Page 110 - DCOM202_COST_ACCOUNTING_I

Cost Accounting – I

Notes Following the ABC management workshop, the ABC team and the operations management
set about on several action steps. The first priority was to conduct best practice analysis on
their operations. Process and work steps were shared amongst the various locations, and
best practices were implemented across the locations. This is an ongoing piece of a larger
process redesign and improvement project.
Ongoing education has been a key component in the overall strategy to ensure managers
understand the data and know how to use the information properly to make decision. The
continuous training and working with management has helped management understand
the results and has promoted buy-in on a continuous basis.

The ABC results have focused management’s attention on the importance of measurement
and the management of those measures. The time, quality, quantity and financial data
provided by the ABC analysis has reinforced the concept of management through
measurement within Sun Life. Decisions are now beginning to be made within an overall
measurement and management framework.

A major focus for all managers within group claims is now the management of unit costs
across all the activities. With claims volume increasing at a steady rate, a reduction of the
unit cost of processing claims should result in an overall cost reduction for the division,
and an increase in profitability. By using the ABC data, managers have been able to
significantly reduce the absolute activity cost, as well as the unit cost of the major claims
processing activities. “As a result of the ABC analysis, we have seen over a 10x reduction
in expenses compared with the implementation costs of ABC”, explains Luc Chouinard,
Manager, Expense Management.
In order to evaluate the progress being made with all these action steps, the ABC results
have been updated several times, and trend analysis has been undertaken to monitor the
results on an activity basis. These updates are being completed quarterly.
Next Steps
As a result of the initial ABC analysis, several next steps are in the process of implementation.
These include the roll out of ABC within other divisions of Sun Life, the integration of the
ABC results with ongoing NQI and ISO initiatives, and the ongoing use in process redesign
initiatives.

The current ABC analysis concentrated on activities by position and their associated cost,
quantity, quality, cycle time and unit cost calculations. As the ABC analysis becomes
further refined, individual customer profitability will be analyzed. There is a recognition
that customers have different profitability characteristics that have an impact on service
pricing and profitability. As a next step, activities will be costed at the unique customer
level to determine customer profitability.
Summary
The ABC system implemented within Sun Life Group Claims has helped to realize
significant reductions in operational costs within the claims processing areas. The
ability to compare the activities performed in different locations has allowed operations
management to install best practices observed at each location throughout all the centers.
The ABC information has acted as an important driver in implementing a measurement
based management system, as well as helped realize concrete results. ABC has been a
catalyst for change within Sun Life.

5.8 Summary

z z Proper estimation of inventory requirements-quantity, quality, specifications of inventory,
etc. This will help the purchase manager to quality and quantity of materials.

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