The effect of Value-Added Activity Based Costing and Economic Value Essay

The effect of Value-Added Activity Based Costing and Economic Value Added Measure and their impact on Process Improvement & Busi - Essay Example Though ‘True Cost’ in any situation is fraught with so many uncertainties, by and large the efforts made in its ascertainment paved way for efficient and alternative management practices with improved results. An introspective analysis might reveal that no Value Added Measure circumventing this basic philosophy can make a headway in process improvement or business profitability, for the simple reason that all the value added measures hinges primarily on productivity, which could be addressed properly only through revisit of the approaches to the ‘value’, which predominantly depends on reasonably accurate calculation of the cost of production. Economic Value Added Measures Economic value addition (EVA) is generally discussed with reference to the financial performance, and acts as a complementary tool in the measurement of the performance in a broader perspective, keeping in line with the expectations of the stakeholders, where the finer details of the cost i s not perceived as important as in the case of management practices of ABC. ... iency in the operations, EVA needs to be integrated with ABC in the long run, because the later is related to the factors not directly related to ‘cost’ but scores of other factors such as alternative investments, competition, government policies and international events, which nevertheless influences cost. Cost Management Cost management is the basic underlying factor for the success of a business. Hilton, Maher & Selto (2008, p. 5) states, â€Å"Cost management is important to organizations because it is more than measuring and reporting costs that have occurred. Cost management is focused on the future impacts of current or proposed decisions. Cost management is a philosophy, an attitude, and a set of techniques to create more value at lower cost†. Computation of direct (or variable cost) of material or labor is relatively simpler. But, in the modern business enterprises and in the society, the increase in the proportion of other costs over the period of time w hich hitherto have been considered as fixed and uncontrollable assumed significance, since the controllability of such costs could not be overlooked in a competitive environment. Vazakidis, Karagiannis & Tsialta (2010, p. 382) state, â€Å"The use of this method [ABC] with the cooperation of new technologies and new methods of management, can resolve all the deficiencies of Public Sector, so as citizens and companies will be better served†. Fundamentals of Activity Based Costing Hilton, Maher & Stelto (2008, p 148) state that â€Å"Studies of company practices indicate that a large number of companies, as well as some organizations in the public sector, are using ABC. Some companies have tried ABC and dropped it. Reasons for this include its implementation cost. In the case of Hewlett-Packard division that one