Functional cost analysis is focused on. Functional cost analysis (FSA)

functional cost analysis allows you to perform the following types works:

Definition and implementation general analysis the cost of business processes at the enterprise (marketing, production and services, sales, quality management, technical and warranty service and etc.);

Conducting a functional analysis related to the establishment and justification of the functions performed by the structural divisions of enterprises in order to ensure the release High Quality products and services;

Identification and analysis of basic, additional and unnecessary functional costs;

Comparative analysis alternatives reducing costs in production, marketing and management by streamlining functions structural divisions enterprises;

Analysis of the integrated improvement of enterprise performance.

Functional cost analysis (FCA, Activity Based Costing, ABC) is a method for determining the cost and other characteristics of products, services and consumers, using as a basis the functions and resources involved in production, marketing, sales, delivery, technical support, service delivery, customer service, and quality assurance.

The FCA method is designed as an "operations-oriented" alternative to traditional financial approaches. In particular, unlike traditional financial approaches, the FSA method:

Provides information in a form understandable for the personnel of the enterprise directly involved in the business process;

Allocates overheads according to a detailed calculation of the use of resources, a detailed understanding of the processes and their impact on cost, and not on the basis of direct costs or accounting for the full volume of output.

The FSA method is one of the methods that allows you to indicate possible ways to improve cost indicators. The purpose of creating a FSA-model for improving the activities of enterprises is to achieve improvements in the work of enterprises in terms of cost, labor intensity and productivity. Carrying out calculations according to the FSA model allows you to obtain a large amount of FSA information for making a decision.

The FSA method is based on data that provide managers with the information necessary to justify and make management decisions when applying methods such as:

- "just in time" (Just-in-time, JIT) and KANBAN;

Global Quality Management (TQM);

Continuous improvement (Kaizen);

Reengineering of business processes (Business Process Reengineering, BPR).

The FSA concept allows presenting management information in the form of financial indicators. Using simply American dollars or rubles as units of measurement for financial indicators, the FSA method displays financial condition companies better than traditional accounting does. This is because the FSA method physically reflects the functions of people, machines and equipment. The FSA method displays the level of resource consumption by functions, as well as the reasons why these resources are used.

FSA-information can be used both for current (operational) management and for making strategic decisions. At the level of tactical management, information from the FSA model can be used to form recommendations for increasing profits and improving the efficiency of the organization. On the strategic level - assistance in making decisions regarding the reorganization of the enterprise, changing the range of products and services, entering new markets, diversifying, etc. FSA-information shows how it is possible to reallocate resources with the maximum strategic benefit, helps to identify the possibilities of those factors (quality, service, cost reduction, labor intensity reduction) that have highest value, as well as determine the best options investment.

The main directions for using the FSA model for reorganizing business processes are to increase productivity, reduce cost, labor intensity, time, and improve quality.

Performance improvement includes three stages. At the first stage, the analysis of functions is carried out to determine the possibilities for improving the efficiency of their implementation. At the second stage, the causes of unproductive expenses and ways to eliminate them are identified. Finally, the third step is to monitor and accelerate the desired changes by measuring key performance parameters.

With the help of the FSA method, it is also possible to reduce the cost, labor intensity and time of work. To do this, do the following:

Reduce the time required to perform functions;

Eliminate unnecessary features;

Form a ranked list of functions by cost, labor intensity or time;

Select functions with low cost, labor intensity and time;

Organize the sharing of all possible functions;

Reallocate resources freed up by improvements.

Function-based management is based on several analytical methods using FSA information. These are strategic analysis, cost analysis, time analysis, labor intensity analysis, target cost determination and cost calculation based on life cycle product or service.

One of the ways to use the principles, tools and methods of the FSA is budget planning based on functions. Budget planning uses the FSA model to determine the scope of work and resource requirements. Two ways of use can be distinguished: the choice of priority areas of activity linked to strategic goals; and developing a realistic budget.

The development of the FSA method was the method of functional cost management (FSU, Activity-Based Management, FSU).

FSO is a method that includes cost management based on the application of a more accurate allocation of costs to processes and products.

The FSO method allows not only to determine costs, but also to manage them. However, do not put an equal sign between management and control. FSA/FSO data are used more for "predictive" modeling than for control. Today, the use of cost data for control needs is being replaced by more operational information from the TQM method, implemented in the form of statistical process control functions (Statistical Process Control, SPC), or from integrated information systems working in real time.

