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Resource Consumption Accounting with Open Source Software
Larry R. White, CMA, CFM, CGFM, CPA
Director, RCA Institute
Anton van der Merwe
Principal, Alta Via Consulting
Business Information for Enterprise Optimization
1.RCA Introduction & RCA Modeling Principles
2.RCA Model Story Board and Business Situation
3.Overview of ROSA Software
4.Planning/Decision Scenarios
5.Overview of ROSA Manual
6. Implementing ROSA for Planning and Analysis
7.Questions
3
Resource Consumption Accounting
• RCA Inherits Core Principles from German Cost Management (GPK)– Grenzplankostenrechnung (GPK) Translated -
Flexible Analytic Cost Planning & Control– Principles Applied in Practice since the late 1940’s– 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– Highlights Resource Divisibility
RCA
Resource view
Advantages
Process view
Advantages
GPK ABC
Capacity Analysis
and Management
Process Analysis and Management
Capacity-Focused
Activity-Focused
RCA Recognition
Costing Continuum/Levels of Maturity
No Marginal Insight
Marginal Insight Awareness DetailedMarginal Insights
Descriptive: Expense Tracking, Cost Reporting and Consumption RatesPredictive: Demand Planning Driven with
Capacity Sensitivity
1Blind
Book-keeping
Nomarginal insights
Process/ lean accounting
2ProcessVisibility
Direct cost to outputs
Limitedprocessmarginal insights
Add indirect costs
4Output
Visibility
Direct costmarginal insights
All outputcostmarginal insights
5Explicit Outputs
Output specific marginal insights
Individual std costs, project & job costing
Push activity-based costing (ABC), Product costs
Explicit output marginal insights
6Explicit IndirectCosts
7Customer Demand Sensitive
Level 6 with customer & channel profitability reporting; Cost-to-serve
8Unused Capacity Aware
Add customer & channel marginal insights
Unused capacity costs (estimated)
Common fixed costs begin to be isolated
9Pull ABC Resource Planning
10Time-driven ABC
11RCA
Explicit resource cost object, supply-based denomina-tor, strong & weak forms of causality catered for
12Simulation
No change
(ABRP); forecast driver quantities X std unit rates, driver-based budgeting
Increased ability to isolate common fixed costs
Increased ability to isolate common fixed costs
(TDABC); forecast driver quantities X std unit rates; direct cost focus; repetitive work conditions
Finite systems modeling
Attributable costs on all objects, blends activity and direct resource charges, consumes activities back to resources
3Output
Visibility
6
What Causes Costs?
Resources (also generates all revenues!)
Every Decision is really a resource application decision!
ProportionalResource
Pool
Another ResourcePool (s)Or Final
Product/Service
Organizational Element(Support or Production)
LaborEquipment
Operating Budget
ProductsServicesSupport Work Requests(ReflectingResourcesApplied)
ServicesSupport
Fixed
INPUT
Fixed
OUTPUT
Proportional
What we need to know:
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
8
RCA Storyboard
Product Support Cost
S: Ancillary Production Equipment
S: AdministrationHuman Resources
& Accounting
S: Quality Assurance
RP: Dryer (Hours)Capacity: 100Output Qty: 100
S: Plant Engineering and
Maintenance
RP: Plant Maintenance (Maint. Labor)Capacity: 30,000Output Qty: 30,000
P: Extrusion Line
RP: Extrusion Labor (Labor hours)Capacity; 32,000Output Qty: 30,000
Product P & L’s
Department
Resource PoolAbbreviated RP
Activity
RP: Chiller (Hours)Capacity: 50,000Output Qty: 50,000
Perform Accounting Perform Admin
QA Testing
Legend
S-Support
P- Production
Common Fixed Costs
Product Returns
RP: Extrusion Machine1(Machine hours)Capacity; 17,520Output Qty: 10,000
Manufacturing Costs
Budgeted Products
RP: QA Labor(Labor hours)Capacity: 14,000Output Qty: 14,000
RP: Admin Labor(Labor hours)Capacity: 17,000Output Qty: 17,000
Perform HR
9
Plant Maintenance Resource Pool Output Measure: Maintenance Labor HourOutput Quantity: 20,000 Hours
Primary Costs Fixed Proportional
Technician Wages -$ 600,000$
Supervisor Salary 80,000$ -$
General Material 12,000$ 100,000$
Depreciation: Shop Equipment 50,000$ -$
142,000$ 700,000$
Secondary Costs
Resource Pool Output Fixed Qty Prop Qty
