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

by Robert S. Kaplan (Author), Robin Cooper (Author) "Changes in business since the mid-1970s, triggered by global competition and technological innovations, have led to striking innovations in the use of financial and nonfinancial..." (more)
Key Phrases: activity cost driver rates, cost driver quantities, operational feedback systems, Harvard Business School, Complex Factory, Batches Product (more...)

Editorial Reviews

Review
"The authors provide a blueprint that helps managers make better decisions and promote organizational learning and improvement." -- IT Professional, July-August 1999

Product Description
Two of the most innovative thinkers in the field present a work that represents the single best resource for understanding and implementing activity-based cost management. Kaplan and Cooper reveal that most companies don't know how to measure accurately, influence, or understand the fundamental cost drivers in their businesses. They then provide a detailed and comprehensive blueprint that will enable managers to make better decisions and to promote organizational learning and improvement.

Cost and Effect takes the management, finance, and accounting fields to an entirely new level, as the authors demonstrate how the principles of activity-based costing and other advanced cost management techniques, such as target and kaizen costing, can drive business performance. Using lively examples from a variety of leading companies worldwide--including Siemens, Hewlett-Packard, AT&T, the Swedish wire manufacturer Kanthal, Kirin Beer, and Procter & Gamble--they show how to create integrated, knowledge-based systems that provide meaningful information on current and past performance.

The innovation systems described in Cost and Effect will help you: Determine where improvements in quality, efficiency, and productivity will have the highest payoffs. Assist front-line employees in their learning and improvement activities. Make better product mix and capital investment decisions. Negotiate more effectively on price, product features, quality, delivery, and service to promote win-win relationships with your customers. Choose low-cost suppliers who are truly low cost, not just low price. Design products and services that meet customers' expectations--and that can be produced and delivered at a profit. Integrate your activity-based cost system into reporting and budgeting processes to reveal the sources of excess capacity.

Everyone involved in running a business--from general managers and strategic planners to financial executives, IT professionals, and operations managers--must read this book to learn how innovative cost and performance measurement systems can enhance their organizational profitability and performance.

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Product Details

• Hardcover: 357 pages
• Publisher: Harvard Business School Press (October 1997)
• Language: English
• ISBN-10: 0875847889
• ISBN-13: 978-0875847887
• Product Dimensions: 9.4 x 6.1 x 1.3 inches
• Shipping Weight: 1.6 pounds (View shipping rates and policies)
• Average Customer Review: 4.5 out of 5 stars See all reviews (11 customer reviews)
• Amazon.com Sales Rank: #149,285 in Books (See Bestsellers in Books)

Customer Reviews

Most Helpful Customer Reviews

22 of 25 people found the following review helpful:

5.0 out of 5 stars Evolving Toward Better Financial Information and Actions!, October 4, 2001

By	Professor Donald Mitchell "Jesus Makes Me a P... (Boston) - See all my reviews (TOP 10 REVIEWER)

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!

7 of 8 people found the following review helpful:

5.0 out of 5 stars The very best book on activity-based management., October 24, 2002

By	Arthur Keen (Austin, TX USA) - See all my reviews

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.

9 of 11 people found the following review helpful:

5.0 out of 5 stars Great book to understand how to make ABC really useful, June 12, 1998

By A Customer

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.