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ACTG 4310 PowerPoint Presentation

ACTG 4310

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ACTG 4310

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  1. ACTG 4310 Contemporary Cost/Managerial Practices

  2. Contemporary Topics in Cost and Managerial Accounting • Lean Accounting • Sustainability Reporting • Intellectual Capital Management • Knowledge Management • Global Business Services • Customer Value Management

  3. Lean Accounting

  4. Lean Accounting • Lean Manufacturing • A management strategy that requires everyone in the value stream to have one common vision for the company of reducing waste, resulting in improvements in quality and production/service time as well as reduction in costs. • Continuous improvement is emphasized • Customers are the main focus • Pioneered by Toyota in the 1950s

  5. Contemporary Lean Accounting • The objective is to eliminate waste, free up capacity, speed up the process, eliminate errors and defects, and make the process clear and understandable. • Fundamentally change the accounting control, and measurement processes so they motivate lean change and improvement, provide information that is suitable for control and decision-making, provide an understanding of customer value, correctly assess the financial impact of lean improvement, and are themselves, simple, visual, and low-waste.

  6. Lean Accounting • Key tool in Lean Accounting – Value Stream Costing • Direct costing by value streams • Typically collected weekly • Little or no allocation of “overheads”. • Provides financial information that can be clearly understood by everybody in the value stream which in turn • Leads to good decisions • Motivates employees to improve across the entire value stream • Assigns clear accountability for cost and profitability

  7. Value Stream Costing • Weekly reporting provides excellent control and management of costs because they can be reviewed by the value stream manager while the information is still current. • Modify chart-of-accounts structure to value stream groupings rather than by traditional departments.

  8. Watlow Electric • Replaced month-end variance reports with daily operator generated reporting • Has been very satisfied with lean accounting • Attributes 15% increase in sales and sales margins to lean accounting

  9. Corporate Sustainability Reporting

  10. Sustainability • The new buzz word for social/environmental accounting. • Puts dollars to the social/environmental accounting agenda. • Focuses on doing the right thing for employees, consumers, society and the government. • Incorporates profits into doing the right thing.

  11. Triple Bottom Line (TPL or 3BL) • Created by John Elkington in 1994 • Triple Bottom Line accounting means expanding the traditional reporting framework to take into account ecological and social performance in addition to financial performance – • People, planet, and profit.

  12. People Bottom Line • Known as human capital. • It relates beneficial business practices toward labor, the community and region. • Includes good labor practices, human rights, and product responsibility. • It also posits that the company should give part of its profit to the surrounding community in donations.

  13. Planet Bottom Line • Known as natural capital and includes water, air, energy, waste produced, etc. • Evaluated by how well a company includes environmental consideration into its activities. • A company should try to minimize its impact on nature among all its operations.

  14. Profit Bottom Line • The organizational economic impact on the environment. • Can include traditional financial measures. • Refers to an “honest” profit, frowning upon excessive profits with excessive job losses. • It must be made in agreement with the other two bottom lines. • 3BL views people, plant and profits together, not separately, as opportunities for the better.

  15. Financial Examples • 73% of the Top 100 U.S. Companies issued stand-alone Sustainability Reports in 2008 • Examples of companies: • Johnson & Johnson (began reporting in 1993 – declared IMA leader in sustainability reporting) • FedEx • WalMart • Pepsico

  16. Environmental Cost Calculators • Carbon Footprint Calculator – • Nature Conservancy carbon footprint • Terrapass calculator for travel • EPA – individual emissions, household emissions –  • PG&E – Climate Change –  • Berkeley Institute of the Environment • Paul Hawken, environmental activist and founder of Smith and Hawken, estimates that 1 -2 million organizations worldwide are actively doing something to implement sustainability.

