Resulting from the various factors that interrelate in production processes, certain levels of costs arise for the generation of products or services. Thus, under certain conditions, and as long as, fundamental aspects are not modified, such as variations in raw material prices, wage cost, production methods, product characteristics and the machines used, among others. Others, the average cost in the production of a good or service will evolve over time.
As can be seen in the graph, the cost of production depends on a series of factors, which in turn are the product of numerous other causes. In the scheme, it was only shown as an example up to a third level. Thus, the cost of a product depends in part on the materials or supplies, in turn these affect costs based on several attributes among which are price, inventory level and quality, while the price It is the result of market behavior, the quantities acquired and the payment conditions, among others.
The level of cost of the products arises from the interrelation and interaction of these numerous factors, but as a result of the evolution of the processes over time and the fact of being exposed to continuous changes and alterations that are characteristic of the system, the costs will undergo variations natural (also called random) or special (called attributable).
Attributable variations are due to a specific cause, such as differences between the performance of various machines, operators, or materials. Variations of this type are not random, and can lead to excessive variations in processes. If there are causes of attributable variations in a process, then the process is said to be "out of control."
Variations due to attributable causes are often excessive, and Statistical Process Control (CEP) methods cannot be used to predict them.
Random variations arise as a consequence of the interaction of a wide variety of factors, such as temperature, atmospheric pressure and normal operating tolerance of machinery. These variations are random, generally small, and cannot be attributed to any particular cause. A process is said to be “stable” or to be “in control” if the variability of the process is the consequence only of random variations.
Distinguishing between one type of variation and another is of fundamental importance when making decisions. The right decisions are to adjust the process when it's out of control, and leave it alone when it's under control. The risk of unnecessarily adjusting a process under control is equivalent to a type I error; if an out-of-control process is not corrected, it is a type II error. The correct application of statistical process control minimizes these risks.
It remains to be defined what statistical process control (CEP) is. It is a statistical technique to ensure that processes meet standards. As previously stated, all processes are subject to certain degrees of variability, for this reason it is necessary to distinguish between variations due to natural causes and due to attributable causes, developing a simple but effective tool to separate them: the control chart.
Natural variations affect all production processes, and are always to be expected. These types of variations are the different sources of variation of a process that is under statistical control. They behave like a constant system of random causes. Although their individual values are all different, as a group they form a sample that can be described through a distribution. When these distributions are normal, they are characterized by two parameters. These parameters are: the mean of the central tendency and the standard deviation.
As long as costs evolve within control limits, the process is said to be "under control," and small variations are tolerated.
The procedures for establishing statistical control of cost behavior involves:
- establish “process capability”, create a control chart, collect periodic data and graph it, identify deviations, identify causes of deviations, perpetuate positive effects, and correct causes of negative ones.
Based on a period, the amplitude of which depends on the characteristics of the process and the good or service), the Average is calculated, which becomes the Average Cost of the Process (CMP) and the respective Upper Control Limits. (LCS) and Lower (LCI). The Maximum Acceptable Cost (CMA) is determined, which is nothing other than the Target Cost, which is intended to reach to achieve a certain profitability given a market price. The Process Capacity (CP) is calculated, which is equal to the CMA divided by the LCS.
At every opportunity that a structural or significant change occurs is due to the company's decision (change in the type of material, design variations, new machinery, change of supplier), or for other reasons (changes in raw material prices, variation in the cost of fuels or electrical energy) the CMP and the LCS, LCI, CMA and CP must be recalculated.
Fundamental objective of the company management is to reduce the CMP and the variations in such a way to move the LCS away from the CMA allowing a higher CP.
The shorter the time periods for which cost calculations are made, the faster corrective measures can be taken to keep processes under control.
Monitoring through the CEP system (SPC) for other financial variables, such as quality, productivity, deadlines or delivery times or processing and levels of user satisfaction, allow us to have a balanced scorecard (CMI) that serves to better understand the behavior of costs and the close relationship between the various factors.
By using the various management tools, the Quality Circles and the Improvement Teams will proceed to analyze the variations plotted in the CEP, proceeding to standardize the process first (put it under "statistical control") and then proceed to improve the standards, achieving higher levels of productivity, better quality levels, lower inventory levels, better response times and lower cost levels (Average Cost of the Process for the products or services marketed).
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Conclusions:
From the development of the discharged concepts, the enormous potential of using Statistical Process Control as an instrument and tool for better control over the evolution of costs, a more efficient way of making decisions regarding adjustments, a method very efficient in setting goals and an exceptional means of verifying the behavior of the system as a whole through the interrelation of indicators of costs, productivity, quality, financial indicators, satisfaction of users and employees / workers, and the periods or times of various cycles.
Many are those who, due to ignorance of the way processes work, tend to carry out prolonged and obstinate analyzes in search of the reasons that led to the variation in costs in relation to the standards or those registered in the previous period, committing the error of adopting adjustment measures, when in reality the variations responded to the nature of the process, so that the adjustments give rise to greater differences in the future.
Companies that do not adopt this new methodology will suffer the shock against world-class companies that apply it methodically.
The application of the CEP to costs is the prelude to a new discipline that will cause a strong shock in the evolution of Business Management, this new advance being Costometry.
Bibliography:
- Ortueta, Lucas. Scientific Organization of Companies. Limusa. 1980. Berenson, ML and Levine DM Statistics for Administration and Economics. McGraw Hill. 1994. Edwards Deming. The new economy. Diaz de Santos. 1994. Du Tilly, Roberto and Fiol, Michel. Planning and Cost Control. Threshing. 1980. Bierman Jr., Harold. Cost Accounting and Decision Making Topics. Fund of Economic Culture. 1976. Donoso Anes, José A. and Donoso Anes, Rafael. Current cost accounting issues. "The importance of chance in the control of deviations on standard costs". McGraw Hill - ACODI. 1993 Lefcovich, Mauritius.Cost Reduction - Kaizen Cost. www.gestiopolis.com. September / 03.
