Methodological procedure of a management system based on activities in the industrial rice segment of the province of Granma
Summary
The work, “Methodological procedures of a cost management system based on activities in the rice industrial segment of the Granma province”, constitutes a real challenge. It proposes substantial changes to the accounting procedures used in Cuban rice production for more than two decades and that are essential in the field of the construction of relevant information so that organizations face an optimal decision-making process. The study included diagnoses of the organizational structure, the accounting system, and the form of organization of the management process, which showed limitations in a production that, due to its importance, should achieve more efficient results, by achieving increased competitiveness and customer satisfaction.Based on the indicated insufficiencies, the inexistence of a cost management system in the rice industry that limited the obtaining of relevant information for the strategic business management was detected as a scientific problem. In order to achieve a solution, the general objective is to prepare a methodological procedure for a cost management system based on activities in the industry of the José Manuel Capote Sosa de Granma company that provides relevant information for business management. In order to achieve a solution to the problems raised, the design of an accounting management system that constitutes a relevant information base was started, based on solid foundations that contribute to an efficient decision-making process. For it,Theoretical research methods such as the historical-logical, induction-deduction, analysis-synthesis and empirical methods such as observation, interviews, questionnaires and brainstorming were used that allowed the validation of the proposal, using expert criteria.
Abstract
The work, "Methodological procedures of a cost management system based on activities in the rice industry segment Granma province", is a real challenge. Proposes substantial changes to the accounting procedures used in Cuban rice production for over two decades and are essential in the field of construction of a relevant information that organizations face optimal decision-making process. The study covered diagnoses to the organizational structure, the accounting system, and form of organization management process, which showed limitations in production because of their importance, should achieve more efficient results, increasing competitiveness and achieved customer satisfaction. From the weaknesses identified,was detected as a scientific problem the lack of a cost management system in the rice industry limiting obtaining information relevant to the business strategic direction. In order to reach a solution, the general objective is to develop a methodological procedure of a cost management system based on industry activities of the company Sosa José Manuel Capote Granma conducive to business management relevant information. In order to achieve a solution to the issues raised, it was on the design of a management accounting system that provides relevant information based on solid foundations that contribute to efficient decision-making process. To this end, theoretical research methods such as historical and logical, induction - deduction, and empirical analysis-synthesis methods such as observation, interviews,questionnaires and brainstorming that allowed for validation of the proposal by expert judgment were used.
Introduction
Currently, changes and transformations are taking place in the national economy based on the need to update the Cuban economic model in all branches and sectors of the economy through reorganization measures, being significant for the agro-industrial sector due to its importance in production. of food that is intended according to guideline 177: “Achieve that this sector contributes progressively to the country's balance of payments, to stop being a net importer of food and reduce the high dependence on financing that today is covered by the income of other sectors ”.
In order to favor the aforementioned, according to guideline 178: “Adopt a new management model, in accordance with the greater presence of non-state productive forms, which must be based on a more effective use of monetary-commercial relations, delimiting the functions state and business, in order to promote greater autonomy for producers, increase efficiency, as well as make possible a gradual decentralization towards local governments ”.
Among the guidelines approved in the VI Congress of the Communist Party of Cuba, 193 of the agroindustrial policy states: "Ensure compliance with the production programs for rice, beans, corn, soybeans and other grains that guarantee the increase in production, to contribute to the gradual reduction of imports of these products ”.
For such purposes it is necessary to pay special attention to the rice agribusiness for its role in the production of such a precious cereal demanded at the table of the Cubans and which is currently exported in a significant percentage, therefore, according to the author Rodríguez Sosa, it is required: “Achieving relevant results in the rice agribusiness requires from these companies levels of efficiency, effectiveness and competitiveness that guarantee their growth and development in an environment full of uncertainty (…), which requires changes in current management approaches, derived from the experience of more than 50 years of management of the Cuban socialist company, which are insufficient to support the pertinent need for a strategic approach, attitude and thought. ”
It is essential that the rice agribusiness reach levels of efficiency and effectiveness that lead to competitiveness, from the insertion of advanced technologies in production and marketing, that lead them to impose themselves on the market, becoming increasingly committed to the Philosophy of Business Excellence, in a globalized and increasingly competitive agri-food environment, that meets both the demands and the needs of consumers.
The national production of rice is concentrated in the provinces of Pinar del Río, Matanzas, Sancti Spíritus, Camagüey and Granma, although others are already involved in this important activity and show significant results, however, each region is distinguished by the characteristics of the soils, the culture and traditions in the crops, the climatic and geographical conditions, as well as the economic results achieved that require a detailed study of the management systems in order to promote a management process that guarantees efficiency and effectiveness the one that calls the country address.
