5.9. Make-or-buy decisions (2)

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En provenance du cours de Moscow Institute of Physics and Technology

Core Concepts of Accounting – Numbers and People

2 notes

Moscow Institute of Physics and Technology

Core Concepts of Accounting – Numbers and People

2 notes

Cours 3 sur 5 dans Specialization Understanding Modern Finance

Whenever the word “accounting” is pronounced, it is immediately associated with the need to memorize endless boring numbers. However, it is the common financial statements that contain important information that provides inputs for valuation of investment projects. The only challenge is how to properly extract them. Accounting and finance are indeed intertwined. Sometimes people that are not experienced in the area even mix them up. But most often emphasis in accounting is on numbers. Still, the deep understanding of key accounting concepts helps reveal the interests and actions of people behind these numbers. And the human dimension of accounting adds invaluable insight in the potential of successful project implementation. This Course discusses core ideas and concepts of both financial and managerial accounting. It by no means pretends to be comprehensive to any extent. But, being rather an accounting overview, it focuses on the issues that are most relevant and important for effective valuation of investment projects. The learners will gain insight into the essence of accounting. They will be able to use the obtained knowledge and skills to successfully advance in their career at a financial institution, as well as in the area of financial management at non-financial businesses. To pursue a career in accounting, a more detailed study is strongly recommended.

À partir de la leçon

Activity-Based Costing (ABC). Relevant Costs

In Week 5 we will study the more advanced approaches to costing – activity-based costing (ABC) and relevant costs – that provide for the more accurate costing of products, projects, and divisions, and allow to reveal actual relationship between numbers and people. We start with the analysis of ABC on an example of a small retail firm. Then we move on to the more detailed example of the use of ABC in manufacturing. Both examples will help us gain insight in the role of ABC in identifying ways to improve performance. Finally, we analyze the idea of relevant costs and its application to managerial actions –make-or-buy decisions, product mix under capacity constraints, customer profit analysis. Of special attention will be the role of relevant and opportunity costs in valuation.

5.1. Activity-based costing (ABC) – an overview8:38

5.2. ABC for a retail firm (1)9:01

5.3. ABC for a retail firm (2)13:21

5.4. ABC in manufacturing (1)13:37

5.5. ABC in manufacturing (2)13:21

5.6. Insights provided by ABC8:30

5.7. Relevant costs – an idea10:53

5.8. Make-or-buy decisions (1)6:04

5.9. Make-or-buy decisions (2)10:30

5.10. Product mix under capacity constraints8:33

5.11. Customer profit, ABC, and relevant costs7:32

5.12. Irrelevance of past costs10:43

Rencontrer les enseignants

Konstantin Kontor
Director and Professor of Finance and Strategy
American Institute of Business and Economics (AIBEc)

Well, we are precipitously coming at the end of this course and

all the specialization.

And now we are entering the final part in which

we are basically putting things together.

And the first thing here that I would like to point out is

that we talked about M&A ideas, strategies,

transactions, financing, and then results.

But the key story is the post-transaction integration and

implementation of what had been planned.

So here I would put that the implementation,

Key to success.

Again, we found many obstacles on this path.

We said that if we overpay, we are likely to fail.

If we do not compel the people to sales talk to us,

we cannot close the transaction.

If we did the good valuation and we are not to overpay,

but we cannot raise financing, then we do not do that.

If we see strong anti-takeover defenses and we cannot overcome that, then we fail.

But finally, we close the transaction.

Now, let me produce the time span.

So let's say this is we start thinking about the transaction.

This is the transaction announcement.

And this is closure.

And the question is at what point

do we have to engage in post-transaction integration?

Well, here, it is way too late.

Even here, it is late.

So the good approach is that if we start thinking here,

thinking about post-merger integration.

So this is again, that is not any kind of a guarantee,

but that is likelier, in this case, we are to succeed.

Because basically, the combination of companies,

Well, this is really traumatic.

That is really smooth, and why is that?

Because here we have to see some things to be observed,

incentives for the key people to stay.

Communication.

And often times it's broken.

Coordination.

Then various kinds of friction, because people, it's more or

less difficult for them to work together and all that.

Then some other things, like organizational or

cultural issues, maybe they just don't fit.

And then, on this path,

you can have mistakes of wishful thinking.

And they may be quite, quite expensive.

So therefore, we can see that this is a process, and again,

I'm not going to make this episode very long, I will wrap it here,

so the key story here is that you have to have a continuous process.

And continuous process of improvement.

And there are many phases to this process.

But for us, it's important to just keep it in mind,

it's all depicted in our handouts and the Weston book.

So the story is that, like I said, this course, to a significant extent,

is sometimes frustrating, because we've reached another stage,

we've overcome a major challenge.

But then we see that it's all only just something that is necessary,

but it is not sufficient to succeed.

So we have to keep climbing up and hopefully if not only we've

succeeded in transaction closure, but also in post-merger integration,

then there is a real chance of creating value.

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