7. 21.10.11-t. zielinski-processes or costs

transcript

Profit Management Profit Management System®System®

Processes or Costs? Processes or Costs? – That is the question– That is the question

Tomasz M. ZielińskiTomasz M. ZielińskiPresident of the boardPresident of the board, ABC Akademia Sp. z o.o., ABC Akademia Sp. z o.o.

„„DiscoveringDiscovering profitsprofits””

ABC AkademiaABC Akademia– is a producer of – is a producer of Profit Management System®Profit Management System® ABC/RCAABC/RCA software and a leader in software and a leader in implementation of ABC/implementation of ABC/RCARCA systemssystems for costs and profit managementfor costs and profit management in in PolandPoland

Tomasz M. ZielińskiTomasz M. Zieliński

• President of the board inPresident of the board in ABC AKADEMIA Sp. z o.o. ABC AKADEMIA Sp. z o.o., specializing in , specializing in ABC/RCA softwareABC/RCA software. .

• The manager and coordinator of implementation projects on The manager and coordinator of implementation projects on management accounting, ABC/management accounting, ABC/RCARCA, business intelligence., business intelligence.

• UUniversity lecturer of management accounting at well known polish niversity lecturer of management accounting at well known polish universities of economics. universities of economics.

• He is an author of the book „Revealing the truth of profits: theory and He is an author of the book „Revealing the truth of profits: theory and practice of ABC/M systems". practice of ABC/M systems".

• He also wrote many articles in controlling, logistics and business journals. He also wrote many articles in controlling, logistics and business journals.

Profit Management System® Profit Management System® ABC/RCA software by ABC AkademiaABC/RCA software by ABC Akademia

• Profit Management SystemProfit Management System®® software software – advanced ABC/– advanced ABC/RCARCA class class solution for enterprise cost and profitability management.solution for enterprise cost and profitability management.

• Profit Management SystemProfit Management System®® can be integrated with ERP systems can be integrated with ERP systems and databases from most well known providers: SAP, Microsoft, and databases from most well known providers: SAP, Microsoft, OracleOracle as well as other systems running on almost any databases.as well as other systems running on almost any databases.

• Through the Partner Through the Partner ProgramProgram, ABC Akademia ensures , ABC Akademia ensures accessibility of accessibility of ABC/RCAABC/RCA software for all branches. software for all branches.

AgendaAgenda

• Processes or Costs? – That is the question Processes or Costs? – That is the question

• The 12 -level Costing Continuum Maturity Model The 12 -level Costing Continuum Maturity Model (IFAC)(IFAC)

• Cost and effect costing - modelCost and effect costing - model

• Lessons from the battlefield – process based costing Lessons from the battlefield – process based costing implementation experience and challengesimplementation experience and challenges

• SummarySummary

Cost view of organizationCost view of organization

Mindset shift – Process view of costsMindset shift – Process view of costsCustomer Service exampleCustomer Service example

Cost Center: Customer Service CostsSalaries 6 939 862 €

Fringe benefits 1 999 215 €

Materials 1 840 583 €

Rents 1 048 180 €

Leasing 945 166 €

Depreciation and amortization 811 172 €

Other costs 270 320 €

External services 102 907 €

Total 13 957 404 €

Process view of Process view of organizationorganization

Cost Center: Customer Service: Proces / działanie CostsProcessing electronic orders 3 434 017 €Telemarketing - picking orders 2 527 149 €Preparing offers and quotes 1 724 364 €Processing paper orders 1 590 619 €Answering customers questions 1 477 954 €Invoicing 1 217 673 €Reserve inventory and delivery date 1 001 759 €Delivery planning 400 322 €Handling customers claims 305 343 €Reporting sales 278 204 €

Process 13 957 404 €

Cost Center: Customer Service: Proces / działanie CostsProcessing electronic orders 3 434 017 €Telemarketing - picking orders 2 527 149 €Preparing offers and quotes 1 724 364 €Processing paper orders 1 590 619 €Answering customers questions 1 477 954 €Invoicing 1 217 673 €Reserve inventory and delivery date 1 001 759 €Delivery planning 400 322 €Handling customers claims 305 343 €Reporting sales 278 204 €

Process 13 957 404 €

Cost Center: Customer Service CostsSalaries 6 939 862 €

Fringe benefits 1 999 215 €

Materials 1 840 583 €

Rents 1 048 180 €

Leasing 945 166 €

Depreciation and amortization 811 172 €

Other costs 270 320 €

External services 102 907 €

Total 13 957 404 €

Activities CostsPreparing offers 1 840 EUR Visiting customers 12 800 EUR Processing orders 1 360 EUR Bonus and promotions 3 920 EUR Picking orders 5 880 EUR Packaging orders 1 840 EUR Loading trucks 1 720 EUR Preparing transport documentation 1 400 EUR Transport to customer 19 560 EUR Invoicing 2 280 EUR