The approach addressed in the previous paragraph refers to the need to be in tune with current trends in business management, which poses the challenge of increasing agricultural and industrial yields in which the province of Granma must have a higher participation. largest producer in the country, which contributes more than 30% of rice for consumption; even when the obtained results have not been the expected ones before objective and subjective situations given in this production.
Coupled with this situation, it should be noted that the accounting system used in the rice-producing base units is not the most suitable for the treatment of information related to business management, as a consequence of a predominance of financial criteria over managerial ones., in particular when analyzing the imputation of costs to the product, ignoring other objects such as customers, suppliers and activities carried out in the different processes, considering them as General Expenses on arbitrary bases that charge them to the product, preventing an effective administration of resources not consumed in the production process.
In addition, the accounting system called CONEC, is not related to the organizational structure of the different basic production units, summarizes trial balances and various financial statements, therefore, it does not represent exhaustive information on the costs of rice production, much less, relevant information is obtained for its management. For this reason, it is essential to improve the accounting system used to date, since as it is done today, the needs of a relevant level of information are not met to measure the efficiency of the activities carried out and improve the decision-making process..
Based on a detailed study of the accounting system used and the evaluation of the deficiencies presented by it, following the criteria of researchers who have preceded this work and of accountants with vast experience in this activity, the author proposes the implementation of a Activity Based Management that for the purposes of this work is called SIGESBA.
This system shows among its benefits: achieving more accurate product costs that allow better decisions related to prices, investment in research and development, greater vision of activities, mapping of activities and allocation of costs to They provide a greater focus on managing activities, improving the efficiency of high-cost activities, and identifying and reducing those that do not provide added value.
The implementation of an accounting system for management in rice companies that promotes a management style through which economic efficiency is obtained is important not only for this sector, but also for the country, especially in the period characterized by the update of the economic model based on the guidelines approved at the VI Congress of the PCC, which demonstrates the importance of this work.
Taking into account the aforementioned, the research problem is posed as follows: the inexistence of a cost management system in the rice industry of the Granma province that limits obtaining relevant information for business management.
Hence, the object of study of this research is framed in the management processes of the entities that make up the rice industry of the Granma province.
The variant of economic experiments was used, for which the José M. Capote Sosa Rice Company was selected, which obtains the second largest production of rice in the Granma province, as well as units of the Fernando Echenique Rice Company, for additional tests.
Within the theoretical methods were used: the historical-logical, analysis-synthesis, induction-deduction, as means to generalize, infer and guide the investigation, which allowed arriving at the theory of how the selected field of action will be organized.
In addition, the statistical-mathematical method was used to analyze the action of certain variables, as well as techniques to generate ideas, collect information and reach consensus, and for the validation of the proposed methodological procedure, the initial and final diagnosis were selected, and expert judgment.
The current mechanisms used by the Cuban agribusiness for the evaluation of the internal circulation of values and control of resources show insufficiencies that limit an efficient decision-making process, therefore, a much broader information system is required. a philosophy of business excellence that must be studied for its possible application in Cuba.
Hence, the selection of a management system based on activities as a technique associated with Strategic Cost Management (GEC), so the objective of this chapter is to support the theory for the use of a management system based on activities as an information base for business management.
1. Historical evolution of cost management systems
Currently, companies and organizations at the international level face changes and transformations that affect all production systems, which make it necessary to pay special attention to all avenues and methods that allow achieving a sustained increase in efficiency and competitiveness; This situation is given by scientific-technical advances, which in turn intensify competition, with factors appearing that affect business activity, such as increasing the automation of all processes, reducing the life cycle of products and services., as well as the orientation of the offers to the satisfaction of customers who demand higher quality and the presence of ecological components.
Authors and writers on Management Accounting have shown interest in establishing new procedures for calculating, assigning and managing costs, which in part solve the deficiencies manifested by the systems currently used by many companies, which have generated very diverse criteria such as the one raised by Álvarez López and Blanco Ibarra, who expressed that: “the evolution in the cost models has been marked by different contributions to the doctrinal field, which have made it possible to formulate a greater rationalization and reduction of costs”.
Authors such as Kaplan R. and Cooper R., detractors of traditional cost systems have expressed their imminent elimination or transformation towards other systems, which feel patterns in satisfying information needs, suggesting the use of new tools based on in a business philosophy, where issues such as total quality, preservation and improvement of the environment, as well as customer satisfaction have become highly relevant.
In the opinion of the author Rodríguez Sosa, with whom the author agrees, on the concepts previously raised, by the aforementioned writers it is their general nature, when attacking the cost systems used by many companies, which have demonstrated their feasibility, even in the new and changing conditions; However, it is partly coincided, since the paradigms in cost management drive significant changes in current methods, which have shown difficulties in facing new analyzes.
