PROCESS VALUE ANALYSIS• Fundamental to activity-based responsibility accounting, focuses on accountability for activities rather than costs, and emphasizes the maximization of system
Trang 1ACTIVITY-BASED MANAGEMENT
CHAPTER 12
Trang 2CHAPTER 12 OBJECTIVES
1 Describe how activity-based management
and activity-based costing differ
2 Define process value analysis
3 Describe activity-based financial
performance measurement
4 Discuss the implementation issues
associated with an activity-based
management system
Trang 3CHAPTER 12 OBJECTIVES
5 Explain how activity-based management
is a form of responsibility accounting, and tell how it differs from financial-based
responsibility accounting
Trang 4THE RELATIONSHIP OF ACTIVITY-BASED COSTING
AND ACTIVITY-BASED MANAGEMENT
• Activity-based management (ABM): a
systemwide, integrated approach that focuses
management’s attention on activities with the
objectives of improving customer value and the
profit achieved by providing this value
• Activity-based costing (ABC): major source of
information for activity based management
Trang 5EXHIBIT 12.1—THE TWO-DIMENSIONAL
ACTIVITY-BASED MANAGEMENT MODEL
Trang 6PROCESS VALUE ANALYSIS
• Fundamental to activity-based responsibility
accounting, focuses on accountability for
activities rather than costs, and emphasizes the
maximization of system wide performance
instead of individual performance
• Is concerned with (1) driver analysis, (2) activity
analysis, and (3) performance measurement
Trang 7PROCESS VALUE ANALYSIS
Driver Analysis: Defining Root Causes
• Effort expended to identify the factors that are the
root causes of activity costs
• Root Causes are identified by asking ‘why’
questions
• Once the root cause is known, then action can be
taken to improve the activity
Trang 8PROCESS VALUE ANALYSIS
Activity Analysis: Identifying and
Assessing Value Content
• Process of identifying, describing, and evaluating
the activities an organization performs
• Activity analysis should produce four outcomes
• What activities are performed
• How many people perform the activities
• The time and resources are required to perform the
activities
• An assessment of the value of the activities to the
organization
Trang 9PROCESS VALUE ANALYSIS
Value Added Activities
• Necessary to remain in business
• Contribute to customer value and/or help meet an
organization’s needs
• Comply with legal mandates
Trang 10PROCESS VALUE ANALYSIS
Value Added Activities
• If the following conditions are simultaneously met,
a discretionary activity is classified as value-added
• The activity produces a change of state
• The change of state was not achievable by
preceding activities
• The activity enables other activities to be
performed
• Value added costs are the costs to perform value
added activities with perfect efficiency
Trang 11PROCESS VALUE ANALYSIS
Non-Value Added Activities
• Unnecessary and are not valued by internal or
external customers
• Fail to produce a change in the product’s state or
replicate work because it wasn’t done correctly the
first time
• Non-value-added costs are costs that are caused
either by non-value-added activities or the
inefficient performance of value-added activities
Trang 12PROCESS VALUE ANALYSIS
Non-Value Added Activities
• In manufacturing, five major activities are
considered wasteful and unnecessary
Trang 13PROCESS VALUE ANALYSIS
Cost Reduction through Activity
Management
• Kaizen costing: characterized by constant,
incremental improvements to existing processes
Trang 14PROCESS VALUE ANALYSIS
Assessing Activity Performance
• Measures of activity performance are both financial and nonfinancial and center on three major
dimensions
1 Efficiency: concerned with the relationship of
activity outputs to activity inputs
2 Quality: concerned with doing the activity right the
first time it is performed
3 Time: time required to perform an activity is critical
• Time measures of performance tend to be
nonfinancial, whereas efficiency and quality
measures are both financial and nonfinancial
Trang 15FINANCIAL MEASURES OF ACTIVITY
EFFICIENCY
• Value-added and non-value-added activity
costs
• Trends in activity costs
• Kaizen standard setting
• Benchmarking
• Activity flexible budgeting
• Activity capacity management
Trang 16FINANCIAL MEASURES OF ACTIVITY
EFFICIENCY
Reporting Value-Added and
Non-Value-Added Costs
• A firm should identify and formally report the
value- and non-value-added costs of each activity
• A cost-reporting system is an important ingredient
in an activity-based responsibility accounting
system
• The value added standard calls for the complete
elimination of non-value-added activities
• A value-added standard identifies the optimal activity
Trang 17EXHIBIT 12.2—FORMULAS FOR VALUE- AND
NON-VALUE-ADDED COSTS
Trang 18FINANCIAL MEASURES OF ACTIVITY
EFFICIENCY
Drivers and Behavioral Effects
