Resource Consumption Accounting with Open Source Software Larry R. White, CMA, CFM, CGFM, CPA Director, RCA Institute Anton van der Merwe Principal, Alta

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


2.Example Story Board & Business Situation





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


Labor Hours (LH)Cap = 15 000 Outp = 14 050


Machine Hours (MH)Cap = 2 200 Outp = 2 160


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


Labor Hours (LH)Cap = 15 000 Outp = 14 050


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







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







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







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







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

[email protected]

Contact Information:www.altavia.com

[email protected]

ROSA Linked In Group: http://www.linkedin.com/e/vgh/3107067/

http://en.wikibooks.org/wiki/RCA_Open_Source_Application:_ROSA_Manual

http://www.rcainstitute.org/

mailto:[email protected]

http://www.altavia.com/

mailto:[email protected]

Documents

Resource Consumption Accounting with Open Source Software Larry R. White, CMA, CFM, CGFM, CPA Director, RCA Institute Anton van der Merwe Principal, Alta