However, the author does not agree with the fact of eliminating them completely, since for a long time they have generated benefits that involve delving into the good ideas raised by them so that they can offer some solutions to problems that are manifested in new trends.
Authors such as Amat O. and Soldevila P., have stated that the main transformations that have occurred in the business environment have caused that: “… over the last decades the need to produce goods that the market absorbed without limit has passed., to the commercial difficulty of placing the surplus production on the market and finally to the urgent demand to combine an increase in quality with increasingly adjusted costs ”. The use of new technologies and the development of more complex organizational structures constitute a new paradigm in strategic management, which leads to an increase in competitiveness that has influenced Management Accounting.
The Spanish author Ripoll V. stated that: "… management accounting, in particular its design, implementation and operation, must be linked, on the one hand, to business strategy and organizational structure and, on the other hand, must consider its influence and interrelation with the people who make up the company and with the culture of the organization ”.
In Cuba since the 80s, the theoretical studies and analyzes of systems with activity philosophies have increased, their state in practice does not show the same development, not using all the potential of Management Accounting within the management direction. business even when it is what is regulated in the Cuban Business Improvement, the latter who joins the policy of the Economic Model in order to achieve more efficient and competitive companies as set out in Guideline 15 of the Party's Economic and Social Policy and the revolution.
Regardless of the introduction of important changes in the structures and operations of companies to adapt them more to international accounting practice, the new techniques that have taken off worldwide, are not used, for example: objective costing systems, budgeting and administration based on activities, the Just-in-time technique, marketing costs, quality and the environment, Intellectual Capital and Knowledge Management. The application of these techniques are fundamentally limited by the technology of the entities.
For this reason it is evident that the development of this system in our country has been poor and therefore in its use as a tool in decision-making.
1.2 Theoretical considerations on cost management systems and their relationship with business management
Management Accounting refers to economic analysis aimed at facilitating decision-making by management and aims to highlight the interrelation between the internal information system and the decision-making process in the company. It goes beyond cost accounting, since it integrates diverse materials from organization theory, behavioral sciences, from information theory (…) management accounting can be defined as the evolution, both qualitative and quantitative, of cost accounting.
Strategic cost management, has its date of emergence in the late 70s and early 80s, according to studies by different authors, focused on a new strategic vision of accounting, which is related to the events that arose in the last years of the last century in a competitive environment in the international arena, which have been causing changes in the way of processing the information obtained by traditional systems.
The first to propose strategic costing were Shank J., and Govindarajan V., who called their approach: Strategic Costing Analysis, based on the work carried out by Porter M. and other competitive strategists, where three levels are established. strategy formulation explained below.
- The first in the business field, where it seeks to develop a sustainable competitive advantage in its specific branches, commerce, industry and services, based on a close relationship with the theoretical framework set forth by the author Porter M. The second directs attention to functional level, which governs the administration of internal organizational functions (finances, costs, marketing, etc.) to add value to goods and services by mobilizing essential competencies. The third directs attention to strategies corporate or multiple business units, defined as those that seek synergy for an organization through the skillful conjunction of the portfolio of companies or business business units.
The analytical mechanism of formulation is established by evaluating the five competitive forces that shape the industrial, service or production environment. These five forces are:
- The threat of new companies entering the market. Negotiation capacity of suppliers. Negotiation capacity of buyers or clients. The possibility of using substitute products. The rivalry of competitors.
The authors Shank, J. and Govindarajan V., express that the GEC: “… is the area that has under its responsibility the search for sophisticated knowledge of the cost structure of the company, in order to achieve sustainable and continuous competitive advantages in the time…".
They stated that this system uses accounting to facilitate the development and implementation of the business strategy, which is materialized through the use of tactics and the establishment of controls to supervise the stages of this cycle.
From this approach, the explanation of the different stages that compose the definition addressed by the authors Shank, J. and Govindarajan V. follows, who state that:
- First, accounting information is the basis for economic-financial analysis, which is an element of the process of evaluating alternative strategies. Second, reports are one of the important ways in which these strategies are communicated to the organization in Third, the development of specific tactics that support the strategy as a whole and its implementation, based on financial reports prepared on the basis of accounting information that serve as support to achieve the objectives., the evaluation of the performance of the executives and managers or of the different strategic business units (UEN) that usually depend on accounting information.
The new changes in the context of the accounting mission and the new evolutionary needs of companies imply reorienting the accounting mission, resulting in the fundamental factors of this evolution: information systems as a basis for analysis of causal relationships and intervention of the accountant as a participating member of the management team, therefore, in decision making.
This development has led to the emergence of increasingly sophisticated financial and commercial exchange operations, presenting the demand for harmonization and better quality in accounting information, since accounting has historically been the instrument of vital importance, both for the states as at the level of entities, facilitating the making of sound decisions in their operations.
