WELCOME AND GOOD MORNING

WELCOME WELCOME ANDANDGOOD MORNINGGOOD MORNING

The Business Reality ShiftThe Business Reality Shift

• Competition is global, production times are shorter, the saleable life of product is shrinking, profit margins are smaller and consumer tolerance for poor quality is low.

• Action must be swift and powerful and focussed on identifying three things-where the firm needs to be if it is to be successful,what needs to be done in order to get there and how it is going to make this transformation.

What drives business today ?What drives business today ?

Technological changes• Computing speed

• Information acquisition and dissemination

• Internet technologies

Globalisation• Global cost advantages

• Continuous reengineering

• Time based deliveries (JIT)

Customer driven• TQM

• Value chain analysis

DIRECTION OF THE Mgmnt Accounting

Business environment of 21st centuryBusiness environment of 21st centuryVALUE CREATING STRATEGIES/PROCESSES• Mass customization through a good design• Instant production driven by pull of customer

demand and ability to build on customer ideas.• Network of producers through strategic alliances.• Supplier privy to strategy.• Delayered management hierarchies• Trust , Reliability and core competencies• Information technology as a major enabler• Global markets and world class practices

BUSINESSMODELS CREATEVALUE

MISSION STATEMENT

VISION STATEMENT

VALUES STAEMENT

OBJECTIVES

STRATEGIES

PROCESS BASED ORGANISATION

COMPONENTSOF A

BUSINESS MODEL

IT ENABLED

TIME SLICES IN MA EVOLUTIONTIME SLICES IN MA EVOLUTION

Prior to 1825Eye ball control

Simple cost data on production

Between 1825 to 1925

Scale advantages

Capacity centric MA concepts

Process cost per unit

IE based standard costing

Between 1925 to 1975External reporting, Regulations, Income taxes, Levies, etc

TIME SLICES IN MA EVOLUTIONTIME SLICES IN MA EVOLUTION

After 1975

Value revolution

Life cycle concept

Strategy evaluation and control

Brand management

Distribution and channel management

Service sector evolution

Enterprise Risk Management

Environmental Strategies

A Battle on Two FrontsA Battle on Two Fronts

(1) Strategy

choose the right ones …..

… and align the cost structure

(2) Efficiency & Utilization

take waste and unused capacity

out of the organization

ROI

Val

ue c

reat

ion

Management Accounting

Operational

MA

StrategicMA

DIMENSIONS OF CHANGE IN MADIMENSIONS OF CHANGE IN MA

• OWNERSHIP

• CONTENT

• FREQUENCY OF USAGE

• LIFE CYCLE ORIENTATION

• PROCESS ORIENTATION

• NEW TOOLS AND TECHNIQUES

• INTEGRATION WITH IT


OWNERSHIP

• No more vested with costing/finance

• Company wide process

• Major role by non finance teams

• Innovations led by non finance

• Management Accountant has to be a facilitator with business orientation.


CONTENT

• Strategic Vs Operational focus

• Non Cost related information

• Cycle time related

• Quality related

• Statistics oriented such as SD, Six Sigma


FREQUENCY OF USAGE

• On line

( torque sensing CNC to avoid tool damage)

• Hourly variations ( Japanese cost practice)

• Weekly reviews

• Monthly Cycle

• Quarterly strategic information

• Life Cycle phased information


LIFE CYCLE ORIENTATION

• Operation focus is no more production focussed.

• Design stage costing

• Post sale service costing

• Amortising over life cycle volumes

• Switch over costs in segments


PROCESS ORIENTATION

• Cost centre and departmental costs losing relevance to process view.

• Cross functional views

• Process based organisation structures

• Business Vs Manufacturing process

• Process based cost/time/quality measures


NEW TOOLS AND TECHNIQUES

• Strategic Management Accounting tools

• Operational tools

STRATEGIC TOOLS

Balanced Scorecard, Strategic Cost management, Target Cost Analysis, Customer Profitability and Customer value Measurement.

OPERATIONAL TOOLS

Cost of Quality, Kaizen Costing, Parametric Cost Control

Activity Based Costing and Budgeting, Activity Management

Vendor Cost Analysis, Statistical Quality and Cost Control,

Six sigma costing, Service Process Costing, Non Financial Performance Measures, Benchmarking, Process Mapping.

THE ABOVE TO BE IT SUPPORTED OR EVEN WEB BASED

STRATEGIC AND OPERATIONAL TOOLS


INTEGRATION WITH IT

• No more close to the chest of few policy

• Need for disseminated information.