• Activity output measures are needed to compute
and track non-value-added costs
• If a team’s performance is affected by its ability to
reduce non-value-added costs, then the selection
of activity drivers and the way the drivers are used
can affect behavior
Trang 19FINANCIAL MEASURES OF ACTIVITY
EFFICIENCY
The Role of Kaizen Standards
• Kaizen costing is concerned with reducing costs by identifying small, continuous improvements for
existing products and processes
• Controlling this cost reduction process is
accomplished through the repetitive use of two
major subcycles: (1) the kaizen or continuous
improvement cycle, and (2) the maintenance cycle
• The kaizen subcycle is defined by a
Plan-Do-Check-Act sequence
Trang 20EXHIBIT 12.3—KAIZEN COST REDUCTION
PROCESS
Trang 21FINANCIAL MEASURES OF ACTIVITY
EFFICIENCY
Benchmarking
• Complementary to kaizen costing and
activity-based management
• Uses best practices found within and outside the
organization as the standard for evaluating and
improving activity performance
Trang 22FINANCIAL MEASURES OF ACTIVITY
EFFICIENCY
Benchmarking
• Internal benchmarking: benchmarking against
internal operations
• External benchmarking: benchmarking that
involves comparison with others outside the
organization
Trang 23FINANCIAL MEASURES OF ACTIVITY
EFFICIENCY
Activity Flexible Budgeting
• The prediction of what activity costs will be
as activity output changes
Trang 24EXHIBIT 12.4—FLEXIBLE BUDGET: DIRECT
LABOR HOURS
Trang 25EXHIBIT 12.5—ACTIVITY FLEXIBLE BUDGET
Trang 26EXHIBIT 12.6—ACTIVITY-BASED
PERFORMANCE REPORT
Trang 27FINANCIAL MEASURES OF ACTIVITY
EFFICIENCY
Activity Capacity Management
• Activity capacity is the number of times an activity can be performed
• Activity drivers measure activity capacity
• Capacity variances: to determine the potential for
improvement and the progress made in the
objective of eliminating waste, two capacity
variances are defined and calculated: the activity
volume variance and the unused capacity variance
Trang 28FINANCIAL MEASURES OF ACTIVITY
EFFICIENCY
Activity Capacity Management
• Capacity Variances
• The activity volume variance is the difference
between the actual activity level acquired (practical
capacity, AQ) and the value-added standard
quantity of activity that should be used (SQ),
multiplied by the budgeted activity rate (SP)
• The unused capacity variance is defined as the
difference between activity availability (AQ) and
activity usage (AU), multiplied by the budgeted
activity rate (SP)
Trang 29IMPLEMENTING ACTIVITY-BASED
MANAGEMENT
• Objectives of activity-based management
(ABM)
• Improving decision making by providing
accurate cost information
• Reducing costs by encouraging and supporting
continuous improvement efforts
Trang 30EXHIBIT 12.7—ABM IMPLEMENTATION
MODEL
Trang 31IMPLEMENTING ACTIVITY-BASED
MANAGEMENT
• Systems planning provides the justification for
implementing ABM and addresses the following
issues
• The purpose and objectives of the ABM system
• The organization’s current and desired competitive
position
• The organization’s business processes and product mix
• The timeline, assigned responsibilities, and resources
required for implementation
• The ability of the organization to implement, learn, and
use new information
Trang 32IMPLEMENTING ACTIVITY-BASED
MANAGEMENT
Why ABM Implementations Fail
• Lack of support of higher-level management
• Operating and sales managers do not have the
expertise to use the new activity information
• Resistance to change
• Failure to integrate the new system
Trang 33FINANCIAL-BASED VERSUS ACTIVITY-BASED
RESPONSIBILITY ACCOUNTING
• Responsibility accounting is a fundamental tool of managerial control
• Objective is to influence behavior in such a way
that individual and organizational initiatives are
aligned to achieve a common goal or goals
Trang 34FINANCIAL-BASED VERSUS ACTIVITY-BASED
RESPONSIBILITY ACCOUNTING
• Responsibility accounting is defined by
four essential elements
Trang 35EXHIBIT 12.8—THE RESPONSIBILITY
ACCOUNTING MODEL
Trang 36FINANCIAL-BASED VERSUS ACTIVITY-BASED
RESPONSIBILITY ACCOUNTING
• Three types of responsibility accounting
systems have evolved over time
• Financial-based
• Activity-based
• Strategic-based
Trang 37FINANCIAL-BASED VERSUS ACTIVITY-BASED
RESPONSIBILITY ACCOUNTING
• Financial–based responsibility accounting
system: assigns responsibility to
organizational units and expresses
performance measures in financial terms
• Activity-based responsibility accounting
system: Assigns responsibility to processes and uses both financial and nonfinancial
measures of performance
Trang 38EXHIBIT 12.9—RESPONSIBILITY ASSIGNMENTS COMPARED
Trang 39EXHIBIT 12.10—PERFORMANCE MEASURES
COMPARED
Trang 40EXHIBIT 12.11— PERFORMANCE
EVALUATION COMPARED
Trang 41EXHIBIT 12.12—REWARDS COMPARED
Trang 42END OF CHAPTER 12