The following conceptual map graphs the claims of the GEC, which:
The GEC is the result of carrying out three fundamental analyzes, which will be the subject of detailed reference in subsequent sections, such as: strategic positioning analyzes, cost inducers, and value creation system. Concerning each of these three aspects, conventional management accounting has not provided a strategic approach in cost analysis.
In the opinion of the author Rodríguez Sosa, with whom the author agrees, expresses that these three analyzes that are part of the GEC, have shaped a theory and a methodology with a system approach that should produce a level of information on certain aspects of management processes, that is relevant for the purposes of developing a strategy in which the cost analysis is identified.
The Cuban professor and researcher, Pelegrín A., in course elaborated for the teaching of the GEC, offers a structure that groups the three essential pillars or bases, that are associated with a set of techniques oriented to cost management, as shown in figure 3.
When making a theoretical consideration of cost management systems, it is necessary to substantiate the content of the three pillars of the GEC, which are:
- Strategic positioning. The value chain. The causes of costs.
These three components form the basis to follow to implement strategic cost management accounting.
Value chain (CV)
In the analysis of the Value Chain (CV) as an important tool within Strategic Cost Management, it is good to clarify the definition of value, Porter, catalogs it as: “… the amount that buyers are willing to pay for what a company provides them ”.
The same author defined the CV as the link of the set of activities that create value from the sources of the raw material to the final product or service sent to the client. The CV has been a valuable instrument in internal analysis and is made up of all the activities that a company must carry out to sell a product or service and, if necessary, carry out an after-sales service.
The analysis of the CV begins with the recognition that each company or business unit is: “… a series of activities that are carried out to design, produce, market, deliver the value that each activity has in order to find a sustainable competitive advantage for the company ”.
By identifying and analyzing the company's value activities, managers operate with the essential elements of their competitive advantage, since the efficiency and effectiveness of each of the activities affects the company's success in its low-cost strategy., differentiation or focus.
The CV identifies nine strategic activities in the company, each with a cost, through which customer value can be created. These activities are divided into five primary and four support activities.
The first activities are internal logistics, operations, external logistics, marketing, and service. This series of activities can be imagined as a stream of related activities, starting from the arrival and storage of raw materials or inputs for production processes, their transformation into final products that are shipped, marketing and sales activities to identify, reaches and motivates customers or groups of customers and service activities to provide customer and / or product support after purchase.
Then support activities, as the name implies, provide general and specialized support for primary activities. These are administration, purchasing, human resources, technological development, and infrastructure. We must consider these as business functions and why without them an organization would not exist and together with the degree of connection with the main ones, they make up what is called value chain analysis, which as a tool in formulating strategies requires that Administrators not only analyze each value activity separately in detail, but also examine the critical links between internal activities.
Classification of Activities
Identifying value activities requires isolation from those that are technologically and strategically distinct.
For this reason, they are defined in two main essential groups, regardless of whether there are other classifications according to other categories, which will be analyzed below:
Primary activities:
There are five generic categories of primary activities related to competition in any industry, as shown in Figure 3, each category is divisible into several different activities depending on the particular industry sector and the company's strategy.
Internal Logistics: the activities associated with the receipt, storage and dissemination of product inputs, such as material handling, reception, inventory control, vehicle scheduling and return to suppliers.
Operations: activities associated with the transformation of inputs into the final form of the product, such as machining, packaging, assembly, equipment maintenance, testing, printing or installation operations.
External Logistics: activities associated with the collection, storage and physical distribution of the product to buyers, such as warehouses for finished materials, materials handling, operation of delivery vehicles, order processing and scheduling.
Marketing and Sales: activities associated with promoting a means by which buyers can purchase the product and induce them to do so, such as advertising, promotion, sales force, quotas, channel selections, and price.
Service: activities associated with the provision of services to enhance or maintain the value of the product, such as installation, repair, training, spare parts and product adjustments.
Support activities
Like primary activities, support activities are divided into four generic categories involved in competition, as shown in Figure 3.
Sourcing: refers to the function of buying used inputs in the company's value chain, not the purchased inputs themselves.
Technology Development: each value activity represents technology, be it knowledge, procedures or technology within the process team. The set of technologies used by most companies is very broad, ranging from the use of those to prepare documents and transport goods to those represented in the product itself.
Human Resources Administration: consists of the activities involved in the search, hiring, training, development and compensation of all types of personnel. Supports both primary and support activities.
Company Infrastructure: Consists of various activities, including general administration, planning, finance, accounting, government legal affairs, and quality management.
