrated Data Orientation
Information
Use
Concepts
Modeling
Concepts
Concepts
Avoidability
Divisibility
Interdependence
Interchangeability
Operational
Model
Costed
Baseline
Optimization
Information
Constraints
Impartiality
Congruence
Constraints
Objectivity
Accuracy
Verifiability
Measurability
Materiality

6. Resources

7. Define as Resource Pools Based on Output (and Capability)

8. Model Resource Relationships
Output

9. Responsiveness
Prod Line A
Prod Line B

10. Relationship of Resources to Output & Summarize
Primary
Consumption
Relationships

11. Relationship of Resources to Output
Primary
Consumption
Relationships

12. RCA Information

13. Define as Resource Pools Based on Output (and Capability)

14. Trace Consumption Relationships between Resource Pools
Secondary
Consumption
Relationships
Primary
Consumption
Relationships

15. RCA Information

16. Summarize Secondary Consumption Relationships Primary Consumption

17. Presentation at MESA US Conference Metrics Makeover Contest
RCA Storyboard
Presentation at MESA US Conference
Metrics Makeover Contest
The Model works because it is based on the flow of:
resources and
Quantity flows
and the movement of the quantities are then layered with the monetary system or systems of choice
This is able to best identify resource constraints as well as cost contraints.
It is about modeling for decision support not just a dashboard.

18. Get Well Plant Manufacturing Clean Room
Line 2 No Pane, Burn away , Better beat, or relief capsules
Manual Additions
Pill weigh & Press
Pill Coat
Print
Blister or Bottle,
weigh &inspect
Storage & Material
Product Testing & Storage
Seal, Package, inspect
inspect
Weigh & capsule
Weigh and Mix
To Distribution
Get well production clean room.
Produces 4 pills. Millions of some, hundreds of thousand of one. Doesn’t really matter since I want to focus on the modeling and the information RCA produces about the facility.
Prod 1 old, depreciated.
Prod 2 new.
Packaging on both lines very similar equipment.
Pill weigh &Press
Product Testing & Storage
Bottle,
weigh &inspect
Seal ,Package, inspect
inspect
Weigh and Mix
Weigh & capsule
Line 1 Burn away or relief capsules

19. Support Resource pools.
No Pane
Better Beat
Support Resource pools.
Facility Electricity, Facility – Sq FT, system support, Maintence labor Notice resource quantities. This is the planned theoretical output for the pools.
The distribution RP a direct input to product, but uses support resources.
How do we build an RCA model?
Options…..Each machine as a resource pool…possible if the data supports it. What level of aggregation? Much would depend on the strategic objecives and types of decisions the company needed to make.
You’ll see we’ve chosen an approach, but it is not the only approach.
Burn Away
Relief

20. Line 1
Made line 1 a Cost Center with 2 Resource pools Labor and Machines. Why? They have very different characteristics. Labor has much less c
capacity in the current state than machines which are 7X24. Substantial union issues also.
Note that the relationships with the support resource pools are also mapped. This mapping is done based on the quantites, not cost of the support output or managerial objectives consumed.

21. Line 2
Same for Line 2. Remember Line 2 is substantially newer. A reason to separate line 1 and 2. if they were roughly the same capability, we could consider 1 RP for them.
Alternatively we could break this CC into more resource pools if needed.

22. Packaging
The packaging section of both lines was made into 1 Cost center. Perhaps the labor is available to both lines.
Again the labor and machines are made into separate resource pools for the same reasons as before.
The same support RPs are shown with the consumption relationships.

23. No Pane
Better Beat
Now you see the consumption relationships among the support resource pools and the relationships to distribution.
What you’ve seen in each case is the primary relationships in the box and the secondary relationships illustrated with arrows.
Now these relationships need to be solved to understand the impact of the primary and secondary inputs.
Burn Away
Relief

24. Line 1
This which you’ve seen before becomes…..

25. Line 1
This.
Let’s examine. Primary consumption is on top. The secondary consumption shows the quantities provided and the associated cost. Note the fixed and proportional characteristics are provided.
Now Please remember at the same time we solved line 1 we solved all the relationships….I just can’t show it all on one page at the same time.

26. Line 2
Line 2 becomes

27. Line 2

28. Packaging
Packaging becomes.

29. Packaging

30. No Pane
Better Beat
The support resource pools and the distribution resource pool become…..
Burn Away
Relief

31. No Pane
Better Beat
Next I want to examine the information a little. But does this give you a sense of the type of quantity and cost information that is being produced about the organization’s operations.
I will acknowledge there are a lot of situations not covered in this illustration, and I’ll itemize these a bit in a few minutes.
What I’d like to do is illustrate some uses of this information with you.
Burn Away
Relief

32. RCA Institute All Rights Reserved
Decision
Should you outsource maintenance for $30/hr?
First a straight forward example: Total cost is $33.04/ hr. But Simple answer is proportional cost is $22.56, that’s all you’ll save, so no.
But I like to look at each resource input individually and consider.
Will you retain the supervisor to manage the contracted maintenance provider?
Will you be maintaining the shop equipment that causes depreciation?
Is there an alternative use for the space?
What will be the system impact if over the long run 3 IT nodes aren’t needed?
Some times elimination of a resource pool is outside the parameters of the original model, but even then you have a solid checklist from which to start an analysis.
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33. www.RCAInstitute.org lwhite@rcainstitute.org 757 288 6082