Application of the FSA-model for assessing the activities of an enterprise

Functional cost analysis (FSA, A activity B settled C osting, ABC) is a technology that allows you to evaluate the real value of a product or service, regardless of the organizational structure of the company. Both direct and indirect costs are allocated to products and services depending on the amount of resources required at each stage of production. The actions performed at these stages, in the context of the FSA method, are called functions (activities).

The purpose of the FSA is to ensure the correct allocation of funds allocated for the production of products or the provision of services, according to direct and indirect costs. This allows for the most realistic assessment of the company's costs.

Essentially, the FSA method works according to the following algorithm:

Does the market dictate the price level or is it possible to set the price of products that will give the planned profit?
Should the projected premium on FSA costs be applied equally across all operations, or do some functions generate more revenue than others?
how does the final selling price of products compare with FSA indicators?

Thus, using this method, you can quickly estimate the amount of profit expected from the production of a particular product or service.

If the original cost estimate is correct, then income (before taxes) will be equal to the difference between the selling price and the costs calculated using the FSA method. In addition, it will immediately become clear which products or services will be unprofitable (their selling price will be lower than the estimated costs). Based on this data, you can quickly take corrective actions, including revising business goals and strategies for the coming periods.

Reasons for the appearance of FSA

The FSA method appeared in the 80s, when traditional methods of cost calculation began to lose their relevance. The latter appeared and developed at the turn of the last and the century before last (1870 - 1920). But since the early 1960s, and especially in the 1980s, changes in the way we manufacture and do business have led traditional cost accounting to be called "enemy number one for production" because its usefulness has become highly questionable.

Traditional cost estimation methods were originally developed (according to GAAP standards based on the principles of "objectivity, verifiability and significance") for the evaluation of inventories and were intended for external consumers - creditors, investors, the Securities Commission ( S economy E xchange C ommission), Internal Revenue Service ( I internal R evening S service).

However, these methods have some weaknesses, especially noticeable when internal management. Of these, the two biggest drawbacks are:

The impossibility of accurately conveying the costs of producing a particular product.
Failure to provide feedback- information for managers necessary for operational management.

As a result, managers of companies selling various types of products accept important decisions concerning price setting, product combination and production technology, based on inaccurate cost information.

So decide contemporary issues Functional cost analysis was called upon, and it ended up being one of the most important innovations in management in the last hundred years.

The developers of the method, Harvard University professors Robin Cooper and Robert Kaplan, identified three independent, but in concert, factors that are the main reasons for the practical application of the FSA:

The process of structuring costs has changed very significantly. And if at the beginning of the century labor labor was about 50% of general expenses, material cost is 35% and overhead is 15%, now overhead is about 60%, materials is 30%, and labor is only 10% of production cost. It is clear that using working hours as a basis for allocating costs made sense 90 years ago, but with modern structure costs have already lost their force.
The level of competition that most companies face has increased tremendously. "A rapidly changing global competitive environment" is not a cliché, but a very real nuisance for most firms. Knowing the actual costs is very important to survive in such a situation.
The cost of performing measurements and calculations has declined as information processing technologies have advanced. Even 20 years ago, the collection, processing and analysis of the data needed for the FSA were very expensive. And today not only special automated systems evaluation data, but also the data itself, which is usually already collected and in one form or another and stored in each company.

In this regard, the FSA can be a very valuable method, since it provides information on the full range of operational functions, their cost and consumption.

Difference from traditional methods

Under traditional financial and accounting methods, a company's performance is valued by functional operations rather than by services provided to the customer. The calculation of the effectiveness of a functional unit is made according to the execution of the budget, regardless of whether it benefits the client of the company. In contrast, functional cost analysis is a process management tool that measures the cost of performing a service. Evaluation is carried out both for functions that increase the value of a service or product, and taking into account additional features, which do not change this value. If traditional methods calculate the costs of a certain type of activity only by categories of expenses, then the FCA shows the cost of performing all process steps. FSA explores all possible functions in order to determine the most accurate cost of providing services, as well as to ensure the possibility of upgrading processes and increasing productivity.

