Chapter 01 – Cost Management and Strategy
1-38 Risk Management, Enterprise Sustainability, and Lean Accounting (40 min)
1. There are two IMA Statements on Management Accounting (SMA) on
Enterprise Risk Management. “Enterprise Risk Management:
Frameworks, Elements and Integration” (2006), and “Enterprise Risk
Management: Tools and Techniques for Effective Implementation”
(2007).
The IMA SMAs are at the following site:
http://www.imanet.org/resources-publications/research-studies-and-
resources/all-reports.
The definition in the text notes that enterprise risk management is a
framework and process that firms use to managing the risks that
could negatively or positively affect the company’s competitiveness
and success. Risk is considered broadly, to include (1) hazards such
as fire or flood, (2) financial risks due to foreign currency fluctuations,
commodity price fluctuations, and changes in interest rates, (3)
operating risk related to customers, products, or employees, and (4)
strategic risk related to top management decisions about the firm’s
strategy and implementation thereof.
2. There are three SMAs on enterprise sustainability. “Implementing
Corporate Environmental Strategies” (1995), “Tools and Techniques
of Environmental Accounting for Business Decisions” (1996), and
“The Evolution of Accountability – Sustainability Reporting for
Accountants” (2008). The definition in the text notes that enterprise
sustainability means the balancing of the company’s short and long
term goals in all three dimensions of performance – social,
environmental, and financial.
3. There are two SMAs on lean accounting. “Lean Enterprise
Fundamentals” (2006), and “Accounting for the Lean Enterprise:
Major Changes in the Accounting Paradigm” (2006). The definition in
the text notes that lean accounting uses value streams to measure
the financial benefits of a firm’s progress in implementing lean
manufacturing.
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Education.
Chapter 01 – Cost Management and Strategy
1-39 Contemporary Management Techniques (30 min)
1. For an article on target costing, Tim should consider the types of
firms which would demand this type of strategic costing. These would
be firms that are in very competitive industries, where cost/price
competition is critical, such as consumer products. Examples of firms
that might use target costing also include those that have short
product life cycles (the time from introduction of the product into the
market until its withdrawal from the market). Many consumer
products firms are in this category: cameras, TVs, and many
entertainment products. The firm must be very deliberate in planning
about costs when there are short life cycles, since there is a short
time to recover the development costs –– the product must be careful
designed, using target costing, so that it is profitable in its short life
cycle.
2. For an article on life-cycle costing, Tim’s search for appropriate
firms would lead him to many of the same types of firms as for target
costing in (1) above. Intense competition on price/cost and short
product life cycles are indicators of firms that are likely to use life-
cycle costing. The reason is that in both cases, the focus is on the
management of design and therefore the management of
downstream costs, so as to achieve profitability for the product over
its life cycle. Some Japanese firms, for example, will introduce a
product that is not profitable at the first phase of its life cycle, but as
costs are expected to come down in the manufacturing process
through continuous improvement efforts, the product will become
profitable later in its life cycle.
3. For an article on the theory of constraints, a wide variety of firms,
including both manufacturing firms and service firms, would be
appropriate. Manufacturing firms would be good examples to use for
the article since the manufacturing process is intuitive — the reader
can easily see how the different operations in the manufacturing
process must be managed to speed up the flow of product through
the plant. In addition, it is easy to visualize the flow of product and
the build-up of inventory which is an indication of bottlenecks in the
production process.
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Education.
Chapter 01 – Cost Management and Strategy
1-39 (continued -1)
4. Business intelligence (BI) is becoming a critical management tool
for many companies, so a variety of industries and companies could
be chosen. Some examples provided in Chapter 8 include
EHarmony and Gallo. BI allows these companies to become more
competitive by better understanding their customers. An additional
example is the use of BI in universities. A recent Wall Street Journal
article explains how more than 200 universities, including the
University of Indiana and the University of Virginia, use BI to find
qualified candidates and to better prepare their students for work after
graduation.
Source: Melissa Korn and Shana Tibken, “Schools Plan Leap Into
Data,” The Wall Street Journal, August 4, 2011 p B12.
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Education.
Chapter 01 – Cost Management and Strategy
1-40 Balanced Scorecard (15 min)
1. The balanced scorecard can help a firm by explicitly drawing
managers’ attention to critical success factors in four key areas:
customer satisfaction, financial performance, internal business
processes, and innovation and learning (human resources). The
balanced scorecard helps managers to focus on the strategically
important, critical success factors, and to take a long-term
perspective to the firm’s performance. In effect, it helps managers to
focus on the broad set of critical factors that the firm must attend to in
order to compete successfully.