Process 52 600 EUR

Customer A

Costs by type CostsDepreciation 1 100 EUR Materials 4 350 EUR Energy and media 250 EUR Salaries 22 900 EUR Fringe benefits 5 600 EUR External services 17 350 EUR Taxes 650 EUR Other costs 400 EUR

Total 52 600 EUR

Customer A

FRUTTO S.A. Producer of beverages

Mindset shift – Process view of costsMindset shift – Process view of costsCustomer exampleCustomer example

Activities CostsPreparing offers 1 840 EUR Visiting customers 12 800 EUR Processing orders 1 360 EUR Bonus and promotions 3 920 EUR Picking orders 5 880 EUR Packaging orders 1 840 EUR Loading trucks 1 720 EUR Preparing transport documentation 1 400 EUR Transport to customer 19 560 EUR Invoicing 2 280 EUR

Process 52 600 EUR

Customer A

Costs by type CostsDepreciation 1 100 EUR Materials 4 350 EUR Energy and media 250 EUR Salaries 22 900 EUR Fringe benefits 5 600 EUR External services 17 350 EUR Taxes 650 EUR Other costs 400 EUR

Total 52 600 EUR

Customer A

FRUTTO S.A. Producer of beverages

Mindset shift – Process view of costsMindset shift – Process view of costsCustomer exampleCustomer example

Activities CostsDesigning 8 900 EUR Production planning 5 700 EUR Machine set ups 17 800 EUR Stabilizing of production process 24 700 EUR Producing (pressing, painting, heating) 43 800 EUR Packaging products 6 450 EUR Quality control 6 700 EUR Moving pallets to warehouse 3 650 EUR

Process 117 700 EUR

Product no 121Costs by type Costs

Depreciation 9 800 EUR Materials 35 800 EUR Energy and media 18 000 EUR Salaries 25 600 EUR Fringe benefits 5 500 EUR External services 7 900 EUR Taxes 5 300 EUR Other costs 9 800 EUR

Total 117 700 EUR

Product no 121

KERAMIK S.A. Producer of ceramics

Mindset shift – Process view of costsMindset shift – Process view of costsProductProduct example example

Activities CostsDesigning 8 900 EUR Production planning 5 700 EUR Machine set ups 17 800 EUR Stabilizing of production process 24 700 EUR Producing (pressing, painting, heating) 43 800 EUR Packaging products 6 450 EUR Quality control 6 700 EUR Moving pallets to warehouse 3 650 EUR

Process 117 700 EUR

Product no 121Costs by type Costs

Depreciation 9 800 EUR Materials 35 800 EUR Energy and media 18 000 EUR Salaries 25 600 EUR Fringe benefits 5 500 EUR External services 7 900 EUR Taxes 5 300 EUR Other costs 9 800 EUR

Total 117 700 EUR

Product no 121

KERAMIK S.A. Producer of ceramics

Mindset shift – Process view of costsMindset shift – Process view of costsProductProduct example example

• The way we report The way we report (we see) (we see) costscosts,, really matters! really matters!

• The process view of organization automatically focus managers The process view of organization automatically focus managers on improvement and optimization. Cost view of organization on improvement and optimization. Cost view of organization focuses managers on cutting costs.focuses managers on cutting costs.

• We manage activities, not costs. It’s making activities that We manage activities, not costs. It’s making activities that cause costs.cause costs.

• Activities are natural for people. The process view of company Activities are natural for people. The process view of company is better understood by the whole organizationis better understood by the whole organization..

• Process view of organization is focused on future. Cost view of Process view of organization is focused on future. Cost view of organization is focused on reducing resources, instead of organization is focused on reducing resources, instead of improvement and optimization.improvement and optimization.

AgendaAgenda

• SummarySummary

12 Costing Levels Continuum12 Costing Levels ContinuumMaturity ModelMaturity Model

• IFAC is the global organization for the accountancy IFAC is the global organization for the accountancy profession. profession.

• It works with its 164 members and associates in It works with its 164 members and associates in 125 countries and jurisdictions to protect the public 125 countries and jurisdictions to protect the public interest by encouraging high quality practices by interest by encouraging high quality practices by the world's accountants. the world's accountants.

• IFAC members and associates, which are primarily IFAC members and associates, which are primarily national professional accountancy bodies, national professional accountancy bodies, represent 2.5 million accountants employed in represent 2.5 million accountants employed in public practice, industry and commerce, public practice, industry and commerce, government, and academia.government, and academia.