Here are three main differences between FSA and traditional methods (see Figure 1):

Traditional accounting assumes that cost objects consume resources, while in FSA it is assumed that cost objects consume functions.
Traditional accounting uses quantitative indicators as the basis for allocating costs, while FSA uses sources of costs at various levels.
Traditional accounting is focused on the structure of production, while the FSA is focused on processes (functions).

Rice. 1. Main differences between FSA and traditional cost accounting methods

The direction of the arrows is different, as the FSA provides detailed information about the processes for cost estimation and performance management at multiple levels. And traditional cost accounting methods simply allocate costs to cost objects, without taking into account cause and effect relationships.

So traditional cost accounting systems focus on the product. All costs are attributed to the product, since it is believed that the manufacture of each element of the product consumes a certain amount of resources proportional to the volume of production. Therefore, the quantitative parameters of the product are used as cost sources for calculating overhead costs ( working time, machine hours, cost of materials, etc.).

However, quantitative indicators do not allow taking into account the diversity of products in terms of size and complexity of manufacture. In addition, they do not reveal a direct relationship between the level of expenditure and the volume of production.

The FSA method uses a different approach. Here, the costs of performing individual functions are first determined. And then, depending on the degree of influence of various functions on the manufacture of a particular product, these costs are correlated with the production of all products. Therefore, when calculating overhead costs, functional parameters such as equipment setup time, number of design changes, number of processing processes, etc. are taken into account as cost sources.

Consequently, the more functional parameters there are, the more detailed the production chain will be described and, accordingly, the real cost of production will be more accurately estimated.

Another important difference between traditional cost estimation systems and FSA is the scope of functions. In traditional inventory valuation methods, only internal production costs are tracked. The FSA theory does not agree with this approach, believing that when calculating the cost of a product, all functions should be taken into account - both those related to supporting production and the delivery of goods and services to the consumer. Examples of such functions include: production, technology development, logistics, product distribution, service maintenance, information support, financial administration and general management.

Traditional economic theory and financial management systems consider costs as variables only in the case of short-term fluctuations in production volumes. The theory of functional cost analysis assumes that many important price categories also vary over long periods (several years), with changes in the design, composition and range of products and customers of the company.

Table 1 compares the FSA and traditional cost accounting methods.

Table 1. FCA and Traditional Cost Accounting Methods

FSA	Traditional Methods	Explanation
Feature Consumption	Resource consumption	Traditional accounting methods are based on the assumption that prices can be controlled, but as the practice of most managers has shown, this is practically impossible. The theory of functional cost analysis recognizes that only what is produced can be controlled, and prices change as a result. The advantage of the FSA approach is that it provides a wider range of measures to improve business performance. In a systematic study of the functions performed, not only the factors affecting the increase or decrease in productivity are revealed, but also the incorrect distribution of resources is detected. Therefore, in order to reduce costs, it is possible to rationally allocate capacities and achieve more high performance than the traditional way.
Sources of costs at different levels	Quantitative cost allocation bases	As overhead costs rise, new technologies emerge, and of course, allocating costs based on 5-15% (as in most companies) of all total costs is too risky. In fact, errors can reach several hundred percent. In functional cost analysis, costs are distributed in accordance with cause-and-effect relationships between functions and cost objects. These links are fixed with the help of cost sources. In practice, the sources of costs are divided into several levels. Here are the most important ones: Unity level. At this level, sources are considered for each unit of output produced. For example: a person and a machine that produce a product per unit of time. The corresponding working time will be considered a cost source for the unit level. This is a quantitative measure similar to the cost allocation basis used in traditional accounting methods. Batch level. These sources are no longer associated with units, but with batches of products. An example of using the functions of this level would be production planning, which is carried out for each batch, regardless of its size. A quantitative indicator of such sources is, as a rule, the number of parties. Product level. Here we are talking about sources related to the release separate species products, regardless of the number of units and batches produced. As an indicator, for example, the number of hours required to develop a product is used. The higher this indicator, the high costs assigned to this product. Enterprise level. The sources of this level are not directly related to the products, they are general functions associated with the operation of the enterprise as a whole. However, the costs they cause are allocated later on by product.
Process orientation	Structural Orientation	Traditional costing systems are more focused on organizational structure, not on an existing process. They cannot answer the question: "What should be done?" because they do not know anything about the process. They have only information about the availability of resources needed to do the job. And the process-oriented method of the FCA gives managers the opportunity to most accurately match resource requirements and available capacities, and therefore increase productivity.