2. The Balanced Scorecard: Some example factors that might be
included in JIC’s Balanced Scorecard are as follows:
a. customer satisfaction
quality
on-time delivery
features and functionality, relative to competition
responsiveness of sales and service staff
sales growth
number of new customers
number of lost customers and why
b. financial performance
earnings
earnings per share
liquidity measures: current ratio, quick ratio
return on equity
return on assets
cash flow
unit cost, trend in costs
c. internal processes
cycle time
inventory levels: finished goods, work in process, and
raw materials
product quality
waste, scrap, and re-work
1-40 (continued -1)
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Chapter 01 – Cost Management and Strategy
materials and labor usage relative to standard
number of engineering improvements
productivity
warranty returns
vendor quality
scheduling errors and adjustments
d. learning and growth (human resources)
turnover
training hours
number of accidents
number of useful employee suggestions
number of employee complaints
number of relevant educational certificates earned
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Education.
Chapter 01 – Cost Management and Strategy
1-41 Banking; Strategy; Skills (20 min)
The purpose of this exercise, and 1-42 which is an alternate, is to
have the student consider the role of the cost management
professional in an actual company. What are the job skills required to
be an effective employee, and thereby, help the company to be
successful?
1. There are a number of possible answers here. Here are some
ideas:
Transaction processing error rate
Time: customer wait time – at cashier, for opening an
account, for getting loan approval, etc.
Number of new branches
Number of ATMs
The bank remains competitive and successful by attending to these
critical success factors.
2. Again, there are a variety of ways the materials might be
developed. The key idea is that the recruiting materials and the job
description should follow from the critical success factors noted
above. Here is an example:
Business Knowledge/Understanding strategy
Has a good understanding of business fundamentals;
Customer Focus
Efforts are customer-focused
Creative Problem Solving
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Education.
Chapter 01 – Cost Management and Strategy
1-41 (continued -1)
Persuasive
Is able to present ideas concisely and clearly
Understands who “owns” a problem, and who can solve it
Flexibility
Not easily disappointed; handles conflict well
Embraces change
Good supervisor
Creates a positive climate
Provides opportunities for development, learning and
promotion
Builds commitment
Performance
Shows enthusiasm
Has high standards
Willing to work extra hours when necessary
Communication Skills
Communication is clear and focused
Good sense of confidentiality where appropriate
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Chapter 01 – Cost Management and Strategy
1-42 Consulting; Skills (20 min)
This exercise can be used as an alternative to 1-41. Generally,
the personal attributes will be the same as for banking. What skill
areas might be especially important in consulting? Perhaps
consulting skills might also include creativity and problem solving,
the ability to follow a logical thought process, to develop and analyze
alternatives.
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Chapter 01 – Cost Management and Strategy
1-43 Professional Organizations and Certifications (15 min)
Ian should consider joining one or more professional
organizations. This would be helpful for developing relationships with
other cost management professionals. Relationships of this type, and
the continuing professional education programs of these
organizations, offer an excellent way to develop professional skills
and to identify career opportunities. Ian should consider joining the
Institute of Management Accountants (IMA) right away, and then later
to consider the Financial Executives International, or equivalent, as
he progresses in his career.
Ian should also consider taking one of the certification exams.
The IMA’s Certified Management Accountant (CMA) program will be
the most relevant at the start. Also, Ian should consider certification
as a Certified Public Accountant (CPA), as it is widely recognized not
only within management accounting, but also in public accounting
and financial management. An additional alternative, for those who
have the CPA, would be to pursue the Chartered Global Management
Accountant (CGMA) certificate offered by the AICPA and Chartered
Institute of Management Accountants (CIMA, UK).
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Education.
Chapter 01 – Cost Management and Strategy
1-44 Ethics, Product Quality (15 min)
Some will recognize this as similar to the case of the Intel
Pentium chip reported in the news in the mid 1990s. Even if the fault
will occur in very rare and unusual circumstances, if the consequence
could be some damage to a user, the firm should advise users of the
fault and the potential implications. On the other hand, there should
be no need to advise users if the fault is not likely to have any
noticeable consequence on the use of the chip, as for example, if the
chip simply takes much longer for a very rare type of processing, but
returns the proper result. The effect of the delay is not likely to have
a damaging effect on any known user.
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Education.