Advance Performance Management

ACCA P5 Advance Performance Management

P01 Planning

P02 Strategic Management Accounting

P03 Benchmarking

P04 Risks of Uncertainty

P05 Stakeholders

P06 CSR MCS

P07 Business Strategy

P08 Impact of Government Policy and Regulations

P09 Activity Based Budgeting

P10 Beyond Budgeting

P11 Business Structure Part2

P12 Business Integration

P13 Business Process Change

P14 IT and Strategic Planning and Control

P15 IT and Supply Chain Management

P16 IT and Customer Relation Management

P17 IT in Operational Processes

P18 E-Business

P19 Strategy and Employee

P20 Strategy and Employee

P21 Investment appraisal

P22 Investment appraisal

P23 Divisional Performance Measures and Performance Appraisal

P24 Divisional Performance Measures and Performance Appraisal

P25 Transfer Pricing

P26 Value for money

P27 Balance Scorecard

P28 Performance Pyramid

P29 Building Block Model

P30 Business Failure & A Score

P31 Z score model

P32 Quality

P33 Kaizen and TQM

P34 Six-Sigma and JIT

P35 Performance Prism

P36 EMA

P37 Dysfunctional behaviour

ACCA - F1   ACCOUNTANT  IN  BUSINESS 

ACCA F2 - Management Accounting

ACCA F5 - Performance Management 

SAKA GARDENING

 

 

Six Sigma and JIT

ACCA P5 Advance Performance Management

Normal Distribution curve is a bell shaped curve that extends indefinitely in both directions, coming closer to the horizontal axis without touching it. Most of data relating to economic and business statistics or even in social and physical science conform to this distribution. The normal curve is not just one curve but a family of curves.

Six Sigma: It is quality management program pioneered by Motorola in 1980s. This uses normal distribution curve as a backbone for quality improvement. Sigma stands for standard deviation. Six sigma is the tolerance level therefore if error is beyond this level there will be fewer than 3.4 defects in every one million unit produced.

Requirements for successful implementation:

Ø  Should focus on customer

Ø  Should be linked to strategy and communicated effectively

Ø  Target for a process should be related to main drivers of performance

Ø  Requires committed senior management

Five steps of the Six Sigma process

Ø  Define Opportunity

Ø  Measure Performance

Ø  Analyze Opportunity

Ø  Improve Performance

Ø  Control Performance

The process is iterated until the quality (99.999%) is achieved. The process is heavy data driven, technical, time consuming and expensive. Employees in bottom-line may not understand the purpose therefore it needs supportive culture for implementation.

Just in time: JIT seeks to eliminate inventory of raw material (using reliable suppliers providing high quality goods rather than lowest cost and suppliers are often located in close proximity to the manufacturing plant) as well as of finished product (eliminate internal or external queues of customers by producing products to meet customer orders).

Impact of JIT:

Ø  Allowance for waste, scrap and rework are moved to the ideal standards, rather than achievable standards.

Ø  Reduce cost of holding inventory

Ø  Makes it easier to switch to backflush accounting

Drawbacks in JIT:

Ø  Product/service costs increase – suppliers demand marginal increase in price than normal price

Ø  Loss of bulk discount

Ø  Not suitable for unstable economy - economy with hyperinflation

Ø  Potential loss of windfall orders because of not holding finished products

Ø  Problems from unreliable suppliers if any

Kaizen and TQM

ACCA P5 Advance Performance Management


Kaizen costing means

Incremental (small steps at a time)

Improvement (in performance and quality)

Every-time (continuous improving),

Everywhere (every single process) and

Everyone (active participation by everyone)

Under Kaizen costing cost reduction targets are set on a regular basis and variance analysis is carried out at end of each period to compare target cost reduction with actual cost.

In increasing cost efficiency it focus on waste minimization and elimination of:

Ø  Overproduction: produce goods just to keep in stock

Ø  Inventory holding: purchase of unnecessary inventory

Ø  Waiting time: production delay and idle time

Ø  Defective units: products or parts which require rework

Ø  Motion:

Ø  Transportation:

Ø  Over-processing: non-value adding activities

Kaizen concept can be used as a basis for TQM.

Total Quality Management (TQM)

TQM is a philosophy which aims to get things right first time, removal of waste and continuous improvement. This contrasts with the traditional approach that less than 100% quality is acceptable. It involves both prevention of errors before they occur, and ‘total quality’ in the design of products, services and systems. TQM will result in Type 1 (cost of conformance) cost but Type 2 (cost of non-conformance) cost will fall to a greater extent.

TQM means that everyone in the value chain is involved in the process including employees, suppliers and customers. TQM gives everyone in the organisation responsibility for quality at every stage of production (real and active participation by all), from the initial design stages to after sales service. If a problem is detected during any stage of production process, it is solved by that person, before it affects subsequent production stages. Therefore, problems are eliminated before they impact on the final customer.

TQM is not a one off process, but is a continuous improvement process. TQM improves quality, save costs by reduction of waste, increase productivity and results competitive advantage.

Performance measures for Kaizen and TQM

Ø  Target – analyze cost gap – operating in demand pull market

Ø  Standard costing - Variance analysis

Ø  Life cycle costing - Variable Cost reduction – acknowledges costs are incurred before product is made and sold and is conceived until last unit is sold.

Ø  Waste reduction

Ø  Benchmark

CIMA Article: Quality Control 

CIMA Article: Kaizen Costing                                                                            

Quality

ACCA P5 Advance Performance Management

The only true measure of acceptable quality is customer satisfaction, which takes into account both objective and subjective interpretations of the needs and expectations of customers. – Chartered Quality Institute.

In today’s customer oriented business environment quality is key factor for product or service differentiation and to gain competitive advantage. Quality is a critical success factor in any business. Value of a product depends heavily on quality and technical specifications. But quality always comes at a cost. By nature quality cost is of two types: type 1 - cost to achieve quality and type 2 - cost of failing to achieve quality. There is trade-off between the two. In theory, there is an optimum level of acceptable defects where type 1 and type2 costs are minimised.

Types of quality cost:

Ø  Type1 (Cost of conformance): Cost to achieve quality until a product or service is finalized and tested

o   Prevention costs – cost of quality improvement program to prevent defects before they occur e.g. training

o   Appraisal costs – inspection and testing e.g. product sampling

Ø  Type 2 (Cost of non-conformance): Cost of failing to achieve quality

o   Internal failure costs – cost arising from failure to meet quality standards before product/service reaches to customer e.g. product mishandling

o   External failure costs – cost arising from failure to meet quality standards after product and service reaches to customer e.g. warranty

Both types of cost can be matched against targets and benchmark to measure performance.

Quality Management: Management activities to ensure products meet technical specification and needs of customers. It is a continuous process and should lead to improve performance.

Quality control: It is routine activities to measure and control quality of product.

Quality assurance: It involves testing of final product by third party to verify that specified quality standard has been met.

Quality practices:

Ø  Total Quality Management

Ø  Six Sigma

Ø  Just in Time

Ø  Kaizen costing

Ø  Target costing

CIMA Article: Quality Streak