1. 1 RCA Discussion: RCA Modeling Basics Larry R. White, CMA, CFM, CPA, CGFM Executive Director Resource Consumption Accounting Institute

2. 2 Resource Consumption Accounting RCA Inherits Core Principles from German Cost Management (GPK) –Practiced since the Late 1940’s –Used in 3,000+ Companies –GPK Strengths: Cost and Capacity Planning Marginal Profitability Analysis Focus: –Internal Management Decision Making RCA Resource view Advantages Process view Advantages GPK ABC Capacity Analysis and Management Process Analysis and Management Capacity- Focused Activity- Focused

3. CAUSALITYANALOGY Modeling Concepts Information Use Concepts Operational Model Costed Baseline Optimization Information Inputs: Resources Output: Information For Decisions

4. CAUSALITYANALOGY Modeling Concepts Information Use Concepts Operational Model Costed Baseline Optimization Information Inputs: Resources Output: Information For Decisions Resource Managerial Objective Cost Responsiveness Traceability Capacity Work Attributability Homogeneity Integrated Data Orientation Avoidability Divisibility Interdependence Interchangeability Objectivity Accuracy Verifiability Measurability Materiality Impartiality Congruence Concepts Constraints Concepts Constraints

5. Resources

6. Define as Resource Pools Based on Output (and Capability)

7. Resources Capability –Qualitative Characteristics Capacity – Productive –Non-Productive –Idle/Excess Consumption Characteristics –Relationship to Output –Operational Quantity and Cost RCA Institute All Rights Reserved 7

8. Model Resource Relationships Output

9. Responsiveness 9 Prod Line AProd Line B

10. Variability 10

11. Relationship of Resources to Output & Summarize Primary Consumption Relationships

12. Relationship of Resources to Output Primary Consumption Relationships

13. 13 RCA Information

14. Define as Resource Pools Based on Output (and Capability)

15. Trace Consumption Relationships between Resource Pools Primary Consumption Relationships Secondary Consumption Relationships

16. 16 RCA Information

17. Summarize Primary Consumption Relationships Secondary Consumption Relationships

18. The RCA Model 1.Identify the Resources –Identify the organization’s highest level managerial objectives –Identify the resources that produce those objectives –Identify the support resources –Capture any other organizational resources –Resources are grouped into logical resource pools based on their characteristics, output, and relationship to managerial objectives 2.Identify the Resource Relationships –Map the cause and effect relationships between resources –Map the flow of resources between resource pools to final managerial objectives Track fixed and proportional relationships RCA Institute All Rights Reserved 18

19. The RCA Model At this point, you have created a cause and effect based model of your operations. –You can see resource capacity issues and opportunities. 3.Apply Costs to the Model –Resource costs are determined and applied to the modeled relationships You can see the cost of operations and have the operational, capacity, and cost information for decisions and planning. RCA Institute All Rights Reserved 19

20. Simple Example RCA Institute All Rights Reserved 20 Service/ Product Dimensional P&L Service, Customer, Etc. Activity 1 Indirect 1 Indirect 2 Direct Non-causal Costs

21. RCA Storyboard Presentation at MESA US Conference Metrics Makeover Contest

22. RCA Recognition RCA Institute All Rights Reserved 22 Copied from IFAC Information Paper: Evaluating The Costing Journey: A Costing Levels Continuum Maturity Model. Activity Based Costing Traditional Standard Costing Diagram from IFAC Information Paper: Evaluating The Costing Journey: A Costing Levels Continuum Maturity Model www.ifac.org

23. 23 www.RCAInstitute.org lwhite@rcainstitute.org 757 288 6082