Group 11 : Management Accounting Seminar

1510534002 Ramadhani Sardiman International Accounting

1510534013 Retno Ladyta Andalas University

Reaction Paper of Chapter II - Strategic Cost Management

Case :

The modern cost management information system uses a much broader information
set than has been traditionally used. It provides information about costs, quality, cycle time,
drivers, and outputs. This integrated management accounting framework is built in what is
referred to as a data warehousing/business intelligence environment (DW/BI). Using the
DW/BI programs, companies can easily calculate supplier costs and customer profitability. A
number of companies such as Barclays Bank, Avnet, Inc., BellSouth, and Ford are using
DW/BI programs. For example, Barclays Bank uses information from its DW/BI program to
segment its customers on the basis of lifetime value. This segmentation allows the bank to
offer targeted, differentiated services and pricing.

First Union Corporation—which merged with Wachovia in 2001 and is now

Wachovia Corporation, the fourth-largest bank in the United States—is a good example of
how customer profitability information can be used for purposes of offering differentiated
services and pricing. First Union used a computerized, color-coded information system that
revealed information about customer profitability to bank employees who serviced
customers. Customers asking for specific services received a yes, maybe, or no answer
depending on their color-code ranking. A red code signaled that the customer was losing
money for the bank; a green code meant the customer was a source of significant profits for
the bank; and a yellow code was for in-between customers. Green-code customers who
requested a lower credit card interest rate or a fee waved for a bounced check got a positive
answer, customers with a red code almost always received a negative answer, while
customers with a yellow code had a chance to negotiate. First Union estimated that this
approach would increase its annual revenue by $100 million. About half of this $100 million
was from extra fees and other funds collected from unprofitable customers and from the
increased deposits gained by retaining preferred customers targeted to receive more services.

1
Pro :

The DW/BI programs help solve the on-going problem of pulling data out of
transactional systems quickly and efficiently and converting that data into actionable
information. In today’s competitive business environment, large companies have operations
in many places within their home country and other parts of the world. Each of their branch
offices may generate huge volumes of data on a daily basis, and corporate decision makers
require access to those data sources. This is where data warehouses come in. The data
warehouse is one of the most important business intelligence tools a business need to have. It
turns the massive amount of data generated from multiple sources into a format that is easy to
understand.

Insights will be gained through improved information access. Managers and

executives will be freed from making their decisions based on limited data and their own “gut
feelings”. Decisions that affect the strategy and operations of organizations will be based
upon credible facts and will be backed up with evidence and actual organizational data.
Moreover, decision makers will be better informed as they will be able to query actual data
will retrieve information based upon their personal needs. In addition, data warehouses and
related business intelligence can be used to can be applied directly to business processes
including marketing segmentation, inventory management, financial management, and sales.

For many organizations, enterprise information systems are comprised of multiple

subsystems, physically separated and built on different platforms. Moreover, merging data
from multiple disparate data sources is a common need when conducting business
intelligence. To solve this problem, the data warehouse performs integration of existing
disparate data sources and makes them accessible in one place. Consolidating enterprise data
into a single data repository alleviates the burden of duplicating data gathering efforts, and
enables the extraction of information that would otherwise be impossible. Additionally, the
data warehouse becomes the “single view of truth” for the enterprise rather than the multiple
truths that can come from reporting on individual subsystems.

Data warehouses generally contain many years worth of data that can neither be
stored within nor reported from a transactional system. Typically transactional systems
satisfy most operating reporting requirements for a given time-period but without the
inclusion of historical data. In contrast, the data warehouse stores large amounts of historical
data and can enable advanced business intelligence including time-period analysis, trend

2
analysis, and trend prediction. The advantage of the data warehouse is that it allows for
advanced reporting and analysis of multiple time-periods. A data warehouse is essential for
any business that wants to profit from sound business decisions.

Reference :

Hansen, Don R., Mowen, Maryanne M. & Guan, Liming (HM). 2009. Cost Management,
Accounting and Control, 6th edition. South-Western Engage Learning. HM-12.