Page 109 - DCOM202_COST_ACCOUNTING_I

Unit 5: Methods of Valuing Material Issues

the flow of activities throughout the area. “One of the things we’ve discovered through Notes
our work with Focused Management is the simple act of examining what activities occur
in which department has yielded valuable insights and caused us to change the way we
perform what we do”, explains Henry Kowal, senior analyst at Sun Life.
The team, with the assistance of the systems department, collected resource and activity
driver information and entered all the information into their ABC software. Activity,
process and unit activity costs were obtained and validated by the team and then by senior
division management.
Results
The results of the ABC analysis provided a great deal of insight for the Sun Life senior
management team, as well as confirmed quantitatively what many managers assumed,
but could never prove. Significant differences in activity cost, process cost, cycle time,
transaction volumes and unit costs were found both within locations and between the
different locations. In some cases, unit costs for the same activity varied by over 300%.
These unit cost results varied by type of claim, as well as the experience of the claims
adjudicator.

When the team looked at cycle time or FTE required to perform a given volume of claims,
large differences were found in the efficiency of the four processing centers as well as in
the call centers. Some locations could process a similar amount of claims, with a lot less
personnel, than other locations. This has led to a review of the activities, tasks and work
flow in each location, with a view towards standardizing process steps as much as possible,
as well as learning from the most efficient areas.
When compared with industry standards, outsource partners and the different claims
processing centers, Sun Life has been able to perform extensive benchmarking analysis.
The benchmark or best practice data has allowed them to determine how efficient and
effective they are, compared with where they can be, and has shown management where
to concentrate the process improvement initiatives.
The activity cost and performance results have also allowed operations management
to assess the “value” or utility of all the activities performed within group claims.
Some activities are performed which do not add any value to the process and are being
eliminated. Other activities have been found to be value adding, but are performed too
often or cost too much every time they are performed. These activities are in the process of
being redesigned, so they will be performed at the right time and cost.

Action Steps
Faced with all this great new information, Sun Life, like all organizations, had to determine
how best to use the information and analysis to make changes in the way they run the
business. The first step was to present the analysis to operations management in each of
the four processing locations, as well as to senior management. This was accomplished
through a full-day management briefing and workshop. The workshop provided managers
an opportunity to “dive” into the analysis and become comfortable with the results. Once
they were comfortable with the results, the ABC project leader then led the managers
through an analysis of where further detail is required and what data the managers need to
see on a go-forward basis. Management then brainstormed all the uses of the ABC results
and prioritized which uses were most immediate. They then assigned responsibilities and
resources, to make sure the actions were achieved. We have found that the management
workshop is a critical component in obtaining management buy-in, as well as getting
management to internalize the next steps with regard to the ABC analysis.

Contd…

LOVELY PROFESSIONAL UNIVERSITY 103