Strategic Cost Transformation: Using Business Domain Management to Improve Cost Data, Analysis, and Management

180 Pages·2018·4.51 MB·English

by  Reginald Tomas Lee

THE BUSINESS Strategic Cost Transformation L Managerial Accounting Collection
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EXPERT PRESS E
Kenneth A. Merchant, Editor
Using Business Domain Management
DIGITAL LIBRARIES
to Improve Cost Data, Analysis, and
EBOOKS FOR
Management
BUSINESS STUDENTS
Curriculum-oriented, born-
Reginald Tomas Lee
digital books for advanced
business students, written Strategic Cost
“As a CPA with over 30 years of accounting experience, I certainly had
by academic thought
to swallow my pride as I read this book. Dr Lee provides compelling
leaders who translate real-
evidence that you cannot rely on accounting information alone to make
world business experience
cash decisions.” Transformation
into course readings and
—Michael Hales Chief Financial Offi cer,
reference materials for
Northern Kentucky University
students expecting to tackle
Using Business Domain
management and leadership “Epictetus, a Greek Stoic philosopher, is reported to have said that many
challenges during their things in this world are not and yet appear to be. Such is the case with many
professional careers. of our traditional defi nitions and descriptions of “cost savings” as described Management to Improve
in so many accounting texts. Dr. Lee has taken a page from Epictetus in
POLICIES BUILT S
pointing out that we need a new paradigm of defi ning a “cost saving” if we T
BY LIBRARIANS R Cost Data, Analysis, and
are going to really provide the necessary information needed to manage a A
T
• Unlimited simultaneous business or use accounting information to make more informed business E
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usage decisions. This book is clearly a game changer in that regard.” Management
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• Unrestricted downloading —Dr. Joseph F. Castellano Professor Emeritus, C
and printing University of Dayton O
S
• Perpetual access for a T
one-time fee Your product costs $2.86 to make. What does the number tell T
R
• No platform or you about your operations, how effectively they were run, A
demand, or how much money you spent on capacity? Nothing. N
maintenance fees S
Shouldn’t you know? F
• Free MARC records O
• No license to execute Accounting information creates a limited picture of operations RM Reginald Tomas Lee
and true cash performance. Strategic Cost Transformation offers a A
The Digital Libraries are a T
new framework, business domain management, which creates I
comprehensive, cost-eff ective O
a comprehensive picture of your organization for improved cash N
way to deliver practical based decision-making. Foreword by Ron Baker
treatments of important
Reginald Tomas Lee, PhD, is a management professor at Xavier
business issues to every
University and president of Business Dynamics & Research. He’s
student and faculty member.
worked for GM, IBM and held senior supply chain leadership
positions at Sapient and EY. Reginald has authored fi ve books,
including Lies, Damned Lies, and Cost Accounting and the forthcoming
Project Profi tability: How to Select, Justify, and Implement Projects to
For further information, a
Achieve Maximum Cash ROI. Reginald has advised several companies
free trial, or to order, contact:  including Bristol Myers Squibb, Dell, Disney, DuPont, Home Depot,
[email protected] and Toyota. His PhD is in mechanical engineering.
www.businessexpertpress.com/librarians
Managerial Accounting Collection
Kenneth A. Merchant, Editor
ISBN: 978-1-63157-879-3
Strategic Cost
Transformation

