Customer Reviews

Cost & Effect: Using Integrated Cost Systems to Drive Profitability and Performance

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Cost & Effect will most appeal to those who have had extended experience with Activity-Based Costing (ABC) or operate in manufacturing industries.

If you are interested in learning more about Activity-Based Costing, this book is not the best choice for you. Professor Kaplan has co-authored books that explore this subject in much greater detail.

Most people set as their initial priority the need to have accurate financial reporting for the entire enterprise. Falling below that level of effectiveness is Stage I in the terms of this book. Once you have that financial reporting done accurately, you are at Stage II. But you know almost nothing about how to manage your costs better. In order to do that, you will need to establish ad hoc financial reporting processes designed to help your organization learn from its experience and identify opportunities for improvement, built around Activity-Based Costing (ABC). ABC is simply a way of more accurately applying overhead costs back to activities and then processes that permits accurately understanding more about which combinations of products and services and customers are profitable and which are not. Then, within each activity, you can also see the inefficiencies in what you are doing that present opportunities for improvement. The book also has a nice discussion of Kaizen costing that is widely used in Japanese companies looking for on-going cost improvements, based on Professor Cooper's research. There are a few case histories to illustrate the principles, but most will find these insufficient to guide them through the process. In other books, Professor Kaplan has pointed out that there is a lot of acquired art in the subject and you probably need help to get it right. I concur. Once you have ABC operating in stand-alone systems, you are at Stage III.

At this point, you will have a financial reporting system that is separate from the ABC system. How do you put them together? That the subject of chapter 14, which is the key value-added part of this book. You will see what the systems architecture and process flow needs to be in order to combine ABC with Enterprise-Wide Systems (EWS) of the sort that many large companies have invested in during recent years. Putting the two together will greatly improve planning, budgeting, design of new products and services, and operational improvements. Chapter 15 expands into the area of how to apply the combined system to budgeting and transfer pricing. Combing ABC and EWS puts you at Stage IV, a level rarely reached today.

The book's main message is that it's a mistake to try to go from Stage II directly to Stage IV. There's a lot of experimentation and mistakes that you can benefit from in an extended Stage III. I agree again, based on my experience with ABC.

The one caution you should have about ABC in this context is that if you are going to radically change your business model every 2-5 years as many companies are, Stage IV is probably unattainable and undesirable. You can't hold back business model innovation for better cost systems. The next business model innovation will probably give you better costs than tweaking the current business model with ABC will.

Seek out the fastest route to progress, and do more of it!

I have read this book cover to cover and have re-read chapters. Kaplan ensures that you grasp the fundamental concepts by keeping things simple. He illustrates the concepts with easy to understand examples. I gained very little knowledge from the first 3 ABM books I read, but after reading "Cost and Effect," I felt that I had a good enough grasp of the fundamentals to actually implement a costing system.

This book drives the business and finance community to rethink how a company should handle cost. It shows the 4 stages of financial reporting and ABC strategies. Companies have to switch their strategy of using traditional financial reporting to understand business performance and make it the other way around. Business Management Reporting should drive the Financial Reporting and the accountants should handle Financial Reporting for external needs in a locked room. This issue is analyzed from the ABC eyes. It is a must read book, innovative and out of the box thinking.

Kaplan and Cooper have put together an outstanding guidebook for managers to follow in order to reap the most significant benefits from activity based costing and other cost management techniques. The great merit of this book is that it does not preach to the reader the latest management fad, but rather goes through a thorough analysis of budgeting processes, highlighting benefits and drawbacks of each. They do not claim ABC is the best approach, and even praise some simpler methods that are more adequate for certain companies. Instead, they point to the circumstances in which ABC can provide outstanding results to companies.

The book structured first with an analysis of the most often used systems of managerial cost accounting. It highlights the shortcomings of these, proceeding then to present certain productivity improvements that could contribute to performance. These are mostly related to the quality movements (TQM, 6 Sigma, etc), which are presented in a very understandable way. These are complements to the existing usual cost management systems. These improvements can be made even without implementing ABC systems.

Then the authors proceed to describe activity based costing and its benefits in terms of choosing customers, suppliers, and product breadth. They present many examples that would be very relevant to any practitioner, in industry or service. There is a specific section focusing on services, which makes the appropriate adaptations to the systems for the peculiarities of it.

Overall, an outstanding work, to help anyone involved in cost management, whether they are interested in activity based costing or more traditional standard costing methods.

Kaplan and Cooper put together one of the best summaries of the state of cost management. Not really the state, but the best of what it could be. They also explain different approaches in cost that can be used, non-financial measures, and the systems required to get there. How does German Cost Accounting, ABC, and using other measures help in running an advanced company? How does your company rate in its cost management practices? You can figure that out here. If you are in the field, you should read this book.

Kaplan & Cooper provide a systematic execution path to businesses wishing to understand their cost structures (and therefore profit opportunities) better than their competitors. The format is easy-to-read and thought provoking. Couple this with a change management book (like John Kotter's Leading Change) and you're well on the way to a succesful transformation of both culture & cost structure.

I read this book as part of an MBA module. I didnt know anything about Activity Based Costing at the time and so the book was a little difficult since it was not meant to be an introduction to the subject. After I did some research and became more familiar with the material, I realised how great this book is. I have read it twice. The book is well structured and the authors use plenty of real life case studies. The reason I gave it only 4 stars is that I would have rather seen a large section at the end of the book with more detailed information about the case studies. I read some Harvard case studies that were mentioned in the text and it was really helpful because they put things in perspective. I think the authors should have included two or three case studies with their analysis at the end of the book. Other than that, I dont think that there is a better book about the subject out there.

Robert S. Kaplan and Robin Cooper's work on activity-based costing has achieved the status of a minor classic in managerial accounting literature. First published in 1997, it explained why activity-based costing has advantages not only for accounting, but also for management and strategy. Moreover, it linked the advantages of activity-based costing to what, at the time, seemed to be novel ideas about economic value added and enterprise systems. Nearly 10 years after its initial publication, the book seems surprisingly fresh and relevant (notwithstanding the authors' enthusiasm for the "information age" and the potential of enterprise systems). The authors present the case for activity-based costing in a clear and straightforward manner. The book is well-organized and surprisingly free of jargon. We recommend it as a good introduction to managers who are new to the subject. Even those familiar with the concept and practice of activity-based costing may find useful reminders of basic principles in this book.

After reading several academic papers concerning activity based costing I still wasn't convinced about the usefullness of the methodology. After reading Cost & Effect I revised my opinion on Cost Management. This book gives all the answers to effective Cost Management. It takes you from the ABC Age to the Activity Based Management Age and clearly helps you to understand what costs are alle about. Once you really understand the topics of this book you will be able to face and manage costs in whatever business you are in. Read it!

Kaplan was succesfull in your book by putting together very importante concepts about cost: accurate use of ABC/ABM, Standard Cost with budget systems. In Brazil, since 1995, we have been developing this concepts in pratical cases with major bank institutions (both brazilian and foreign). Kaplan put light in the main concepts but fail in bring robust experiences in Financial Sector: most of banks, brokers, insurance companies are wrong in your profitability calculations; big financial groups around the world need build these concepts in your daily life. I hope Kaplan could help us with cases about this matter. Thank you.