Cost and Effect: Using Integrated Cost Systems to Drive Profitability and Performance

Overview


Two of the most innovative thinkers in the field present a work that represents the single best resource for understanding and implementing activity-based cost management. Kaplan and Cooper reveal that most companies don't know how to measure accurately, influence, or understand the fundamental cost drivers in their businesses. They then provide a detailed and comprehensive blueprint that will enable managers to make better decisions and to promote organizational learning and improvement. Cost and Effect takes ...
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Overview


Two of the most innovative thinkers in the field present a work that represents the single best resource for understanding and implementing activity-based cost management. Kaplan and Cooper reveal that most companies don't know how to measure accurately, influence, or understand the fundamental cost drivers in their businesses. They then provide a detailed and comprehensive blueprint that will enable managers to make better decisions and to promote organizational learning and improvement. Cost and Effect takes the management, finance, and accounting fields to an entirely new level, as the authors demonstrate how the principles of activity-based costing and other advanced cost management techniques, such as target and kaizen costing, can drive business performance. Using lively examples from a variety of leading companies worldwide—including Siemens, Hewlett-Packard, AT&T, the Swedish wire manufacturer Kanthal, Kirin Beer, and Procter & Gamble—they show how to create integrated, knowledge-based systems that provide meaningful information on current and past performance.The innovation systems described in Cost and Effect will help you: determine where improvements in quality, efficiency, and productivity will have the highest payoffs; assist front-line employees in their learning and improvement activities; make better product mix and capital investment decisions; negotiate more effectively on price, product features, quality, delivery, and service to promote win-win relationships with your customers; choose low-cost suppliers who are truly low cost, not just low price; design products and services that meet customers' expectations - and that can be produced and delivered at a profit; and, integrate your activity-based cost system into reporting and budgeting processes to reveal the sources of excess capacity. Everyone involved in running a business—from general managers and strategic planners to financial executives, IT professionals, and operations managers—must read this book to learn how innovative cost and performance measurement systems can enhance their organizational profitability and performance.
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Editorial Reviews

Booknews
The authors demonstrate how the principles of activity-based costing and other advanced cost management techniques, such as target and kaizen costing, can drive business performance. Using examples from companies worldwide, they show how to create integrated, knowledge- based systems that provide meaningful information on current and past performance. Their systems will help managers make decisions in such areas as determining where to make improvements in quality, efficiency, and productivity, and negotiating on price, product features, quality, delivery and service. Annotation c. by Book News, Inc., Portland, Or.
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Product Details

  • ISBN-13: 9780875847887
  • Publisher: Harvard Business Review Press
  • Publication date: 12/28/1997
  • Pages: 357
  • Sales rank: 1,402,913
  • Product dimensions: 6.60 (w) x 9.30 (h) x 1.30 (d)

Meet the Author


Robert S. Kaplan is the Marvin Bower Professor of Leadership Development at the Harvard Business School. He is the co-author of The Balanced Scorecard and Relevance Lost and the editor of Measures for Manufacturing Excellence.
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Table of Contents


Preface
1. Introduction: Cost and Performance Management Systems
2. Four-Stage Model for Designing Cost and Performance Measurement Systems
3. Stage II: Standard Cost and Flexible Budgeting Systems Appendix: GPK Cost System
4. Stage III Systems for Learning and Improvement: Upgrading and Supplementing Standard Cost Systems
5. Stage III Systems for Learning and Improvement: Kaizen Costing and Pseudo-Profit Centers
6. Activity-Based Costing: Introduction Appendix: ABC Activity and Process Dictionary
7. Measuring the Cost of Resource Capacity
8. Activity-Based Management: Operational Applications Appendix: Value- and Non-Value-Added Activities
9. Strategic Activity-Based Management: Product Mix and Pricing
10. Strategic Activity-Based Management: Customers
11. Strategic Activity-Based Management: Supplier Relationships and Product Development
Appendix: Target Costing
12. ABC in Service Industries
13. Extending Activity-Based Cost Systems
14. Stage IV: Integrating ABC with Enterprise-Wide Systems
15. Stage IV: Using ABC for Budgeting and Transfer Pricing
Notes
Index
About the Authors
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  • Anonymous

    Posted December 18, 2007

    Classic work on activity-based costing, management and strategy

    Robert S. Kaplan and Robin Cooper¿s work on activity-based costing has achieved the status of a minor classic in managerial accounting literature. First published in 1997, it explained why activity-based costing has advantages not only for accounting, but also for management and strategy. Moreover, it linked the advantages of activity-based costing to what, at the time, seemed to be novel ideas about economic value added and enterprise systems. Nearly 10 years after its initial publication, the book seems surprisingly fresh and relevant (notwithstanding the authors¿ enthusiasm for the ¿information age¿ and the potential of enterprise systems). The authors present the case for activity-based costing in a clear and straightforward manner. The book is well-organized and surprisingly free of jargon. We recommend it as a good introduction to managers who are new to the subject. Even those familiar with the concept and practice of activity-based costing may find useful reminders of basic principles in this book.

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  • Anonymous

    Posted October 4, 2001

    Evolving Toward Better, Integrated Financial Information and Reporting

    Cost & Effect will most appeal to those who have had extended experience with Activity-Based Costing (ABC) or operate in manufacturing industries. If you are interested in learning more about Activity-Based Costing, this book is not the best choice for you. Professor Kaplan has co-authored books that explore this subject in much greater detail. Most people set as their initial priority the need to have accurate financial reporting for the entire enterprise. Falling below that level of effectiveness is Stage I in the terms of this book. Once you have that financial reporting done accurately, you are at Stage II. But you know almost nothing about how to manage your costs better. In order to do that, you will need to establish ad hoc financial reporting processes designed to help your organization learn from its experience and identify opportunities for improvement, built around Activity-Based Costing (ABC). ABC is simply a way of more accurately applying overhead costs back to activities and then processes that permits accurately understanding more about which combinations of products and services and customers are profitable and which are not. Then, within each activity, you can also see the inefficiencies in what you are doing that present opportunities for improvement. The book also has a nice discussion of Kaizen costing that is widely used in Japanese companies looking for on-going cost improvements, based on Professor Cooper¿s research. There are a few case histories to illustrate the principles, but most will find these insufficient to guide them through the process. In other books, Professor Kaplan has pointed out that there is a lot of acquired art in the subject and you probably need help to get it right. I concur. Once you have ABC operating in stand-alone systems, you are at Stage III. At this point, you will have a financial reporting system that is separate from the ABC system. How do you put them together? That the subject of chapter 14, which is the key value-added part of this book. You will see what the systems architecture and process flow needs to be in order to combine ABC with Enterprise-Wide Systems (EWS) of the sort that many large companies have invested in during recent years. Putting the two together will greatly improve planning, budgeting, design of new products and services, and operational improvements. Chapter 15 expands into the area of how to apply the combined system to budgeting and transfer pricing. Combing ABC and EWS puts you at Stage IV, a level rarely reached today. The book¿s main message is that it¿s a mistake to try to go from Stage II directly to Stage IV. There¿s a lot of experimentation and mistakes that you can benefit from in an extended Stage III. I agree again, based on my experience with ABC. The one caution you should have about ABC in this context is that if you are going to radically change your business model every 2-5 years as many companies are, Stage IV is probably unattainable and undesirable. You can¿t hold back business model innovation for better cost systems. The next business model innovation will probably give you better costs than tweaking the current business model with ABC will. Seek out the fastest route to progress, and do more of it! Donald Mitchell, co-author of The Irresistible Growth Enterprise and The 2,000 Percent Solution

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