Cost Control Chapter 13

Front 1

Activity-based responsibility accounting

Back 1

added a process perspective to the financial perspective of the functional-based responsibility accounting system. Processes are how things get done, therefore to improve performance meant to improve process. It changed the point of view from cost control to maintain the status quo to that of cost reduction by continuous learning and change. It moved us from a cost control system to a performance management system.

Hint 1

One shortcoming of activity-based responsibility accounting is that the continuous improvement efforts sometimes failed to connect with the organization’s overall mission and strategy

Front 2

Strategic-based responsibility accounting system

Back 2

system translates the strategy of an organization into operational objectives and measures. It directs the efforts of continuous improvement to focus on objectives, performance measures, and initiatives necessary to accomplish the mission and strategy.

Front 3

The Balanced Scorecard

Back 3

a strategic based performance management system that identifies objectives and measures for four different perspectives: financial customer, process, learning and growth.

Front 4

Hoshin Kanri

Back 4

is another strategic-based performance management system. Hoshin means direction needle (or compass), and Kanri means planning. Thus, Hoshin Kanri = directed planning.

Hint 4

Both the Balanced Scorecard and Hoshi Kanri convert a company’s strategy into executable actions that are deployed throughout the organization

Front 5

Lag measures

Back 5

= are outcome measures, measures of results from past efforts, ex. customer profitability

Front 6

Lead measures (performance drivers)

Back 6

drive future performance, ex. hours of employee training

Front 7

Objective measures

Back 7

can be readily quantified and verified, ex. % market share

Front 8

Subjective measures

Back 8

are less quantifiable and more judgmental, ex. employee capabilities

Front 9

Financial measures

Back 9

expressed in monetary terms, ex. cost per unit

Front 10

Nonfinancial measures

Back 10

use nonmonetary measures, ex # of dissatisfied customers

Front 11

External measures

Back 11

relate to customers versus shareholders, ex. customer satisfaction and return on investment

Front 12

Internal measures

Back 12

relate to the processes and capabilities that create value for customers and shareholders, ex. process efficiency and employee satisfaction

Front 13

Strategy is identifying and defining management’s desired relationship among the four perspectives.

Back 13

1. Financial perspective
2. Customer perspective
3. Process perspective
4. Learning and Growth

Front 14

1. Financial perspective

Back 14

= establishes objectives expected from the strategy and describes the economic consequences of actions taken in the other three perspectives.

Front 15

The financial perspective has three themes that serve as building blocks for the development of specific operational objectives and measures: (see exhibit 13-6 on page 474)

Back 15

1. Revenue growth
2. Cost Reduction
3. Asset Utilization

Front 16

2. Customer perspective

Back 16

defines the customer and market segments in which the business will compete and describes the way that value is created for customers. This is the source of revenue for the financial perspective.

Hint 16

Once customers are defined, core objectives and measures are developed (see exhibit 13-7 on page 475)

Front 17

Customer value

Back 17

the difference between what the customer gives and what the customer receives

Front 18

Postpurchase costs

Back 18

costs incurred by the customer after the purchase

Front 19

3. Process perspective

Back 19

= describes the internal processes needed to provide value for customers and owners.

Front 20

Process value chain is made up of three processes. (see exhibit 13-9 on page 478)

Back 20

1. Innovation process
2. Operation process
3. Post sales service process

Front 21

1. Innovation process

Back 21

anticipates the emerging needs and potential needs of customers and creates new products and services to satisfy those needs.

Front 22

2. Operation process =

Back 22

produces and delivers existing products and services to customers.

Front 23

Common process time measures are:

Back 23

1. cycle time
2. velocity
3. manufacturing cycle effectiveness = MCE

Front 24

1. cycle time

Back 24

length of time it takes to produce a unit of output from the time materials are received until the good is delivered to finished goods inventory

Front 25

2. velocity

Back 25

the number of units of output that can be produced in a given period of time

Front 26

3. manufacturing cycle effectiveness = MCE

Back 26

the percentage of processing time that is value-added time.

Hint 26

MCE =
Processing time
_____________________________
Processing time + Move time + Inspection time + Waiting time + Other nonvalue-added time

Front 27

3. Postsales service process

Back 27

provides critical and responsive services to customers after the product or service has been delivered

Front 28

4. Learning and Growth perspective

Back 28

defines the capabilities that an organization needs to create long-term growth and improvement. (see exhibit 13-10 on page 479)

Front 29

Three major objectives of Learning and Growth

Back 29

1. Increase employee capabilities
2. Increase motivation, empowerment and alignment
3. Increase information systems capabilities

Front 30

list 3 outcome measures

Back 30

1. profitability,
2. return on investment,
3. market share

Front 31

Testable strategy

Back 31

= a set of linked objectives aimed at an overall goal. The testability is achieved by restating the strategy intro a set of cause and effect hypotheses that are expressed in a sequence of if-then statements. (see italicized paragraph in middle of page 480)