Strategic Cost
Transformation
Using Business Domain
Management to Improve Cost
Data, Analysis, and Management
Reginald Tomas Lee
Strategic Cost Transformation: Using Business Domain Management to
Improve Cost Data, Analysis, and Management
Copyright © Business Expert Press, LLC, 2019.
All rights reserved. No part of this publication may be reproduced,
stored in a retrieval system, or transmitted in any form or by any
means—electronic, mechanical, photocopy, recording, or any other
except for brief quotations, not to exceed 400 words, without the prior
permission of the publisher.
First published in 2019 by
Business Expert Press, LLC
222 East 46th Street, New York, NY 10017
www.businessexpertpress.com
ISBN-13: 978-1-63157-879-3 (paperback)
ISBN-13: 978-1-63157-880-9 (e-book)
Business Expert Press Managerial Accounting Collection
Collection ISSN: 2152-7113 (print)
Collection ISSN: 2152-7121 (electronic)
Cover and interior design by Exeter Premedia Services Private Ltd.,
Chennai, India
First edition: 2019
10 9 8 7 6 5 4 3 2 1
Printed in the United States of America.
To Marc (my brother)

Abstract
Whether considered a goal or an objective, one thing is for certain; to
survive and thrive, companies need to make money. To be effective at
making money, employees need tools, models, and insights that lead to
decisions that enable improved cash generation. We typically look to
and rely on accounting information as a basis for these analyses and the
resulting decisions.
In my last book, Lies, Damned Lies, and Cost Accounting, I argued cost
accounting is ill-equipped to provide cash information about a company.
It wasn’t a knock on cost accounting. Instead, it pointed out we are ask-
ing cost accounting to do something and provide information it wasn’t
designed for.
Upon reading Lies, many asked, “If cost accounting isn’t what we should
use for cash information, what should we use?” Enter Business Domain
Management, or BDM. BDM is an organizational and financial framework
that breaks companies into two business domains, the Operations and Cash
or OC Domain and the Accounting Domain. The OC Domain is where
business and cash transactions occur; where work happens, and money is
spent and received. It is in the OC Domain where we make decisions that
affect the rate cash enters and leaves the company, and it is here where we
know if we have made money or not, before we’ve calculated a single cost.
The Accounting Domain is where we account for what happened in the
OC Domain. This is where we traditionally looked for cash data.
The BDM framework provides a powerful model for u nderstanding
operational and financial performance in its entirety, and it far exceeds
anything accounting can provide on its own. Strategic Cost Transformation
takes you on a journey from focusing on accounting information to having
a corporate-wide model that creates alignment between areas in companies
where there is usually misalignment—o perations, cash, and accounting.
Keywords
BCR; business cash requirements; capacity management; cash; cost reduc-
tion; costs; efficiency; effectivity; input capacity; isocash curve; metrics;
optimization; output capacity; product profitability; productivity; profit

Contents
Testimonials ������������������������������������������������������������������������������������������xi
Foreword ����������������������������������������������������������������������������������������������xv
Preface ������������������������������������������������������������������������������������������������xix
Acknowledgments �������������������������������������������������������������������������������xxiii
Introduction ���������������������������������������������������������������������������������������xxv
Part I The Issue ����������������������������������������������������������������������1
Chapter 1 Bamboozled by Numbers ..................................................3
Chapter 2 The Goal-Making Money ...............................................13
Chapter 3 Strategic Cost Transformation—An Overview ................19
Part II The Theory �����������������������������������������������������������������39
Chapter 4 Introduction to Business Domain Management ..............41
Chapter 5 Understanding the OC Domain .....................................47
Chapter 6 The Case for Capacity Management ...............................51
Chapter 7 Fundamentals of Capacity Dynamics ..............................55
Chapter 8 The Cash Dynamics of Capacity .....................................65
Chapter 9 BDM Cash Dynamics Framework ..................................71
Chapter 10 Problem—The Process of Calculating Costs ....................75
Chapter 11 The Accounting Domain ................................................81
Chapter 12 From OC Domain to Accounting Domain .....................83
Chapter 13 Costs and Profit: What’s in a Name? ...............................89
Part III The Execution ������������������������������������������������������������93
Chapter 14 Business Cash Modeling, Management,
and Projection ................................................................95
Chapter 15 BDM Measures and Metrics .........................................107
Chapter 16 Conflict Between the OC and Accounting Domains ....117
Chapter 17 Improvement Projects ...................................................129