1. Resource Consumption Accounting with Open Source Software Larry R. White, CMA, CFM, CGFM, CPA Director, RCA Institute Anton van der Merwe Principal, Alta Via Consulting Business Information for Enterprise Optimization

2. 1.RCA Introduction & RCA Modeling Principles 2.RCA Model Story Board and Business Situation 3.Overview of ROSA Software 4.Planning/Decision Scenarios 5.Overview of ROSA Manual 6.Implementing ROSA for Planning and Analysis 7.Questions

3. 3 Resource Consumption Accounting RCA Inherits Core Principles from German Cost Management (GPK) –Grenzplankostenrechnung (GPK) Translated - Flexible Analytic Cost Planning & Control –Principles Applied in Practice since the late 1940’s –Implemented by 3,000+ Companies RCA Integrates –Activity-based Costing and Throughput Concepts RCA Creates an Integrated Economic Model of Operations for Decision Making –Enterprise Optimization –Principle Based –Highlights Resource Divisibility RCA Resource view Advantages Process view Advantages GPK ABC Capacity Analysis and Management Process Analysis and Management Capacity- Focused Activity- Focused

4. RCA Recognition

5. Costing Continuum/Levels of Maturity No Marginal Insight Marginal Insight Awareness Detailed Marginal Insights Descriptive: Expense Tracking, Cost Reporting and Consumption Rates Predictive: Demand Planning Driven with Capacity Sensitivity 1 Blind Book- keeping No marginal insights Process/ lean accounting 2 Process Visibility Direct cost to outputs Limited process marginal insights Add indirect costs 4 Output Visibility Direct cost marginal insights All output cost marginal insights 5 Explicit Outputs Output specific marginal insights Individual std costs, project & job costing Push activity- based costing (ABC), Product costs Explicit output marginal insights 6 Explicit Indirect Costs 7 Customer Demand Sensitive Level 6 with customer & channel profitability reporting; Cost-to- serve 8 Unused Capacity Aware Add customer & channel marginal insights Unused capacity costs (estimated) Common fixed costs begin to be isolated 9 Pull ABC Resource Planning 10 Time- driven ABC 11 R C A Explicit resource cost object, supply- based denomina- tor, strong & weak forms of causality catered for 12 Simulation No change (ABRP); forecast driver quantities X std unit rates, driver- based budgeting Increased ability to isolate common fixed costs (TDABC); forecast driver quantities X std unit rates; direct cost focus; repetitive work conditions Finite systems modeling Attributable costs on all objects, blends activity and direct resource charges, consumes activities back to resources 3 Output Visibility

6. 6 What Causes Costs? Resources (also generates all revenues!) Every Decision is really a resource application decision! Proportional Resource Pool Another Resource Pool (s) Or Final Product/Service Organizational Element (Support or Production) Labor Equipment Operating Budget Products Services Support Work Requests (Reflecting Resources Applied) Services Support Fixed INPUT Fixed OUTPUT Proportional

7. What we need to know: Final Output 1 Final Output 2 Final Output 3 Final Output 4 Resource Pool A Resource Pool E Resource Pool H Resource Pool F Resource Pool G Resource Pool B Resource Pool C Resource Pool D

8. 8 RCA Storyboard Product Support Cost S: Ancillary Production Equipment S: Administration Human Resources & Accounting S: Quality Assurance RP: Dryer (Hours) Capacity: 100 Output Qty: 100 S: Plant Engineering and Maintenance RP: Plant Maintenance (Maint. Labor) Capacity: 30,000 Output Qty: 30,000 P: Extrusion Line RP: Extrusion Labor (Labor hours) Capacity; 32,000 Output Qty: 30,000 Product P & L’s Department Resource Pool Abbreviated RP Activi ty RP: Chiller (Hours) Capacity: 50,000 Output Qty: 50,000 Perfor m Accou nting Perfor m Admin QA Testin g Legend S-Support P- Production Common Fixed Costs Produ ct Retur ns RP: Extrusion Machine1 (Machine hours) Capacity; 17,520 Output Qty: 10,000 Manufacturing Costs Budgeted Products RP: QA Labor (Labor hours) Capacity: 14,000 Output Qty: 14,000 RP: Admin Labor (Labor hours) Capacity: 17,000 Output Qty: 17,000 Perfor m HR

9. 9 RCA Information

10. RCA Structure for Marginal Costing Excess Capacity Costs

11. RCA Provides Greatest Benefit High Capital Investment (Fixed Cost) Tight Margins Multiple Products/Services Flexible Production/Service Capability

12. 1.RCA Introduction & RCA Modeling Principles 2.Example Story Board & Business Situation 3.Overview of ROSA Software 4.Planning/Decision Scenarios 5.Overview of ROSA Manual 6.Implementing ROSA for Planning and Analysis 7.Questions

13. Get Well Corporation

14. Get Well Support Resources

15. Get Well Distribution Resources

16. Get Well Production Resources

17. Get Well Products –

18. 1.RCA Introduction & RCA Modeling Principles 2.RCA Model Story Board and Business Situation 3.Overview of ROSA Software 4.Planning/Decision Scenarios 5.Overview of ROSA Manual 6.Implementing ROSA for Planning and Analysis 7.Questions

19. ROSA Overview Excel Template for PALO Business Intelligence Software –Template Designed by Alta Via Consulting –PALO BI Software S/W fm Jedox.com (Free & Open Source) ROSA is a planning tool using RCA. –Template is not integrated with other systems to collect actual/results data.

