EMILIO AGUINALDO COLLEGE ISO 9001: 2015 CERTIFIED

City of Dasmariñas,Cavite QUALITY MANAGEMENT SYSTEM

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City of Dasmariñas,Cavite QUALITY MANAGEMENT SYSTEM

COST MANAGEMENT
TECHNIQUES

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Contemporary Management Techniques

1. The Balanced Scorecard and Strategy Map
2. The Value Chain
3. Activity Based Costing and Management
4. Business Intelligence
5. Target Costing
6. Life Cycle Costing
7. Benchmarking
8. Business Process Improvement
9. Total Quality Management
10. Lean Accounting
11. The Theory of Constraints
12. Enterprise Sustainability
13. Enterprise Risk Management
14. Business Process Re-engineering ( BPR )
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Contemporary Management
Techniques (continued)
1. The Balanced Scorecard and the Strategy Map

 The Balanced Scorecard (BSC)

 An accounting report that addresses a firm’s
performance in four areas: financial, customer,
internal business processes, and innovation and
learning
 The Strategy Map
 The strategy map is a method, based on the balanced
scorecard, which links the four perspectives in a cause-and-
effect diagram.
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BALANCED SCORECARD
• Is an accounting report that includes the firm’s critical
success factors in 4 areas:
1) Financial performance
2) Customer satisfaction
3) Internal business process
4) Innovation and learning
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Contemporary Management
Techniques (continued)
2. The Value Chain
An analysis tool used to identify the specific
steps required to provide a competitive
product
Helps identify steps that can be eliminated or
outsourced
3. Activity-Based Costing and Management
Activity-Based Costing (ABC) improves the
tracing of costs to individual products and
customers
Activity-Based Management (ABM) improves
operational and management control
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City of Dasmariñas,Cavite
VALUE CHAIN
The set of activities required to
design, develop, produce, market,
and deliver products and services to
customers
Industrial value chain
linked set of value-creating
activities from basic raw
materials to the disposal of
the finished product by end
use customers
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The linked set of activities that
increases the usefulness or the
value of the products or services of
an organization.
Fundamental to a value-
chain framework is the
recognition that there exist
complex linkages and
interrelationships among
activities both within and
external to the firm.
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Linkages

• Internal Linkages
• Relationships among activities that are performed
within a firm’s portion of the value chain
• External Linkages
• Describe the relationship of a firm’s value chain
activities that are performed with its suppliers and
customers
• Two types: supplier linkages and customer linkages

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Sample of order
in a value chain:
1. R&D
2. Design
13-10
3. Production

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Contemporary Management
Techniques (continued)
3. Activity-Based Costing and Management
Activity-Based Costing (ABC) improves the
tracing of costs to individual products and
customers
Activity-Based Management (ABM)
improves operational and management
control
Kindly read chapter 6 of cost accounting by
Paul De Jesus….
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Contemporary Management
Techniques (continued)
4. Business Intelligence
• an approach to strategy implementation in which the
management accountant uses data to understand and
analyze business performance.
5. Target Costing
• Target Cost = Market-determined price – Desired Profit
• A method that has resulted from intensely competitive
markets

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Contemporary Management
Techniques (continued)
6. Life-Cycle Costing
• Costs should be monitored throughout a product’s
life cycle – from research and development to
sales and service
7. Benchmarking
• Process by which a firm identifies its CSFs ( critical
success factors ), studies the best practices of
other firms in achieving these CSFs, and institutes
change based on the assessment results

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Benchmarking
• is a technique that measures a company’s performance
against the best in industry.
• Studies the best practices of other firms or other units within
a firm for achieving there critical success factors

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Contemporary Management
Techniques (continued)
8. Business Process Improvement
• This technique involves managers and workers
committing to a program of continuous improvement
in quality and other CSFs

9. Total Quality Management (TQM)

• A technique by which management develops policies
and practices to ensure the firm’s products and
services exceed customer’s expectations

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Total Quality Management ( TQM )

• is defined as a continuous effort by the management as well as employees of a particular
organization to ensure long term customer loyalty and customer satisfaction.

-a team approach that involves themselves to the never-ending pursuit to improve the
quality of goods and services to attain customer satisfaction and delight.

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TOOLS and TECHNIQUES in TQM

1) Scatter Diagram/Scatterplot is the simplest way to determine the cause-and-effect
relationship between two variables.
2) Histogram is a graphical display of tabulated frequencies.
3) Run Charts are graphs of data over time and are one of the most important tools for
assessing the effectiveness of change.
4) Flowchart is a pictorial representation showing all the steps and processes involve in the
operation.
5) Fishbone/Ishikawa Diagrams is a cause-and-effect diagram that is basically a
brainstorming tool.
6) Pareto Chart is a powerful quality tool and is used to identify the most important
problem and the measurement of progress.
7) Checklist/Check Sheets is a simple document that is used for collecting data in real-time
and at the location where the data is generated.
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Contemporary Management
Techniques (continued)
10. Lean accounting uses value streams to measure the
financial benefits of a firm’s progress in implementing
lean manufacturing.

11. The Theory of Constraints (TOC)

• Helps firms improve cycle-time (i.e., the rate at
which raw materials can be converted to finished
products)

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Theory of Constraints
• Modern production methodology emphasizes strengthening the weakest link of the co. to
improve operations to become more efficient and effective
• Is a process of identifying and managing constraints in the making of products or in
providing of services
• A technique used to improve speed in the manufacturing process and thus speed
TOC defines 3 measurements: Operational Measures
1. Throughput contribution: RATE at which an organization generates money through
sales……..Revenues
2. Investments: MONEY that is tied up in physical things…….sum of materials costs in direct
materials, work-in-process, and finished goods inventories, r&d costs and costs of
equipment and buildings
3. Operating costs: MONEY that the organization spends in turning inventories and
investments into throughput………..all costs of operation incurred to earn throughput
contribution, it includes salaries and wages, rent, utilities and depreciation

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• Another term for TOC is Constraints Management

• The weakest link is the system constraint and is the key to improving
overall organizational performance
• A bottleneck is an operation where the work required to be
performed limits operation
• Types of Constraints:
• Physical, Policy, Paradigm and Market
• Constraints are anything that prevents the organization from making
progress towards its goal

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Contemporary Management
Techniques (continued)

12. Enterprise Sustainability means the balancing of the

company’s short and long term goals in all three
dimensions of performance – social, environmental,
and financial.
13. 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.

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14. Business Process Re-engineering ( BPR )

• An approach to developing new ways to perform existing activities
• -it engages the idea of clean-state approach in redesigning business processes of
co. that is in serious trouble or is seeing the possibility of trouble
• business process is a set of related work activities that are performed by
employees to achieve business goals.
• Reengineering refers to cautious initiatives proposed to realize radically
redesigned and improved work processes in a definite time frame.
• A well-rounded team takes in a combination of people and skills
• Quality management and BPR share a cross-functional relationship

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• The stakeholders are key business leaders eventually accountable for

the success of the project.
• The core team is the group in charge for the design and realization of
the solution.
• The extended team consists of other people in the organization
contributing to the project on an as-needed basis.

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• Hammer and Champy recommended seven reengineering principles to

make more efficient the work process.
1) Organize around outcomes, not tasks
2) Have those who use the output of the process perform the process
3) Subsume information –processing work into the real work that
produces the information
4) Treat geographically dispersed resources as though they were
centralized
5) Link parallel activities instead of integrating their results
6) Put the decision point where the work is performed, and build control
into the process
7) Capture information once and at the source

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