When referring to the cost issue, this approach is different from that developed by traditional accounting, which is based on the concept of value added, which involves maximizing the difference between purchases and sales. In other words, value added focuses its attention on the internal functions of the Company, beginning with purchases from suppliers and ending with costs paid by customers (sales).
How to define the value chain in the framework of the GEC?
It is considered in this research that the purpose of the Value Chain analysis is to minimize or totally eliminate unnecessary expenses that do not add value to the client, provided that it does not weaken the activity or function of the organization.
Strategists Shank and Govindarajan suggest that: the value chain framework is a method of decomposing the chain into strategically relevant activities with the aim of understanding cost behavior and sources of differentiation. At GEC, effective cost management requires an expanded perspective, external to the company; this is what Maikel Porter called the value system. It is used to develop sustainable competitive advantages, improve product quality and process efficiency, hence costs have become an instrument of strategic decision.
The determination of the links is important, since it will allow us to know the type of influence of one activity on another. The links also reflect the need to achieve, through adequate coordination, the best performance of the activities of the CV, which will normally translate into a source of competitive advantage. The activities of the CV of a company are also connected with the activities of the CV of the suppliers and clients, as shown in the following figure.
Once the activities of the CV have been identified, as well as the links, the company must proceed to their study, both in terms of their total costs and as a function of how the activities are carried out and how the links intervene (…), in addition to searching Competitive advantages in your CV, you should analyze the possibility of finding them in the CVs of suppliers, distributors, and finally of the clients themselves… ”.
Cost generators or inductors (IC)
The third constituent element of the GEC is the concept of causal costs:
These take a preponderant place in the GEC, due to the strategic approach that is given to these causes and above all because of the union, in which the value chain and positioning are related to this second element.
Thus, the GEC accepts the fact that costs are driven by multiple factors, this also explains the different cost variations in each activity and it is considered that: “… they are competitive measures that serve as a connection between activities and their respective manufacturing overhead, which can also be related to the finished product. ”
According to Mevellec, “the best cost inducer of an activity will be the cause of it.
The activity measures are known as Cost Driver, a term whose approximate translation in Spanish would be that of the origin of the cost, because it is precisely the generators that cause the manufacturing indirect costs to vary; that is, the more activity units of the specific cost driver identified for a given activity are consumed, then the higher the indirect costs associated with that activity. In this way, a higher cost is assigned to those products that have demanded more organizational resources, and there will no longer be distortions in the cost of products caused by the premediation effects of a traditional cost allocation system.
These traditional costing systems fail to study the true causes of the behavior of manufacturing costs and, therefore, apportion them using arbitrary allocation bases such as direct labor.
For the proper selection of an inductor, there must be a cause-effect relationship between the driver and its consumption by each activity and each cost object, in addition to being constant within a specific period of time, being timely, easy handling and measurement.
Within the process analysis, the activities carried out are reviewed in order to verify their real costs, by observing for this, each of the resources that it consumes and based on the inductor, the cost of the activity can be determined. In the traditional accounting case, the cost is fundamentally a function of an inductor, related to the activities related to the production volume, it only determines a small part of the cost, since the competitive inductors that generally affect the activities, they are multiple and of a very different nature.
Document 23 of the AECA states that: "Cost inducers cause changes in the performance of an activity, therefore, it affects the resources required to carry out the activity."
The research assumes a new philosophy in assigning costs to products that become cost targets and that are no longer the only assignable basis traditionally used for strategic cost analysis as shown in the figure, 6.
There is a strong link between cost drivers and the value generation system, which contribute to the search for the competitive advantages that a company requires, which protects it from direct competition within its sector.
These are classified into two types: The first level inductors are those that are used to distribute the elements of expenses to the set of activities; and the second-level cost drivers that are the distribution bases through which the cost of activities is distributed among the products or services.
The author of this research agrees with the criteria issued.
Strategic positioning (PE)
When analyzing what is the role of accounting information within the business, which in principle is to facilitate the development and implementation of strategies. This is what sets the GEC apart from traditional managerial accounting. The relationship between costs and strategies, explained above, is resolved by the influence they have on each type of strategy chosen, the generation of costs and therefore the control that must be carried out in the management process. The strategies differ in the different types of organization and the controls should be adapted to the requirements of the chosen strategies. The link between controls and strategies originates from the following ideas:
- For effective execution, different strategies require different task priorities, key success factors, experiences, and perspective and behaviors. Control systems are units of measures that influence the behavior of people whose activities are being measured. a design of control systems according to the coherence between the strategy and the influence on people.
The strategic analysis is based on the aforementioned concepts, related to the Vision, Mission, Objectives and Strategies that operate as a main vertex in the elaboration of controls and the possibility of obtaining sustainable competitive advantages and care in the value chain.