FSA application. Example

Incorrect pricing of products occurs in almost all companies involved in the production or sale of a large number goods or providing various services. To understand why this happens, consider two hypothetical factories that produce simple items - ballpoint pens. Factory #1 produces a million blue pens every year. Factory #2 also produces blue pens, but only 100,000 a year. In order for production to operate at full capacity, as well as to ensure the employment of personnel and extract the necessary profit, plant No. 2, in addition to blue pens, produces a number of similar products: 60 thousand black pens, 12 thousand red pens, 10 thousand purple pens, etc. Plant No. 2 usually produces up to a thousand various kinds goods, the volumes of which range from 500 to 100 thousand units. So, the total output of plant No. 2 is equal to one million items. This value coincides with the volume of production of plant No. 1, so they require the same number of labor and machine hours, they have the same material costs. However, despite the similarity of goods and the same volume of production, an outside observer can notice significant differences. Plant #2 has more staff to support production. There are employees involved in:

equipment management and configuration;
checking products after setting;
receiving and checking incoming materials and parts;
movement of stocks, collection and shipment of orders, their fast forwarding;
processing of defective products;
design and implementation of design changes;
negotiations with suppliers;
planning the receipt of materials and parts;
modernization and programming of a much larger (than the first plant) computer information system).

Factory #2 has more high performance downtime, overtime, warehouse overload, rework and waste. A large workforce supporting the production process, as well as a general inefficiency in the production technology of products, leads to a discrepancy in prices.
Most companies calculate the cost of running such a production process in two steps. First, the costs associated with certain categories of responsibility (responsibility centers) are taken into account - production management, quality control, receipts, etc. - and then these costs are associated with the relevant departments of the company. Many firms are very good at implementing this stage. But here's the second step, where the costs of the divisions should be distributed to specific products, is performed too simplistic. Until now, working hours are often used as the basis for calculation. In other cases, two more additional bases are taken into account for calculation. Material costs (expenses for the purchase, receipt, inspection and storage of materials) are allocated directly to products as a percentage premium to direct material costs. In highly automated plants, machine hours (processing time) are also taken into account.

Regardless of whether one or all of these approaches are used, the cost of producing high-volume goods (blue handles) is always significantly higher than the cost of producing the same item in the first plant. Blue pens, representing 10% of production, will require 10% of the cost. Accordingly, purple pens, the output of which will be 1%, will require 1% of the cost. In fact, if the standard costs of labor and machine hours, materials per unit of production are the same for both blue and purple pens (ordered, produced, packaged and shipped in much smaller volumes), then the overhead costs per unit of goods for purple there will be more pens.

Over time, the market price for blue pens (produced in the highest volumes) will be determined by more successful manufacturers specializing in the production of this product (for example, plant No. 1). The managers of Plant #2 will find that the profit margins for blue handles will be lower than those for specialty products. The price of blue pens is lower than purple pens, but the cost estimation system invariably calculates that blue pens are just as expensive to produce as purple pens.

Frustrated by low profits, Plant 2's managers are content to produce a full range of products. Customers are willing to pay more for specialty items such as purple pens, which are obviously not nearly as expensive to produce as regular blue pens. What, logically, should be the strategic step in response to this situation? It is necessary to downplay the role of blue handles and offer an expanded set of differentiated products, with unique properties and opportunities.

In fact, such a strategy would be detrimental. Despite the results of the costing system, the production of blue pens at the second plant is cheaper than purple. Reducing the production of blue pens and replacing them with newer models will further increase overhead costs. The managers of the second plant will be deeply disappointed, as total costs will increase, and the goal of increasing profitability will not be achieved.
Many managers realize that their accounting systems are misrepresenting the value of an item, so they make informal adjustments to compensate for this. However, the example described above demonstrates well that only a few managers can predict specific adjustments and their subsequent impact on production in advance.

Only a system of functional cost analysis can help them in this, which will not give distorted information and disorienting strategic ideas.

Advantages and disadvantages of functional cost analysis compared to traditional methods

In conclusion, we present the final list of the advantages and disadvantages of the FSA.
Advantages

A more accurate knowledge of the cost of products makes it possible to make the right strategic decisions on:
Greater clarity about the functions performed, through which companies are able to:

Flaws:

The feature description process can be overly detailed, and the model is sometimes too complex and difficult to maintain.
Often the stage of collecting data on data sources by functions (activity drivers) is underestimated
For high-quality implementation, special software tools are required.
The model often becomes outdated due to organizational changes.
The implementation is often seen as an unnecessary "whim" financial management is not sufficiently supported by operational management.