Utilities MW-Hrs 40 160 6,000$ 24,000$
Activity/Process Driver Fixed Qty Prop Qty
HR: Benefits Adjustments # Adjusts 22 0 1,100$ -$ Purchase: Gen Materials # PO's 10 200 500$ 10,000$
7,600$ 34,000$
Total Resource Pool Costs 149,600$ 734,000$
Unit Cost Rates (/20,000 Hrs) 7.48 36.70
RCA Information
RCA Structure for Marginal CostingRCA Structure
Quantitative
Definition of Material Causal Relationships
Support/Secondary Resource Pools
Support/Secondary Activities
Primary Resource Pools
Primary Activities
Product/Service Objects
Result Segments
ExcessCapacityCosts
RCA Provides Greatest Benefit
• High Capital Investment (Fixed Cost)• Tight Margins• Multiple Products/Services• Flexible Production/Service Capability
1.RCA Introduction & RCA Modeling Principles
2.Example Story Board & Business Situation
3.Overview of ROSA Software
4.Planning/Decision Scenarios
5.Overview of ROSA Manual
6. Implementing ROSA for Planning and Analysis
7.Questions
Get Well Corporation
PRODUCT 1:
NO PANE
Product Costing
Resource Pool: 8002 Production 2
Machine hours (MH)Cap = 2 000 Outp = 1 675
Distribution Costs
Support CostsGet Well Mfg, Model Storyboard
PRODUCT 3:
BURN-AWAY
Production Costs
Resource Pool: 7001 Production 1
Labor Hours (LH)Cap = 15 000 Outp = 14 050
Resource Pool: 7002 Production 1
Machine Hours (MH)Cap = 2 200 Outp = 2 160
Resource Pool: 8001 Production 2
Labor Hours (LH)Cap = 6 500Outp = 5890
Resource Pool: 6301 Distribution
Tonmiles (Tm)Cap = 150 000 Outp = 150
000
Resource Pool: 9001 Packaging
Labor hours (LH)Cap = 25 000Outp = 23 340
Resource Pool: 9002 Packaging
Machine Hours (MH)Cap = 4000 Outp = 3190
Resource Pool: 6102 Facilities
Square Feet (Sqft)Cap = 100 000 Outp = 87 000
Resource Pool: 6201 System Support
Infrastructure (Hr)Cap = 3000Outp = 1750
Resource Pool: 6401 Maintenance
Labor Hours (LH)Cap = 12 000Outp = 11 280
Resource Pool: 6001 Utilities
Electricity (Kwh)Cap = 250 000Outp = 233 000
PRODUCT 4:
BETTER-BEAT
PRODUCT 2:
RELIEF
Business Process10010
Service MachinesOutp = 24ea
Business Process10020
Procure Raw MaterialsOutp = 40ea
Get Well Support Resources
Support Costs
Resource Pool:6102-Facilities
Square Feet (Sqft)Cap = 100 000 Outp = 87 000
Resource Pool:6201-System SupportInfrastructure (Hr)
Cap = 3000Outp = 1750
Resource Pool:6401-Maintenance
Labor Hours (LH)Cap = 12 000Outp = 11 280
Resource Pool:6101-Utilities
Electricity (Kwh)Cap = 250 000Outp = 233 000
Business Process:10020Procure Raw Materials
Outp = 40ea
Business Process:10010Service Machines
Outp = 24ea
Get Well Distribution Resources
Distribution Costs
Resource Pool:6301-Distribution
Tonmiles (Tm)Cap = 150 000 Outp = 150 000
Resource Pool:9001-Packaging
Labor hours (LH)Cap = 25 000Outp = 23 340
Resource Pool:9002-Packaging
Machine Hours (MH)Cap = 4000 Outp = 3190
Inputs from assigned Support Cost Centers
Outputs to assigned Product Cost Objects
Get Well Production Resources
Resource Pool:8002-Production 2
Machine hours (MH)Cap = 2 000 Outp = 1 675
Production Costs
Resource Pool:7001-Production 1
Labor Hours (LH)Cap = 15 000 Outp = 14 050
Resource Pool:7002-Production 1
Machine Hours (MH)Cap = 2 200 Outp = 2 160
Resource Pool:8001 Production 2
Labour Hours (LH)Cap = 6 500Outp = 5890
Input from assigned Support Costs Input from Business Process:
Service Machines
Outputs to assigned Product Cost Objects
Get Well Products –
PRODUCT 1:
NO PANE
Product Costing
PRODUCT 3:
BURN-AWAY
PRODUCT 4:
BETTER-BEAT
PRODUCT 2:
RELIEF
Inputs from assigned Distribution and Production Costs
Outputs are categorized into different reporting segments as desired
(ex., By customer, region, etc.)
Input from Business Process: Procure Raw Materials
1.RCA Introduction & RCA Modeling Principles
2.RCA Model Story Board and Business Situation
3.Overview of ROSA Software
4.Planning/Decision Scenarios
5.Overview of ROSA Manual
6. Implementing ROSA for Planning and Analysis
7.Questions
ROSA Overview
• Excel Template for PALO Business Intelligence Software– Template Designed by Alta Via Consulting– PALO BI Software S/W fm Jedox.com (Free & Open
Source)
• ROSA is a planning tool using RCA. – Template is not integrated with other systems to
collect actual/results data.
