INTRODUCTION

TO CONTEMPORARY
MANAGEMENT
ACCOUNTING

EVOLUTION

Four Stages in the Evolution of

Management Accounting Practice

STAGE 1
STAGE 2
STAGE 3
E

STAGE 4
Consortium of Advanced Mgt. Intl.

Source: www.maaw.info

AN OVERVIEW
OF
MANAGEMENT
ACCOUNTING TOOLS
CONT.

MANAGEMENT ACCOUNTING
TOOLS
Business Process Reengineering (BPR)
Benchmarking
Theory of Constraints (TOC)
Six Sigma
Etc.

SIX SIGMA

Six Sigma
A quality improvement and business strategy
concept started by Motorola in 1987
In statistical terms, the abbreviated form of 6
standard deviations from the mean
Translates to about 2 defects per billion

Has taken the equivalent defect rate of 3.4 ppm,

(or 4.5 sigmas)
Refers now to a quality level equivalent to 3.4
defects per million
CONT.

Six Sigma contd

Means excellent processes, services, and
administration
Encourages leanness, simplicity, and
doing things right the first time
Driven by the voice of the customer

BELTS

Six Sigma Certification Belts

1. Champion - basic form; understands the theory of Six
Sigma management, but does not yet have the quantitative
skills to function as an active Six Sigma project team
member. However, executives in Six Sigma organizations
function as champions of Six Sigma projects.
2. Green Belt is the work horse who works on projects
part-time (25%), either as a team member for complex
projects, or as a project leader for simpler projects.
CONT.

Six Sigma Certification Belts

3. Yellow Belter has passed the Green Belt certification
examination but has not yet completed a Six Sigma project; fulltime change agent who may not be an expert in the process
under study.
4. Black belt is a full-time quality professional
5. Brown Belt has passed the Black Belt certification
examination but has not yet completed the second Six Sigma
project.
6. Master Black Belt takes on a leadership role as keeper of the
Six Sigma process, advisor to executives or business unit
managers.
YOU TUBE

SIX SIGMA
http://www.youtube.com/watch?
v=LcamODKt-sQ
http://www.youtube.com/watch?
v=H4vZN-cMJyY

TOC

Theory of Constraints (TOC)

A method used to continuously
improve manufacturing and nonmanufacturing activities
Constraint is the most critical limiting
factor

TYPES

Theory of Constraints (TOC)

Types of constraints:
a.Internal
- Loose constraints when limited resources are not fully used
by a product mix. Ex. 1st constraint is loose while the 2 nd
constraint is binding (dependent on production of 1 st constraint)
- Binding constraints- if limited resources are fully used by a
product mix
a.External (ex. Market demand)

CONT.

Theory of Constraints (TOC)

Management should identify the
constraints, and
Manage them so that resources
are used most efficiently
YOU TUBE

TOC
https://www.youtube.com/watch?
v=mWh0cSsNmGY

MANAGING

Managing Constraints
Relaxing constraints by expanding the
capacity of a bottleneck operation
HOW?

RELAXING

Relaxing Constraints
TOC scheduling
Outsourcing all or part of the bottleneck
operation
Investing in additional production equipment
Working overtime at the bottleneck operation
Retraining employees and shifting them to the
bottleneck
Estimating any non-value-added activities at
the bottleneck operation
CONT.

Benchmarking
Pioneered by Xerox Corporation in 1979;
Search for the most effective method of
accomplishing a task
Involves identifying the best practices, and
Comparing an organization's performance to
those practices with the goal of improvement

TYPES

Types of Benchmarking
Internal across units
External
- Competitive benchmarking via competitors
- Functional benchmarking- with firms in the
same industry but not competing
- Generic benchmarking- with non-competitors
outside the firms industry
CONT.

Five-Stage Generic Model

Developed by Spendolini (1992)
Identify the internal areas or activities to
benchmark.
Obtain a long term commitment from senior
management and develop a benchmarking
team.
Identify benchmarking partners.
Collect and share information.
Take action to meet or exceed the best
practices.
E

Final Notes on Benchmarking

A tool to learn from others, and not a tool
to win in business.
Not useful unless knowledge gained from it
are put in action to benefit the company.
https://www.youtube.com/watch?
v=R6tJpyaFiQc
BPR

Business Process Reengineering

Complete and radical redesign of
organizational processes
To achieve drastic improvement of current
performance in cost, service and speed
https://www.youtube.com/watch?
v=_fQ3BydzMz8

END

End of Presentation

Benchmarking (group work)

Instructions:

Assume that you are a manufacturing

firm. Use the following steps to identify your
benchmarking exercise.
Identify the internal areas or activities to
benchmark.
Obtain a long term commitment from senior
management and develop a benchmarking team.
Identify benchmarking partners.
Collect and share information.
Take action to meet or exceed the best practices.
E