Footnotes

Functional analysis includes:
identification and formulation of functions for certain
rules
their classification,
construction functional models,
determination of costs,
establishing
consumer,
values
functions
selection of functions for research.
9
With
taking into account
opinions

functional analysis

Despite the huge variety of products,
the number of functions performed by them is many times less.
For example, in combine harvester about 30 thousand parts,
and the number of functions performed by them is two orders of magnitude less.
Evaluation of functions is reduced to two indicators -
utility and aesthetics. Functional analysis proceeds
from the fact that useful functions in the analyzed object
are always accompanied by neutral (auxiliary) and
harmful (useless) functions.
10

Most important rule– function statement
should be sufficiently general, not limited to
specific subject.
For example, a chair, stools, armchairs, benches have one
the general useful function is to "hold the weight".
Functions are formulated taking into account the purpose of the object.
For example, electric lamp incandescent in
table lamp, in addition to the useful function of "radiate
light”, also performs the harmful function of “radiate heat”.
When using the same lamp in an incubator, the function
"radiate heat" would be beneficial, and "radiate light" would be neutral.
11

Principles and rules for formulating functions

To formulate a function, you need to choose a verb,
describing the action.
In the function statement
characteristics of the object.
not
must
enter
For example, the function of a bicycle frame is “hold
details”, and not “ensure the rigidity of the structure”, because
rigidity is already a characteristic. Better wording
give functions in a nutshell - verb in indefinite
form and a noun in the accusative case.
Function electric wire- "to conduct current"
car - "move the load." Should not be consumed
particle "not".
12

Classification of functions and their ranking

The main function is a useful function that reflects
the purpose of the object (the purpose of its creation). For example, a chair
must "support the weight", the screwdriver - "transmit torque
moment". Other functions of these objects can be
classified as secondary.
Example. The main function of the glasses is to "focus the light".
Additional function - "protect the eye" from hit
particles. This function does not affect the main one, but creates
additional consumer properties.
14

Classification of functions and their ranking

The main function provides execution of the main function.
There may be several main functions. Main functions
provide performance.
There are main functions:
- reception;
- input (substance, energy, information);
- transfers;
- transformations;
- storage;
- issuance.
15

Classification of functions and their ranking

Helper functions are functions that
support the main. If the main function can be
implemented without any function from the original
list of the main ones, then this function is not the main one, but
auxiliary.
There are the following auxiliary functions:
- connecting;
- insulating;
- fixing;
- guide;
- guaranteeing.
16

Classification of functions and their ranking

By
degree
utility
distinguish
useful,
neutral (useless) and harmful functions.
Neutral
function
not
affects
on the
change
consumer properties.
17

Function types

- main function - reflects the action aimed at
implementation
goals
object
(systems),
for
direct satisfaction of specific end
needs;
- the main function is an action, without which the object cannot be
can provide the required consumer properties,
Existence main function;
- auxiliary function - an action due to
character, design features
object, caused by a specific embodiment of the main
functions. It contributes to the performance of the main functions
or complement them.
18

The company also estimated the cost of funds for the implementation
core functions, support and business processes and
carried out redistribution processes
It can be seen that after analysis and
transformations
increased costs
on core and business processes, and reduced
support costs
processes, which increased
efficiency
activities.
40

Application of the FSA in the organization

To complete the documents, the visitor had to go through four
office: No. 1 - appointment with a technical specialist, which takes 1 5 minutes;
No. 2 - the employee made entries in the journal for 10 minutes; No. 3 - Economist
performed calculations within 10 min; No. 4 - the employee accepted payment for
transactions in the amount of 100 rubles, made notes and issued a receipt, all this in
within 5 min.
The process diagram is shown in fig.
41

Application of the FSA in the organization

Total: each stream serves 15 people per day, 30 people in total.
The sum of the daily payment of all visitors is 30 x 100 = 3000 rubles.
The daily salary of all specialists was 450x4 = 1800 rubles.
The daily profit from the FSA amounted to 1200 rubles.

