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

2. 2 What Causes Costs? Resources (also creates any revenues!)

3. 3 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

4. 4 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

5. 5 What Are the Primary Characteristics of Resources? Capability –Quality or Qualitative Characteristics Capacity –Quantity They Provide Consumption/Cost –Consumption/Cost Structure –Consumption/Cost Behavior

6. 6 How Do We Define Capacity? Productive Non-Productive Idle/Excess Questions: Who is Responsible for Idle & Excess Capacity? What can Allocations of Idle & Excess Capacity Do to Costs?

7. 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

8. 8 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

9. 9 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

10. 10 www.RCAInstitute.org lwhite@rcainstitute.org 757 288 6082

11. RCA and Interrelationships -Quantity Consumption with Values -Resource Interrelationships - Activities Consumed by the Resources that the Services are Provided for -Activities Consumed by a Cost Objects 1/9/2016 10:58 AM11© RCA Institute 2010

12. 12 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

13. 13 RCA Information