Strategic positioning has been treated by the main authors of strategic management as a relevant instrument that fosters the location of the company in a competitive environment that incorporates two new dimensions, in addition to the two existing from the traditional point of view, formed by matrices. These two new dimensions are: financial strength, which makes it possible to better specify the competitive position, which can be a totally decisive factor for failure or success in an activity; and the stability of the environment, which by itself, can significantly change the attractiveness of an activity.
“In the context of the GEC, the analysis of the strategic positioning raises the question of what role does cost management play under this strategic aspect; undoubtedly, the role attributed to cost analysis will vary significantly depending on the way in which the company has decided to position itself in the market with respect to the competition; being its main aspects, cost differentiation and cost leadership ”.
In the author's opinion, cost differentiation is related to production of the highest quality, suitable for countries with high technological and scientific-technical development; while positioning in cost leadership focuses on the search for the lowest costs, through the application of systems that reduce the cost, convenient for countries like Cuba, which have not yet reached such advanced development in most of the sectors and branches of the economy. To achieve an in-depth analysis of the strategic position of costs, the two aspects shown in the figure are taken into account.
Strategic positioning of the business organization
- Cost leadershipDifferentiation leadershipLeadership targetingDifferentiated targeting
Aspects of strategic positioning
The strategies differ in the different types of organization, which requires that the controls must be adapted to the requirements of the chosen strategies. "A company whose mission is defined within the framework of a mature market, with undifferentiated products and a cost-leading strategy, product design costs should be a tool of fundamental importance."
Cuban state companies and entities integrate, to a large extent, the Cuban business system, where strategic decisions are aimed at satisfying the growing needs of the population, which demands higher quality products.
1.3 Theoretical methodological considerations on the activity-based cost management system
The use of cost management techniques associated with the GEC, allows managers to be informed for decision-making, by covering the processes of costing, budgeting and management by activities, basic to expand the information, which contributes to the management business strategy.
The activity-based cost system (CBA)
The activity-based cost system (CBA), emerged in the early 60s and its boom moved to the 80s, due to increases in irrelevancies in traditional accounting methods.
This method known in Anglo-Saxon terms as activity based costing (ABC), arouses great interest in academic and business circles, since it is the most rational criterion for calculating product costs for strategic decision-making by the company..
In relation to the above, the author of this work agrees with the authors Cooper and Kaplan, who considered that the CBA method allows to eliminate the lack of productivity, reducing and questioning all those activities that do not generate any added value. In this way, an increase in the global competitiveness of the business organization is achieved ”.
The ideas of the aforementioned authors who consider “… a CBA model, is an economic map of the costs and profitability of the organization based on activities” are considered essential.
This method is based on the identification of the costs of the different components, and for this it deals with the following:
- Identifies the resources that are used in the management of each activity. Quantifies the cost of the resources used in the management of each activity. Determines what activities are necessary for a product.
By virtue of the aforementioned, what is important is not the cost of the product, but the cost of the activities that make it up.
The author of this work considers that the CBA system has been a good instrument to manage costs, without this eliminating the traditional systems that in their time have been used to obtain beneficial information.
The difference between traditional costing and CBA can be summarized in three fundamental aspects.
- In traditional costing, cost targets are assumed to consume resources but in CBA, cost targets are assumed to consume activities. Traditional costing uses volume allocation of bases, while CBA uses costs (drivers) at different levels.
Why the CBA instead of the so-called traditional systems.
From the traditional point of view, indirect costs are generally assigned as the base of the products to be produced, unlike the CBA that identifies that indirect costs are assignable, based on the activities carried out to obtain the product.
The author agrees with other authors that the purpose of the CBA is focused on her intention to solve the differences manifested by the cost systems, used up to now in terms of distribution and allocation of indirect costs.
Advantages of the activity based cost system
Innes and Mithell have the following advantages:
- It is applicable to all types of organizations. It provides greater clarity of processes. It is concerned with the causal relationship between factors-activity-product. It makes possible the elimination of activities that do not generate added value. It identifies, evaluates and implements new activities. a greater understanding of information for strategic management accounting. Provides more segmented information. It is perfectly situated in the new technological spaces.
For Oriol A. and Soldevila P., the advantages of the CBA model are as follows:
- It is applicable to all companies. It identifies clients, products, services or other unprofitable costs. It allows more precise calculation of costs, mainly certain indirect costs of production, marketing and administration. It provides more information on the activities carried out by the company, allowing to know which ones provide added value and which don't, giving the possibility of reducing or eliminating the latter.
It allows you to relate costs to their causes, which is helpful to better manage costs. Cost management with the CBA philosophy, receives the name of ABM (Activity Based Management) also called SIGECA (Activity Based Cost Management System). The SIGEGA is oriented towards reduction (improvement in the performance of certain activities, elimination and / or subcontracting of activities, benchmarking of activities, pricing, replacement of equipment, etc.)