Functional cost analysis

The essence of the method

Essentially, the FSA method works according to the following algorithm:

Does the market dictate the price level or is it possible to set the price of products that will give the planned profit?
Should the projected premium on FSA costs be applied equally across all operations, or do some functions generate more revenue than others?
how does the final selling price of products compare with FSA indicators?

Thus, using this method, you can quickly estimate the amount of profit expected from the production of a particular product or service.

Reasons for the appearance of FSA

The FSA method appeared in the 80s, when traditional methods of cost calculation began to lose their relevance. The latter appeared and developed at the turn of the last and the century before last (1870 - 1920). But since the early 1960s, and especially in the 1980s, changes in the way we manufacture and do business have led to traditional cost accounting being labeled "enemy number one for manufacturing" because its usefulness has become highly questionable.

However, these methods have a number of weaknesses, especially noticeable in internal management. Of these, the two biggest drawbacks are:

The impossibility of accurately conveying the costs of producing a particular product.
The inability to provide feedback - information for managers, necessary for operational management.

As a result, managers of companies selling various types of products make important decisions regarding pricing, product combination and production technology, based on inaccurate cost information.

So, cost analysis was called upon to solve modern problems, and ultimately it turned out to be one of the most important innovations in management in the last hundred years.

The process of structuring costs has changed very significantly. And if at the beginning of the century labor was about 50% of total costs, the cost of materials - 35%, and overheads - 15%, now overheads are about 60%, materials - 30%, and labor - only 10% of production costs. . It is obvious that using working hours as a cost allocation base made sense 90 years ago, but with the current cost structure it has already lost its force.
The level of competition that most companies face has increased tremendously. “A rapidly changing global competitive environment” is not a cliché, but a very real nuisance for most firms. Knowing the actual costs is very important to survive in such a situation.
The cost of performing measurements and calculations has declined as information processing technologies have advanced. Even 20 years ago, the collection, processing and analysis of the data needed for the FSA were very expensive. And today, not only special automated data evaluation systems are available, but also the data itself, which, as a rule, has already been collected in one form or another and stored in each company.

In this regard, the FSA can be a very valuable method, since it provides information on the full range of operational functions, their cost and consumption.

Difference from traditional methods

Under traditional financial and accounting methods, a company's performance is valued by functional operations rather than by services provided to the customer. The calculation of the effectiveness of a functional unit is made according to the execution of the budget, regardless of whether it benefits the client of the company. In contrast, functional cost analysis is a process management tool that measures the cost of performing a service. The assessment is carried out both for functions that increase the value of a service or product, and taking into account additional functions that do not change this value. If traditional methods calculate the costs of a certain type of activity only by categories of expenses, then the FCA shows the cost of performing all process steps. FSA explores all possible functions in order to determine the most accurate cost of providing services, as well as to ensure the possibility of upgrading processes and increasing productivity.

Here are three main differences between FSA and traditional methods (see Figure 1):

Traditional accounting assumes that cost objects consume resources, while in FSA it is assumed that cost objects consume functions.
Traditional accounting uses quantitative indicators as the basis for allocating costs, while FSA uses sources of costs at various levels.
Traditional accounting is focused on the structure of production, while the FSA is focused on processes (functions).

Rice. 1. Main differences between FSA and traditional cost accounting methods

So traditional cost accounting systems focus on the product. All costs are attributed to the product, since it is believed that the manufacture of each element of the product consumes a certain amount of resources proportional to the volume of production. Therefore, the quantitative parameters of the product (working time, machine hours, cost of materials, etc.) are used as cost sources for calculating overhead costs.

Consequently, the more functional parameters there are, the more detailed the production chain will be described and, accordingly, the real cost of production will be more accurately estimated.

Another important difference between traditional cost estimation systems and the FSA is the scope of functions. In traditional inventory valuation methods, only internal production costs are tracked. The FSA theory does not agree with this approach, believing that when calculating the cost of a product, all functions should be taken into account - both those related to supporting production and the delivery of goods and services to the consumer. Examples of such functions include: production, technology development, logistics, product distribution, service, information support, financial administration and general management.

Traditional economic theory and financial management systems consider costs as variables only in case of short-term fluctuations in production volumes. Value-for-money theory suggests that many important price categories also fluctuate over long periods (several years) as the design, composition, and range of a company's products and customers change.

Table 1 compares the FSA and traditional cost accounting methods.