ROSA Overview Demo
• Shift to displaying ROSA Application
1.RCA Introduction & RCA Modeling Principles
2.RCA Model Story Board and Business Situation
3.Overview of ROSA Software
4.Planning/Decision Scenarios
5.Overview of ROSA Manual
6. Implementing ROSA for Planning and Analysis
7.Questions
Cost/Consumption Concepts
Operational
Fixed Variable
Which Cost Concept Must Form the Basis for Cost Modeling?
Decision Support
UnavoidableAvoidable
Opportunity Cost
“Relevant Range”
Can be Modeled Basis for Action
Divisibility of Resource Information
Example 1 A manufacturing company decides to replace an
old extrusion plant with modern equipment. This
results in a significant reduction in the amount of
maintenance required. The maintenance
manager realizes that he can reduce his total
maintenance capacity by 8,000 hours, the
equivalent of a whole crew including the crew's
supervisor.
What are the respective operational and decision
cost concepts for each of technician wages and
supervisor salary in Example 1?
Example 1 Cont’d
Operational Cost Concepts: The operational cost characteristics of technician wages
is a variable cost The operational cost characteristics of supervisor salary
is a fixed cost
Decision Cost Concepts: Both technician wages and supervisor salary are
avoidable cost
Hence, operationally fixed and variable cost are avoidable
Example 2
The same company receives an offer from an outside
vendor to take over the repair of extrusion rollers.
The manager knows from his MA system that the
company spends 2,400 hours per year on these
activities. A maintenance technician works 1,600
productive hours per year.
What are the respective operational and decision
cost concepts for each of technician wages and
supervisor salary in Example 2?
Example 2 Cont’d
Operational Cost Concepts:
The operational cost characteristics are the same as for Example 1
Decision Cost Concepts:
The wages of one technician is an avoidable cost
The costs associated with the remaining 800 hours (2,400 - 1,600) is unavoidable costs
The crew supervisor will be less busy but his salary is similarly unavoidable
Hence, operationally fixed and variable cost are now unavoidable cost
Operations Cost Model with Causality as Its Basis
Operational Cost Concepts
Decision Cost Concepts
Basis for All Cost Concepts
Business Scenario 1
• Situation: Outsource the Maintenance Function?– A service provider approaches you with an offer to take
over your maintenance function.
– He proposes to charge you $29.00 per hour. As we will
see from the ROSA model your cost is $30.84 per hour.
– Should you accept the offer and outsource
maintenance?
• Shift to ROSA Application
Business Scenario 2
• Situation: A Mutually Exclusive Resource
Application Decision– You receive two orders but can only accept one due the
customers’ required delivery dates.
– Cost concept: The opportunity cost of committing a
resource to a particular course of action.
– Approximated by RCA’s proportional cost.
• Shift to ROSA Application
1.RCA Introduction & RCA Modeling Principles
2.RCA Model Story Board and Business Situation
3.Overview of ROSA Software
4.Planning/Decision Scenarios
5.Overview of ROSA Manual
6. Implementing ROSA for Planning and Analysis
7.Questions
ROSA Manual
• ROSA Manual• Highlight:
– Intro to RCA– Download and start up instructions– Application Overview– Building your own model
en.wikibooks.org/wiki/RCA_Open_Source_Application:_ROSA_Manual
1.RCA Introduction & RCA Modeling Principles
2.RCA Model Story Board and Business Situation
3.Overview of ROSA Software
4.Planning/Decision Scenarios
5.Overview of ROSA Manual
6. Implementing ROSA for Planning and Analysis
7.Questions
Using ROSA in Your Company
• Conceptual RCA Model Design• Design RCA Storyboard for your company• Collect data and build initial data set• Upload data to ROSA• Use ROSA to simulate new business
scenarios.
ROSA Linked In Group
http://www.linkedin.com/e/vgh/3107067/
The RCA Institute is…
• A Non-profit Entity • Responsible for Training of Practitioners and Adopters• Provides A Number of Products and Services to Mitigate
Adopter Risk e.g., Certification, Assurance Services• Sponsors Research into RCA Implementation and Long-
term Use• Serves to Raise RCA Awareness and Fulfill Advocacy and
Outreach Roles
RCA Support & Quality Assurance
• Institute Membership– Corporate & Individual
• Certification– Specialist, Practitioner, Master
– Software Products
• Adopter Exploratory Workshops– Customized Workshops applying RCA to an organization
• Implementation Review/Assurance– Support Adopting Organizations & Practitioner Expertise
• Adopter Internal Use Reviews– Evaluations of An Organization’s Effectiveness Using and Maintaining
RCA
Questions???
Contact Information:www.RCAInstitute.org
lwhite@rcainstitute.org757.288.6082
Contact Information:www.altavia.com
antonvdm@altavia.com513-257-7451
ROSA Linked In Group: http://www.linkedin.com/e/vgh/3107067/
http://en.wikibooks.org/wiki/RCA_Open_Source_Application:_ROSA_Manual
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