Costing Continuum // Levels of Maturity

LevelLevel ##

EXPENSE TRACKING, COST REPORTINGand CONSUMPTIONS RATES

DEMAND DRIVEN PLANNING with CAPACITY SENSITIVITY

ProcessVisibillity

OutputVisibillity

ImprovedOutput

Information/ Approximate

Accuracy

ImprovedTreatmentof Indeirect

CustomerDemandSensitive

UnusedCapacityAware

PullActivity-based

ResourcePlanning

Time-driven

ResourceConsumptionAccounting

Simulation

bookkeeping

process & leanaccounting

Direct costs who(3) and with (4) support costs to output groups

Standard costing to individualoutputs;

Project accl; Job order costing

Push Activity-based costing (ABC); Productcosts

Level 6 withChannel & customerprofitabilityReporting;

Cost to serve

Unusedcapacitycosts(estimeled)

(ABRP); Forecastdriver quantities X unit consumptionrates;

Driver basedbudgeting

(TDABC); Forecastdriver quantities X timeconsumtionrates;

Direct costfocus;

Repetivitiveworkconditions

RCA: Level 9 withproportionalcosting atdirect andsupport depts.

Unlimate inconsumtionrates

LevelLevel ##

ProcessVisibillity

OutputVisibillity

ImprovedOutput

Accuracy

UnusedCapacityAware

PullActivity-based

ResourcePlanning

Time-driven

Simulation

bookkeeping

Cost to serve

Direct costfocus;

Self-assessment and strategySelf-assessment and strategy

• The 12-level Costing Continuum The 12-level Costing Continuum Maturity Model can be used Maturity Model can be used as a self-assessment tool to as a self-assessment tool to help an organization:help an organization:

– determine the level of company’s actual costing system, and determine the level of company’s actual costing system, and – decide what higher level it might justify aspiring to.decide what higher level it might justify aspiring to.

LevelLevel ##

ProcessVisibillity

OutputVisibillity

ImprovedOutput

Accuracy

UnusedCapacityAware

PullActivity-based

ResourcePlanning

Time-driven

Simulation

bookkeeping

Cost to serve

Direct costfocus;

LevelLevel ##

ProcessVisibillity

OutputVisibillity

ImprovedOutput

Accuracy

UnusedCapacityAware

PullActivity-based

ResourcePlanning

Time-driven

Simulation

bookkeeping

Cost to serve

Direct costfocus;

Level #Level #

EXPENSE TRACKING, COST REPORTING and CONSUMPTIONS RATES

Process Visibillity

Output Visibillity

Improved Output

Accuracy

Improved Treatment of Indeirect

Customer Demand Sensitive

Unused Capacity Aware

Pull Activity-based

Resource Planning

Time-driven

Resource Consumption Accounting

Simulation

bookkeeping

process & lean accounting

Direct costs who (3) and with (4) support costs to output groups

Standard costing to individual outputs;

Push Activity-based costing (ABC); Product costs

Level 6 with Channel & customer profitability Reporting;

Cost to serve

Unused capacity costs (estimeled)

Push RCA Resource Consump-tion Accounting

(ABRP); Forecast driver quantities X unit consumption rates;

Driver based budgeting

GPK Grenzplan-kosten-rechnung

(TDABC); Forecast driver quantities X time consumtion rates;

Direct cost focus;

Repetivitive work conditions

RCA: Level 9 with proportional costing at direct and support depts.

Unlimate in consumtion rates

Process Visibillity

Output Visibillity

Improved Output

Accuracy

Improved Treatment of Indeirect

Customer Demand Sensitive

Unused Capacity Aware

Pull Activity-based

Resource Planning

Time-driven

Resource Consumption Accounting

Simulation

bookkeeping

process & lean accounting

Direct costs who (3) and with (4) support costs to output groups

Standard costing to individual outputs;

Push Activity-based costing (ABC); Product costs

Level 6 with Channel & customer profitability Reporting;

Cost to serve

Unused capacity costs (estimeled)

Push RCA Resource Consump-tion Accounting

(ABRP); Forecast driver quantities X unit consumption rates;

Driver based budgeting

GPK Grenzplan-kosten-rechnung

(TDABC); Forecast driver quantities X time consumtion rates;

Direct cost focus;

Repetivitive work conditions

RCA: Level 9 with proportional costing at direct and support depts.