Limitations
According to Smith in the article cited above, it has the following limitations:
A CBA system is still essentially a system of historical costs. In certain circumstances, its usefulness is doubtful, especially if there are aspects of future costs that become more important.
With a CBA system, there is a danger of increasing arbitrary charges, if decision criteria are not required regarding the combination and distribution of structures common to the different activities, through various cost funds and cost inducers.
Often ignored by CBA systems is the fact that input data must have the ability to measure nonfinancial activities as cost drivers and to appreciate the importance of accuracy and reliability to ensure complete system accounting.
Cost drivers related to commitments that affect product design and plant layout are often given little importance, instead emphasizing cost generation. Activities for which data is not available, or is unreliable, such as marketing and distribution, are also often ignored.
Selecting cost drivers can be a difficult and complex process. According to Amat and Soldevila in their book: "Accounting and Cost Management", states that one of the main drawbacks that arise when trying to implement the CBA model is that certain indirect costs of administration, marketing and management are difficult to attribute to activities.
The Activity Based Budgeting System (PBA)
The extension of the principles of the CBA system to the budgetary area is what is called in Anglo-Saxon language the PBA, through which the cost estimates linked to the activities that must be undertaken to produce and sell products and services are established, therefore, the PBA, thus constitutes a logical methodological progression from the CBA and the Activity Based Management System (GBA).
The combination of costing and activity-based administration is what some authors (Amat, Castelló, Lizcano, Ripoll and Tamarit) call Activity-Based Management and Cost System -CBA / GBA-, which «… arises with the purpose to improve the calculation and management of any cost objective ».
According to the criteria of the authors Cooper and Kaplan, with whom the author of this work agrees, various organizations have become disillusioned with their budget systems, arguing that they take a long time to prepare, are very expensive and often do not add value to the company. In this frustration, they have abandoned the budgeting process. However, the solution has been the PBA System.
The objectives of a budget are:
- Systematically plan all the activities that the company must develop in money and volumes, in a certain period. Control the management of income and expenses of the company and measure the quantitative and qualitative results. Set responsibilities in the different dependencies of the organization to achieve the fulfillment of the planned goals. Coordinate the different cost centers and relate the activities of the organization.
A characteristic of the PBA is its concern with non-financial information systems. From a budgeting point of view, this attribute presents a different perspective than usual budgets, since the PBA focuses mainly on the activities required to operate effectively in the organization. Subsequently, the organization's performance measurement system will allow the preparation of non-financial standards and objectives to be observed and incorporated in the different budgets, which will allow for a better understanding of the level of activities and the resources required. to operate at such levels.
The activity planning process together with the CBA, contribute to cost management by promoting certain levels of efficiency from the introduction of profit centers in a coincidence with the activity centers that group those activities that generate value, by associating costs, expenses and income and in turn take into account that the costing process is carried out.
Managing and planning based on activities enables an adequate estimation of resources and allows decision-making on those processes and activities with the highest cost level, so as to contribute to their reduction, with a greater degree of accuracy in allow evaluating with sufficient anticipation the consequences that decisions will have on the economic and financial situation, so its advance determination is based on adequate planning of costs, expenses and income from activities, which allows evaluating in advance the organization's performance in the future and prepare for its evolution.
In Cuba, there are no known cases of implementation of the PBA system, although it should be noted that investigations have been accelerated in this regard for its future introduction, mainly in tourism companies.
The Activity Based Management System (GBA)
The ABM or Activity Based Management has a more generic dimension than the CBA system, given that it has a projection oriented to the management of the company in general, with the aim of achieving business excellence.
The CBA system is given an eminently accounting dimension that, based on this new philosophy, provides fairly renewed information regarding conventional methods, while also completing and supporting the general objectives assigned to the so-called GBA.
The characteristics that define this system are:
- It facilitates an analysis of the efficiency in the processes from the moment that allows defining the activity map, which informs about what the product and / or service costs, how the product is made in terms of quality and how much the activities cost. comprehensive management, where you can obtain information on financial and non-financial measures that allow optimal management of the cost structure. It allows you to know the flow of activities, so that each can be evaluated separately and assess the need for its incorporation into the process, with an overall vision. It provides objective valuation tools for cost allocation.It allows to know the flow of the activities carried out in the organization that are consuming the available resources to which certain costs must be imputed to the processes.
This cost management through activities is oriented towards cost reduction and the objective it pursues (…) is to achieve a comprehensive level of understanding of all the company's activities.