20. ROSA Overview Demo Shift to displaying ROSA Application

21. 1.RCA Introduction & RCA Modeling Principles 2.RCA Model Story Board and Business Situation 3.Overview of ROSA Software 4.Planning/Decision Scenarios 5.Overview of ROSA Manual 6.Implementing ROSA for Planning and Analysis 7.Questions

22. Cost/Consumption Concepts Operational Fixed Variable Which Cost Concept Must Form the Basis for Cost Modeling? Decision Support UnavoidableAvoidable Opportunity Cost “Relevant Range” Can be ModeledBasis for Action Divisibility of Resource Information

23. Example 1  A manufacturing company decides to replace an old extrusion plant with modern equipment. This results in a significant reduction in the amount of maintenance required. The maintenance manager realizes that he can reduce his total maintenance capacity by 8,000 hours, the equivalent of a whole crew including the crew's supervisor.  What are the respective operational and decision cost concepts for each of technician wages and supervisor salary in Example 1?

24. Example 1 Cont’d  Operational Cost Concepts:  The operational cost characteristics of technician wages is a variable cost  The operational cost characteristics of supervisor salary is a fixed cost  Decision Cost Concepts:  Both technician wages and supervisor salary are avoidable cost  Hence, operationally fixed and variable cost are avoidable

25. Example 2  The same company receives an offer from an outside vendor to take over the repair of extrusion rollers. The manager knows from his MA system that the company spends 2,400 hours per year on these activities. A maintenance technician works 1,600 productive hours per year.  What are the respective operational and decision cost concepts for each of technician wages and supervisor salary in Example 2?

26. Example 2 Cont’d  Operational Cost Concepts:  The operational cost characteristics are the same as for Example 1  Decision Cost Concepts:  The wages of one technician is an avoidable cost  The costs associated with the remaining 800 hours (2,400 - 1,600) is unavoidable costs  The crew supervisor will be less busy but his salary is similarly unavoidable  Hence, operationally fixed and variable cost are now unavoidable cost

27. Operations Cost Model with Causality as Its Basis Operational Cost Concepts Decision Cost Concepts Basis for All Cost Concepts

28. Business Scenario 1 Situation: Outsource the Maintenance Function? –A service provider approaches you with an offer to take over your maintenance function. –He proposes to charge you $29.00 per hour. As we will see from the ROSA model your cost is $30.84 per hour. –Should you accept the offer and outsource maintenance? Shift to ROSA Application

29. Business Scenario 2 Situation: A Mutually Exclusive Resource Application Decision –You receive two orders but can only accept one due the customers’ required delivery dates. –Cost concept: The opportunity cost of committing a resource to a particular course of action. –Approximated by RCA’s proportional cost. Shift to ROSA Application

30. 1.RCA Introduction & RCA Modeling Principles 2.RCA Model Story Board and Business Situation 3.Overview of ROSA Software 4.Planning/Decision Scenarios 5.Overview of ROSA Manual 6.Implementing ROSA for Planning and Analysis 7.Questions

31. ROSA Manual Highlight: –Intro to RCA –Download and start up instructions –Application Overview –Building your own model en.wikibooks.org/wiki/RCA_Open_Source_Application:_ROSA_Manual

32. 1.RCA Introduction & RCA Modeling Principles 2.RCA Model Story Board and Business Situation 3.Overview of ROSA Software 4.Planning/Decision Scenarios 5.Overview of ROSA Manual 6.Implementing ROSA for Planning and Analysis 7.Questions

33. Using ROSA in Your Company Conceptual RCA Model Design Design RCA Storyboard for your company Collect data and build initial data set Upload data to ROSA Use ROSA to simulate new business scenarios.

34. ROSA Linked In Group http://www.linkedin.com/e/vgh/3107067/

35. The RCA Institute is… A Non-profit Entity Responsible for Training of Practitioners and Adopters Provides A Number of Products and Services to Mitigate Adopter Risk e.g., Certification, Assurance Services Sponsors Research into RCA Implementation and Long- term Use Serves to Raise RCA Awareness and Fulfill Advocacy and Outreach Roles

36. RCA Support & Quality Assurance Institute Membership –Corporate & Individual Certification –Specialist, Practitioner, Master –Software Products Adopter Exploratory Workshops –Customized Workshops applying RCA to an organization Implementation Review/Assurance –Support Adopting Organizations & Practitioner Expertise Adopter Internal Use Reviews –Evaluations of An Organization’s Effectiveness Using and Maintaining RCA

37. Questions??? Contact Information: www.RCAInstitute.org lwhite@rcainstitute.org 757.288.6082 Contact Information: www.altavia.com antonvdm@altavia.com 513-257-7451 ROSA Linked In Group: http://www.linkedin.com/e/vgh/3107067/ http://en.wikibooks.org/wiki/RCA_Open_Source_Application:_ROSA_Manual