Hilton • Maher • Selto

1Cost Management & Management of the Value Chain

Finding Opportunity & Leading Change

© 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.McGraw-Hill/Irwin

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Cost Management & the Cost Management Analyst

What is Cost Management?What is Cost Management?

In addition to measuring and reporting costs, it is a

philosophy, an attitude, a set of techniques to create more value at lower cost.

In addition to measuring and reporting costs, it is a

philosophy, an attitude, a set of techniques to create more value at lower cost.

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Cost Management & the Cost Management Analyst

What is a Cost Management System?

What is a Cost Management System?

A set of cost-management techniques that function together to support the

organization’s goals and activities.

A set of cost-management techniques that function together to support the

organization’s goals and activities.

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Benchmarking

Determining the organization’s competitive advantage by learning about its own

products, services, and operations and comparing them to the best performers.

Determining the organization’s competitive advantage by learning about its own

products, services, and operations and comparing them to the best performers.

US East Accounting Procedure

Cost per Year ($US millions)

US East Cost per

TransactionFortune 100

Avg. CostBest in World

Accounts Receivable 38.40$ 15.20$ 15.00$ 4.60$ General Ledger 1.20$ N/A N/A N/AAccounts Payable 1.50$ 8.90$ 7.00$ 1.80$ Payroll 1.00$ 7.30$ 5.00$ 1.72$ Credit and Collections 0.90$ 12.00$ 16.00$ 5.60$ TOTAL 43.00$

Exh.1.2

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A Technique for Strategic Choice

Competitive Advantage

Competitive Advantage ThreatsThreats

BENCHMARKING

Helps Helps IdentifyIdentify

Helps Helps IdentifyIdentify

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Research and development Design Supply

Production Marketing

Distribution Customer service Support services

A set of linked operations or processes that begin with

obtaining resources and end with providing products or

services that customers value.

A set of linked operations or processes that begin with

obtaining resources and end with providing products or

services that customers value.

The Value ChainExh.1.3

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The Value ChainDefine scale and scope of operationDefine scale and scope of operation

Physical resources

Physical resources

Humanresources

Humanresources

Support services•Accounting

•Human resources•Legal services

•Information systems•Telecommunications

Support services•Accounting

•Human resources•Legal services

•Information systems•Telecommunications

Researchand

develop-ment

Design Supply Production Marketing Distri- bution

Customer service

Value ofproducts

andservices

Value ofproducts

andservices

Primary processes

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Outsourcing and the Value Chain

Firms are focusing Firms are focusing resources on the parts of resources on the parts of the value chain that are the value chain that are

most important to most important to company goals.company goals.

Firms are focusing Firms are focusing resources on the parts of resources on the parts of the value chain that are the value chain that are

most important to most important to company goals.company goals.

Firms are outsourcing Firms are outsourcing those value chain those value chain

processes that can be processes that can be more efficiently done by more efficiently done by

others.others.

Firms are outsourcing Firms are outsourcing those value chain those value chain

processes that can be processes that can be more efficiently done by more efficiently done by

others.others.

What is most likely to be outsourced?

Information services, legal, logistics, human

resources, payroll, accounting, tax.

What is most likely to be outsourced?

Information services, legal, logistics, human

resources, payroll, accounting, tax.

Focusing on managing

brand name while

outsourcing baking.

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Outsourcing and the Value Chain

What kinds of companies are most likely to outsource?

What kinds of companies are most likely to outsource?

Companies seeking to reduce costs or gain access to specialized information such as

information technology or foreign markets.

Companies seeking to reduce costs or gain access to specialized information such as

information technology or foreign markets.

Because some control is

sacrificed during outsourcing, there

is a need for additional assurance

services in the market place.

Because some control is

sacrificed during outsourcing, there

is a need for additional assurance

services in the market place.

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Implementing Plans And Organizational Changes

1. Identify need for change.

2. Create team to lead and manage change.

3. Create vision of the change and strategy for achieving vision.

4. Communicate vision and strategy for change and have change team act as a role model.

5. Encourage innovation and remove obstacles to change.

6. Ensure frequent and obvious short-term achievements.

7. Use successes to create opportunities for improving entire organization.

8. Reinforce culture of more improvement, better leadership, more effective management.

1. Identify need for change.

2. Create team to lead and manage change.

3. Create vision of the change and strategy for achieving vision.

4. Communicate vision and strategy for change and have change team act as a role model.

5. Encourage innovation and remove obstacles to change.

6. Ensure frequent and obvious short-term achievements.

7. Use successes to create opportunities for improving entire organization.

8. Reinforce culture of more improvement, better leadership, more effective management.

An 8-step process at Pursuit.ComAn 8-step process at Pursuit.Com

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END OF CHAPTER ONE

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