Therefore, through the analysis of the activities, the aim is to identify those tasks that are carried out, since the different sections or departments around which the different processes of the company are integrated are a starting point, since they are the activities those that determine the level of indirect costs incurred. There is a modification in the activity-cause-cost cost causation relationship, as the activity becomes the focus of this new approach, which allows establishing the cost of any cost objective, by aggregating those activities. that have intervened, directly or indirectly, in the process of obtaining the exits.
It constitutes a comprehensive management system, not only with the priority objective of calculating cost and cost objectives, but it also measures the scope, cost, and performance of resources, activities subject to cost, in addition to providing management of generating activities. of value, which provides a level of timely and accurate information that largely satisfies the managerial demands for the decision-making process in accordance with the strategies.
At the authors' discretion, Ph. D Luiz Carlos Miranda from Brazil and Dr. Antonio Jarazo Sanjurjo from Argentina, with whom the author of this work agrees, the specific benefits and strategic uses of this information are:
- More accurate costs of products, which allow better strategic decisions, related to the determination of the price of products, investment in research and development, etc. Greater insight into the activities carried out because the system maps the activities and remits costs to them, by encouraging the company to focus more on managing activities, such as improving the efficiency of high-cost activities and identifying and reducing those that do not provide added value.
Its application is recommended in companies that generally have the following characteristics:
- The percentage of indirect costs over the total costs of the organization has a significant weight, although it is true that its implementation would not make sense if it manufactured a single product for a single client. A second case of its application is in organizations where they are subject to strong price pressures in the market and want to know exactly the composition of the cost of products, since traditional management systems usually incorporate indirect manufacturing costs based on volumes of units produced or sold and, therefore, some of the products may be subsidized at the cost of others, and ultimately, prices may be incorrectly defined. A third case where advice could be givenIt is in organizations that have a high range of products with different manufacturing processes, and where it is very difficult to know the proportion of indirect costs of each product.Finally, it could even come up with a recommendation for its implementation in organizations with high levels of structural expenses and subject to major strategic-organizational changes. Thus, questioning about the possible success or failure of a system generates an upward development in the valuation of the system and constitutes beforehand a challenge to increase not only its expansion but also its real adoption in organizations.it could even come to raise the recommendation of its implementation in organizations with high levels of structural expenses and subject to major strategic-organizational changes. Thus, questioning about the possible success or failure of a system generates an upward development in the valuation of the system and constitutes beforehand a challenge to increase not only its expansion but also its real adoption in organizations.it could even come to raise the recommendation of its implementation in organizations with high levels of structural expenses and subject to major strategic-organizational changes. Thus, questioning about the possible success or failure of a system generates an upward development in the valuation of the system and constitutes beforehand a challenge to increase not only its expansion but also its real adoption in organizations.
In these moments in which development does not stop and the advancement of technology is dizzying, specialists constantly study different approaches to respond to the development that is coming upon the science under study and therefore, it can be said that in accounting activity, you can talk about a cost approach to decision making with a vision more in line with the development of the market and the industry. Among the methods that respond to these more advanced systems are: the CBA, GBA and PBA that are combined with each other.
Conclusions
With the purpose of specifying the results through which the problem of this research has been solved, the following conclusions are reached:
- It was verified that the system currently used by the industry does not provide the information required by managers for an efficient decision-making process. The entity does not have a system that favors management for decision-making, affecting efficiency. of the elaborated procedures constitutes a tool for management, by providing a detailed analysis of the costs for activities that increases the level of management. The system offers flexibility in its use, so its adaptation to other units in the agro-industrial sector is not so complex. They are integrated into the activity-based cost management system with the accounting system used by the entity, which becomes a tool that provides more complete information on economic and financial management.The application of the elaborated procedures constitutes a tool for the management as it is in accordance with the direction and management systems that are required for the business improvement through which these units pass.
recommendations
Once the objectives set for the development of this research had been completed, it was necessary to issue the following recommendations:
- The management of the rice CAI must adopt an adequate accounting system for the fundamental activity carried out in the units that make up the rice production based on the design proposed in this investigation. The entity must apply the new structure proposed in the work, to promote the improvement in the calculation of cost, budgeting and management of activities that add value to the product. The economic subdirectorate should automate the system proposed in the research for better processing and analysis of the information it provides to systematically carry out economic analyzes., financial and management.The CAI General Directorate together with the administration of the strategic units should adopt the minimum cost strategy as it is considered more feasible for rice production units in the search for economic efficiency as a sustainable competitive advantage. The administration of the strategic units must train the personnel in charge of the employment of the SIGESBA, as well as the managers who will be the users of the information. The general management of the CAI must take advantage of the procedures developed to insert them with the required leadership and management systems for business improvement.The entity must use the information offered by the proposed system to obtain a competitive position for its productions that is inserted in the national and international market.
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