  17. Management Control • Management accounting can play a role in implementing corporate sustainability in the following areas: • Budgeting • Capital investments • Life cycle costing • Responsibility accounting • Performance evaluation/reward systems • Balanced scorecard applications

  18. Intellectual Capital Management

  19. Facts • We are a knowledge-based economy • In the 1980s, about 60% of assets were tangible assets like property, plant and equipment. • Currently, only 10% - 50% of a company’s assets are tangible. • Most of the value of a business comes from their intellectual capital.

  20. Definition • Intellectual capital (IC) – all resources that determine the value and competitiveness of an enterprise • Three elements of IC: • Human capital • Structural (organizational) capital • Relational capital

  21. Intellectual Capital • Human – what the workforce brings to an organization • Creativity, flexibility, attitudes, expertise, integrity, past experiences, motivation, wellness, leadership, management, mentoring • Structural – what the organization possesses after the employees go home • Organizational routines, procedures, manuals, strategies, systems, databases, corporate cultures

  22. Intellectual Capital • Relational – associations that organizations have • Customers, suppliers, governments • Company image, customer loyalty, customer satisfaction

  23. Knowledge Management (KM)

  24. Definition • The process through which organizations generate value from their intellectual and knowledge-based assets • Knowledge • Can be described as the awareness of what one knows through study, reasoning, experience or association, or through various types of learning. • Should not be confused with data or information • Is a process and is always changing

  25. Knowledge Management • KM is a procedure used to identify, create, represent, and distribute the explicit and tacit knowledge of individuals in the organization. • Tools – information technology and training for: • Determining “Best Practices” • Sharing of lessons learned • Continuous improvement of the organization

  26. Global Business Services (Shared Services)

  27. Global Business Services (GBS) • Are essentially shared business services where • a service is controlled by one part of an organization • the funding and resourcing of the services is funded by all the other departments • creating an internal service provider for the entire organization. • Is used by companies with multiple geographic locations • IMPORTANT TO NOTE • GBS is not OUTSOURCING because with outsourcing a third party external vendor provides the service whereas GBS are kept in the company.

  28. Functional Aspects of GBS • More controllership of functions • Flexibility with operations • All sectors and departments within an organization (sales, marketing, finance, human resources, etc.) can be included • Reduces need for redundant accounting operations

  29. Customer Value Management (CVM)

  30. Customer Value Management (CVM) • Managing each customer relationship with the goal of achieving maximum lifetime profit from the entire customer base. • Two basic goals: • Deliver superior value to targeted market segments. • Receive an equitable return on the value delivered.

  31. Importance of CVM • Current Economy: • A company’s ability to attract and retain customers has been a key component of success. In the current economic downturn, customers have become a scarce resource to some companies. • It is cheaper to keep a customer than to get a new one. This has caused many organizations to move towards becoming more customer-oriented and less product/service-oriented.

  32. Customer’s Lifetime Value (LTV) • LTV = Purchase size X Frequency X Duration • Goal is to increase each part of the equation

  33. Strategies • For profitable customers • Offer price incentives and discounts • Provide customized support • Offer customer rewards programs • For less profitable and non-profitable customers: • Charge additional fees for services • Increase prices or reduce costs to the customer • Eliminate relationships

  34. Customer Retention • It is important to keep profitable customers • It is also important to keep customers that are not as profitable but tend to be loyal over time (LTV). • The goal is to maintain the most valuable customers, NOT ALL OF YOUR CUSTOMERS. • Loyal customers are more profitable because they are less price sensitive than others.

  35. Conclusion • Lean Accounting – quicker response time that adds value • Sustainability – do the right thing and let everyone know about it! • Intellectual Capital Management – Find excellent employees and keep them! • Knowledge Management – Determine best company practices and share them throughout the company

  36. Conclusion • Global Business Services – consider combining services throughout your organization to save money and be consistent • Customer Value Management – Maximize the lifetime values of our customers. • ALL OF THESE TOOLS CAN HELP YOU CHANGE AND IMPROVE THE MANAGEMENT OF YOUR COMPANY!!!!