Unlimate in consumtion rates

Source: Research by Source: Research by ABC Akademia Sp. z o.o. 2011ABC Akademia Sp. z o.o. 2011

0% 0% 0% 0%0%

POLAND 2011POLAND 2011

AgendaAgenda

• SummarySummary

„„Vacuum cleaningVacuum cleaning””activity costingactivity costing

Set-upSet-upProduction lineProduction line

Set-upSet-upProduction lineProduction line Pressing, heating, Pressing, heating,

assembly, packagingassembly, packaging

Pressing, heating, Pressing, heating, assembly, packagingassembly, packaging

Schedule Schedule productionproduction

Quality controlQuality controlQuality controlQuality control

Picking ordersPicking ordersPicking ordersPicking orders

Processing ordersProcessing ordersProcessing ordersProcessing orders

TransportationTransportationTransportationTransportation

Visiting customersVisiting customersVisiting customersVisiting customers

[1][1]

[2][2]

Production Production line 3line 3ForkliftForklift

truckstrucks

Sales Sales represenat.represenat.ElectricityElectricity

ITITsystemsystem

Office Office spacespace

Customer Customer service staffservice staff

Production Production planning staffplanning staff

Warehouse Warehouse buildingbuilding

Production Production line 1line 1

TransportTransportProduction Production

line 2line 2

Production Production maintenance maintenance

staffstaff

RESOURCES RESOURCES COSTINGCOSTING

ACTIVITIESACTIVITIESCOSTINGCOSTING

PRODUCTS AND PRODUCTS AND CUSTOMERS CUSTOMERS

COSTING COSTING

PRODUCT PROFITABILITYPRODUCT PROFITABILITY CUSTOMER PROFITABILITYCUSTOMER PROFITABILITY

[5][5] [5][5]

[6][6][1][1]

[2][2]

Repairing Repairing Repairing Repairing Cleaning officeCleaning officeCleaning officeCleaning office

[4][4]

[4][4][4][4]

[4][4]

[4][4]Product Product SegmentSegment

ProductProductBrandBrand

Customer Customer SegmentSegment

CustomerCustomerRegionRegion

Cause and Cause and effect costingeffect costing

IResource Resource pools / pools / cost cost centerscenters

Profit Management Profit Management System®System®Cause and Cause and effect costingeffect costing

IIResource Resource costingcosting Set-upSet-up

Production lineProduction line

[1][1]

[2][2]

truckstrucks

ITITsystemsystem

line 2line 2

staffstaff

COSTING COSTING

[5][5] [5][5]

[6][6][1][1]

[2][2]

[4][4]

[4][4][4][4]

[4][4]

IIIActivity Activity costingcosting Set-upSet-up

Production lineProduction line

[1][1]

[2][2]

truckstrucks

ITITsystemsystem

line 2line 2

staffstaff

COSTING COSTING

[5][5] [5][5]

[6][6][1][1]

[2][2]

[4][4]

[4][4][4][4]

[4][4]

IVProduct / Product / Customer Customer costingcosting

[1][1]

[2][2]

truckstrucks

ITITsystemsystem

line 2line 2

staffstaff

COSTING COSTING

[5][5] [5][5]

[6][6][1][1]

[2][2]

[4][4]

[4][4][4][4]

[4][4]

VProduct / Product / Customer Customer full cost full cost costingcosting

[1][1]

[2][2]

truckstrucks

ITITsystemsystem

line 2line 2

staffstaff

COSTING COSTING

[5][5] [5][5]

[6][6][1][1]

[2][2]

[4][4]

[4][4][4][4]

[4][4]

I - VResource / Resource / Activity / Activity / Product / Product / Customer Customer costingcosting

[1][1]

[2][2]

truckstrucks

ITITsystemsystem

line 2line 2

staffstaff

COSTING COSTING

[5][5] [5][5]

[6][6][1][1]

[2][2]

[4][4]

[4][4][4][4]

[4][4]

Cost and effect costingCost and effect costingrecommendationsrecommendations

• RCA / GPK – view of resourcesRCA / GPK – view of resources

• ABC/M – view of activitiesABC/M – view of activities

AgendaAgenda

• SummarySummary

Why sometimes it fail?Why sometimes it fail?

• Insufficient training of general Insufficient training of general management and project teammanagement and project team members members

• Lack of interest of general managementLack of interest of general management

• Lack of the resources view of costs, that Lack of the resources view of costs, that cause the difficulties in activity costingcause the difficulties in activity costing

• Lack of costing functionalities in existing IT Lack of costing functionalities in existing IT systemssystems

Key success factorsKey success factors

• Do everybody know what you are doing?Do everybody know what you are doing?

• Do extensive training and certificationDo extensive training and certification

• Start with RCA / GPK – resources view of costs, Start with RCA / GPK – resources view of costs,

– Define resource pools (cost centers in GL)Define resource pools (cost centers in GL)

• Then ABC – activities view of costsThen ABC – activities view of costs

– Define processes and activitiesDefine processes and activities

AgendaAgenda

• SummarySummary

Thank You!!!Thank You!!!

Tomasz M. ZielińskiTomasz M. ZielińskiPresident of the board, ABC Akademia Sp. z o.o.President of the board, ABC Akademia Sp. z o.o.

7. 21.10.11-t. zielinski-processes or costs

Technology