Table 1. FCA and Traditional Cost Accounting Methods

	Traditional Methods	Explanation
Feature Consumption	Resource consumption	Traditional accounting methods are based on the assumption that prices can be controlled, but as the practice of most managers has shown, this is practically impossible. The theory of functional cost analysis recognizes that only what is produced can be controlled, and prices change as a result. The advantage of the FSA approach is that it provides a wider range of measures to improve business performance. In a systematic study of the functions performed, not only the factors affecting the increase or decrease in productivity are revealed, but also the incorrect distribution of resources is detected. Therefore, in order to reduce costs, it is possible to rationally allocate power and achieve higher productivity than in the traditional way.
Sources of costs at different levels	Quantitative cost allocation bases	As overhead costs rise, new technologies emerge, and of course, allocating costs based on 5-15% (as in most companies) of all total costs is too risky. In fact, errors can reach several hundred percent. In functional cost analysis, costs are distributed in accordance with cause-and-effect relationships between functions and cost objects. These links are fixed with the help of cost sources. In practice, the sources of costs are divided into several levels. Here are the most important ones: Unity level. At this level, sources are considered for each unit of output produced. For example: a person and a machine that produce a product per unit of time. The corresponding working time will be considered a cost source for the unit level. This is a quantitative measure similar to the cost allocation basis used in traditional accounting methods. Batch level. These sources are no longer associated with units, but with batches of products. An example of using the functions of this level would be production planning, which is carried out for each batch, regardless of its size. A quantitative indicator of such sources is, as a rule, the number of parties. Product level. Here we are talking about sources related to the release of a particular type of product, regardless of the number of units and batches produced. As an indicator, for example, the number of hours required to develop a product is used. The higher this indicator, the greater the costs allocated to this product. Enterprise level. Sources of this level are not directly related to products, these are general functions related to the operation of the enterprise as a whole. However, the costs they cause are allocated later on by product.
Process orientation	Structural Orientation	Traditional costing systems focus more on the organizational structure than on the existing process. They cannot answer the question: “What should be done?”, because they do not know anything about the process. They have only information about the availability of resources needed to do the job. And the process-oriented method of the FCA gives managers the opportunity to most accurately match resource requirements and available capacities, and therefore increase productivity.

FSA application. Example

Mispricing of products occurs in almost all companies involved in the production or sale of a large number of goods or the provision of various services. To understand why this happens, consider two hypothetical factories producing simple products- ballpoint pens. Factory #1 produces a million blue pens every year. Factory #2 also produces blue pens, but only 100,000 a year. In order for production to operate at full capacity, as well as to ensure the employment of personnel and extract the necessary profit, plant No. 2, in addition to blue pens, produces a number of similar products: 60 thousand black pens, 12 thousand red pens, 10 thousand purple pens, etc. Usually, plant No. 2 produces up to a thousand different types of goods per year, the volumes of which range from 500 to 100 thousand units. So, the total output of plant No. 2 is equal to one million items. This value coincides with the volume of production of plant No. 1, so they require the same number of labor and machine hours, they have the same material costs. However, despite the similarity of goods and the same volume of production, an outside observer can notice significant differences. Plant #2 has more staff to support production. There are employees involved in:

equipment management and configuration;
checking products after setting;
receiving and checking incoming materials and parts;
movement of stocks, collection and shipment of orders, their fast forwarding;
processing of defective products;
design and implementation of design changes;
negotiations with suppliers;
planning the receipt of materials and parts;
modernization and programming of a much larger (than the first plant) computer information system).

Plant #2 has higher rates of downtime, overtime, warehouse overload, rework, and waste. A large workforce supporting the production process, as well as a general inefficiency in the production technology of products, leads to a discrepancy in prices.
Most companies calculate the cost of running such a production process in two steps. First, the costs associated with certain categories of responsibility (responsibility centers) are taken into account - production management, quality control, receipts, etc. - and then these costs are associated with the relevant departments of the company. Many firms are very good at implementing this stage. But here's the second step, where the costs of the divisions should be distributed to specific products, is performed too simplistic. Until now, working hours are often used as the basis for calculation. In other cases, two more additional bases are taken into account for calculation. Material costs (expenses for the purchase, receipt, inspection and storage of materials) are allocated directly to products as a percentage premium to direct material costs. In highly automated plants, machine hours (processing time) are also taken into account.

