Managerial Accounting-Strategic Cost Analysis--Spring 2002 1 Advanced Cost Management Professor William F. O’Brien, MBA, CPA Fall 2001.

Managerial Accounting-Strategic Cost Analysis--Spring 2002

1

Advanced Cost Management

Professor William F. O’Brien, MBA, CPA

Fall 2001


2

Introduction

• Cost Management• Financial•Non-Financial


3

Financial Management Evolution

DATADATA

INFORMATIONINFORMATION

ANALYSISANALYSIS

IMPLEMENTATIONIMPLEMENTATION

Today’sCorporateFocus is on

Results!


4

CompanyF/S

Users

EconomicDecisions

Financial Impact

(useful &relevant)

Financial Accounting Model


5

Managerial Accounting Model

Plan

Implement

Monitor

Adjust AccountingInformation

Communication Environment


6

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


7

Four Management Functions

…another Perspective• Strategic Management• Planning and Decision Making• Management and Operational

Control• F/S Preparation

• How is Cost Management Info Used?


8

Strategic Cost Management

• Strategic cost management is the development of cost management information to facilitate the principal management function--strategic management.


9

Factors Influencing Today’s Business

Environment• Global competition• Manufacturing and IT advances• Customer focus• Revised organizational

structures• Social, political and cultural

changes


10

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


11

Professional Organizations

• Regulatory• IRS• FTC•SEC• FASB•CASB


12

Professional Organizations

• Associations• IMA•SMA, Canada•AICPA• FEI• IIA


13

Ethics

• Lack of ethics--everyone loses• South Florida Bermuda

Triangle of Ethics•Sensormatic•W.R. Grace•Bausch and Lomb•Sunbeam


14

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...


15

Accounting Business Skills

“The What” • Business Perspective• Organizational Focus• Bias for Action• Communication Excellence• People Proficiency


16

Financial Management Guidelines“The How”

• Cc• KTT• MBWA• R ƒ R3

• responsiveness• reliability• relevance


17

Just Say “No” to...

A

B

C


18

Scarlet Letter of Accounting

• Lacks Reality

• Distraction

• Lacks Cost Mgt.


19

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


20

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


21

SMA, cont.

• QCT Triangle•Self evident

• TBC Triangle•Provides Technical insight• Encourages Behavioral changes•Supports Cultural beliefs


22

Strategic Analysis

• Cost…an economic sacrifice


23

Competitive Strategy

• Strategic Planning: Mission Stmt.

• Cost Analysis•Shift from Stewardship to

Catalyst•Shift from Corp. Cop to Business

Partner


24

Porter’s Value Processes

• Core Competency• Cost Advantage


25

Types of Competitive Strategy

• Cost Leadership…cost advantage

• Differentiation…core competency

• Focus…pre-requisite to the first two


26

Sustainable Competitive Strategy

Process• Complete a SWOT Analysis and

CSF Identification• CSF Measurement• CSF Reporting


27

SWOT Analysis

• Internal Factors•Strengths•Weaknesses

• External Factors•Opportunities• Threats


28

Critical Success Factors

• CSF’s can be defined in a variety of ways

• ie…something that must be done well right now!


29

A Changed Perspective

• Results of Operations vs. operating information for results


30

Balanced Scorecard

• A Vehicle for Reporting CSF’s• 4-Parts• More on Nov. 6, 2001


31

Value Chain Analysis

• Multiple Approaches•Porter’s approach…see next slide•BCL approach

•Drivers• Cost• Core Competency

•MAG 41 approach


32

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


33

Value Chain Modelfrom 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

Custom

er Value

Cus

tom

er V

alue

Margin

Mar

gin


34

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


35

Strategic Cost Mgt. Implications

• Non-traditional reporting• Long-term focus• Cross-functional perspective


36

Four Key Tools

• SWOT Analysis• CSF’s• Balanced Scorecard• Value Chain Analysis

Managerial Accounting-Strategic Cost Analysis--Spring 2002 1 Advanced Cost Management Professor William F. O’Brien, MBA, CPA Fall 2001.

Documents

accounting business

management functions

cultural changes slide

lomb sunbeam slide

balanced scorecard slide

financial stability

decision making management

principal management