Reeve, J. M. 1989. The impact of variation on
operating system performance. Proceedings of the Third Annual Management
Accounting Symposium. Sarasota: American Accounting Association: 75-89.
Summarized by Nicole Sackedis
Master of Accountancy Program
University of South Florida, Fall 2000
Main Page | SPC
TRADITIONAL COST CONTROL TECHNIQUE
- NOT TIMELY
- Ability of operating managers to control their process is
limited severely by reporting frequency.
- Losses are a signal for corrective action. However,
losses occur before correction is implemented.
This is an example of
- FAILS TO PROMOTE IMPROVEMENT
- Influence organization toward lesser objective-just meets
- Harmful if it builds waste into standard.
- Engineering departments don’t have system designed to
update standards on a frequent basis.
Resulting in accounting systems
lagging engineering reality.
- Any ideas about a solution to this problem
- END MEASURES
- This is the information that comes from the standard cost
system; it only serves as a control function, not a corrective tool.
- PRODUCTION ORIENTED ONLY
- Assumption made by using engineered costs. These cause
- Performance of systems is multidimension - so achieving
the most for the least, which can
lead to dangerous conflicts on
dimensions of quality, deliverability and service
- An assumption that summed sub-factor efficiencies will
lead to global efficiency is under question.
- DATA AGGREGATION
- Serious shortcoming-aggregation of time order data into
an accumulated variance of performance overtime. Data behavior overtime
gives important evidence about causes of process behavior.
- TOP DOWN/NARROW CONTROL
- Worked well in repetitive and process focused
manufacturing. However, work is being organized in cross-functional teams,
resulting in the definition of responsibility centers expanding.
- A top down approach does not provide for employee
- Improper tracing of responsibility
- PERFORMANCE LEVELS
- Measured against standard levels, this ignores
issues of variation.
STATISTICAL PROCESS CONTROL
- Original use was to improve output of manufacturing
- Control chart preserves the time order in data and
provides the audit trail for improvement work.
- Important for 2 reasons to accountants: processes that
are not in control are not predictable and the performance appraisal
system should recognize the distinction between in and out of control.
- RELATIONSHIP BETWEEN COST AND VARIATION
- Two types of variation—process and product variation.
SUMMARY COMPARISON OF TRADITIONAL CONTROL VS. SPC
Weakness of Engineering Control
Strengths of Statistical Process Control
Real time data.
Fails to promote process improvement.
Promotes continuous process improvements.
Focuses on ends measures of performance.
Focuses on causal factors of performance.
Myopic-production oriented only.
Multi-factor oriented, productivity, quality, time.
High level of data aggregation.
Time order of data preserved.
Top-down narrow control.
Horizontal and process control.
Performance levels, ignores issues of variation.
Performance bands and variation highlighted.