• Data warehousing and mining tools

• Data analyser and decision making tools

• Work flow alerts and On line controls

• Legacy and transactional systems

• ERP,CRM and SCM integration

MA PRACTICES OF SHINGO WINNERSMA PRACTICES OF SHINGO WINNERS

• Accounting itself under self scrutiny• Methods of efficiency evaluation reengineered• Introduced time based measures• Measurement of cost at bottleneck operation in cellular

manufacturing.• Management accounting supported continuous

improvement• Elimination of waste in accounting processes.• MA becoming internal business consultants• Empowered structure based management accounting• Knowledge of core business

Legacy Pangs of the service sector MALegacy Pangs of the service sector MA

• Historically insignificant use of MA

• Were operating in non competitive markets

• Local competition and not national/global.

• Operating environment did not require customer driven processes.

• MA literature itself not rich on service sector in the past.

Fundamental shifts in service sectorFundamental shifts in service sector

• Privatisation galore.• IT AND ITES as a major focus • Unbundling of power sector.• Pay and use and withdrawal of free meals.• Sectoral cross subsidisation anomalies.• Competition in transportation sector, innovation

in health care, growth pangs in telecommunication.

• Retail financing in finance sector

MA developments in service sectorMA developments in service sector

• Power generating companies seek Deming awards on quality. ( Florida Power & Light Co)

• Research on ABC application in power sector by CPRI in US and CERC in India.

• Extensive use of ABC by health care sector in UK

• Attempts on ABC by banks and telecom in India.

• Cost accounting record rules in telecom

• CAM I publication on ABM in service processes as a breakthrough project.

MA Content for Service sectorMA Content for Service sector

• Measurement of Quality, Cost and Time.

• Time as a critical dimension more important in MA focus.

• Cost of processes needs focus and the most appropriate tool is Activity Based Costing.

• Process mapping is fundamental.

• Measurement of customer satisfaction

• Extensive use of IT is prerequisite.

Mindset impediments for Reforms and Mindset impediments for Reforms and Revolution in MA fieldRevolution in MA field

• FINANCIAL ACCOUNTANTS ALSO DOMINATING MA DISCIPLINE

• COMPLIANCE/TAXATION COMES FIRST

• TREASURY MANAGEMENT MINDSET

• LACK OF AWARENESS IN TOP MANAGEMENT OF DEVELOPMENTS IN MA FIELD AND THEIR SIGNIFICANCE

• LACK OF PRIDE IN MA THEMSELVES AND SEEKING MORE AVENUES TO COMPETE WITH CHARTERED ACCOUNTANTS

• PROFESSIONAL DEVELOPMENT FOCUS MORE ON STATUTORY AREAS AS A WAY TO MOVE FORWARD

• LACK OF AUTHORITATIVE PUBLICATIONS ON MA AND CEDED THE INITIATIVE TO OTHER BODIES.

STRATEGYREALIZATION

CUSTOMERS,MARKETS

SUPPLY CHAINMANAGEMENT

PRODUCTS, CHANNELS & CUSTOMERS

ACTIVITIES(ABC/M)

RESOURCES

SHAREHOLDERWEALTH

[VBM]

PERFORMANCEMEASUREMENT

SCORECARDS

PROCESSMANAGEMENT

Generalledger

PROJECTACCOUNTING,

PROGRAMMANAGEMENT

STRATEGY DEFINITIONMETHODOLOGIES

KEY PERFORMANCE INDICATORS (KPIs) versus ACTUALS

PROFITABILITYANALYSIS

DEMAND STRATEGY

Expenses

TIME

SUPPLY / INVEST STRATEGY

PRODUCT &SERVICES

DEMANDVOLUME & MIX

FORECAST

MAXIMIZE

MINIMIZE

OPERATIONAL PERFORMANCE- PRODUCTIVITY & EFFICIENCY- BENCHMARKING - UTILIZATION/YIELD- TOTAL QUALITY MANAGEMENT (Cost of Quality)

UNUSED(AVAILABLE)CAPACITY

Assetmanagement

ACTIVITYDRIVERS

REVENUES

$$s hours

Business ModelBusiness ModelFOR A MA ACCNFOR A MA ACCN

MAXIMIZEAlignment of cost

structure to strategy

What-if Planning?

THANK YOU

Documents

WELCOME AND GOOD MORNING