In fact, such a strategy would be detrimental. Despite the results of the costing system, the production of blue pens at the second plant is cheaper than purple. Reducing the production of blue pens and replacing them with newer models will further increase overhead costs. The managers of the second plant will be deeply disappointed, as total costs will rise and the goal of increasing profitability will not be achieved.
Many managers realize that their accounting systems are misrepresenting the value of an item, so they make informal adjustments to compensate for this. However, the example described above demonstrates well that only a few managers can predict specific adjustments and their subsequent impact on production in advance.

Only a system of functional cost analysis can help them in this, which will not give distorted information and disorienting strategic ideas.

Advantages and disadvantages of functional cost analysis compared to traditional methods

In conclusion, we present the final list of the advantages and disadvantages of the FSA.

Advantages

A more accurate knowledge of the cost of products makes it possible to make the right strategic decisions on:
a) setting prices for products;
b) the right combination products;
c) the choice between the ability to make one's own or purchase;
d) investing in research and development, process automation, promotion, etc.
Greater clarity about the functions performed, through which companies are able to:
a) pay more attention to managerial functions, such as improving the efficiency of high-value operations;
b) identify and reduce the volume of operations that do not add value to products.

Flaws:

The feature description process can be overly detailed, and the model is sometimes too complex and difficult to maintain.
Often the stage of collecting data on data sources by functions (activity drivers) is underestimated
For high-quality implementation, special software tools are required.
The model often becomes outdated due to organizational changes.
Implementation is often seen as an unnecessary "whim" of financial management, not sufficiently supported by operational management.

A cost driver is a process (function) that occurs at the stage of production of a product or service, which requires material costs from the company. A cost source is always assigned a quantity.

For example, with the disclosure of the structure of the activities of divisions, or at the level of the main stages of production

The company's activities need to be optimized... For some managers, "optimization" is an order issued from above, for others it is an urgent need, a project, the result of which depends on the future fate of the company. One way or another, top managers of the company or external consultants begin to analyze and optimize activities. At the same time, their ideas and proposals for improving the business can be radically opposite. It is difficult to understand which idea is the most advantageous. And to conduct experiments on a real company is too expensive.

You can build the right business without experimenting with the company and employees using methods "simulation modeling" and "functional cost analysis" (FSA).

Simulation- a research method that allows you to analyze the system without changing it. This is possible due to the fact that the system under study is replaced by an imitating one. Experiments are carried out with a simulating system, and the resulting information characterizes the system under study. Speaking about the analysis of the company's activities, the method allows you to simulate the execution of a business process model as it would happen in reality, and get a real estimate of the duration of each process.

Functional cost analysis- a tool designed to assess the cost of a product (service). Conducting a functional cost analysis allows you to get an estimate of the cost through the management of processes aimed at producing a product or providing a service. This is the difference between the method of functional cost analysis of business processes and traditional financial cost accounting methods, in which the company's activities are evaluated by functional operations, and not by specific products (services) provided to the customer. The basis of the functional cost analysis is the following provision: for the production of a product (service), it is necessary to perform a number of processes, while spending certain resources. Process execution costs are calculated by transferring the cost of resources to the cost of process steps. The sum of the costs for the implementation of all processes, with certain amendments, is the cost of the product (service). If traditional methods calculate the costs of a certain type of activity only by categories of expenses, then the functional cost analysis shows the cost of performing all the steps in the process. Thus, the method of functional cost analysis allows you to most accurately determine the costs of producing products (rendering services), and also provides information for analyzing business processes and improving them.

In the Business Studio system, the methods of functional cost analysis and simulation modeling are used in parallel. Functional cost analysis is necessary to calculate the cost of the process. The cost of a process is calculated by transferring the cost of resources to the cost of the process steps performed. The task of simulation modeling is to calculate the duration of each step of the process.

The stages of functional cost analysis and simulation modeling include:

Development of a process model;
Setting the time parameters of the final (non-decomposed) processes;
Sets the resource settings required to run these processes. Resources are divided into temporary and material. The cost of the time resource is transferred to the cost of the process in proportion to the time that the resource spends on the execution of the process, the cost material resource- proportional to the number of repetitions of the process;
Assigning resources to processes;
Carrying out simulation of the execution of processes.

Methodology "Simulation modeling and functional cost analysis" contains recommendations for practical application considered methods in modeling and analyzing business processes created in the Business Studio system.