ACCOUNTING

Accounting

Accounting

Part A

Quality and process improvement is a long term phenomenon and it requires continuous improvement to achieve sustainable growth. Although ROI and Economic Value added are short term in nature, but the managers also use other tools to find the viability of the project. They do not rely on these two variables and their focus does not become short term in nature.

Top management is measured, evaluated and often rewarded based on their contribution to lower levels of the organization. To sell a project to senior management, one should use the language with which they are familiar: that is the return.

ROI

The ROI is the ratio derived from the sum of the benefits of improved divided by the sum of the costs for obtaining improved processes. For example, a ratio 12-to-1 means that every $ 12 of benefits were obtained with each $ 1 of cost of implementation. The ROI can help justify the cost of quality improvement projects and actions to prevent losses.

Often the quality improvement projects are not subject to justification of the costs prior to their application, and only a few projects are evaluated after implementation. For projects to improve the quality of projects, ROI is an effective short term indicator.

To compute the ROI, you need a reference to dollar value to compare indicators of process improvement, operation, product or service to improve. The cost shall include labor, materials, supplies and manufacturing overhead. The accounting department can help with the figures. A cost of quality system, to a reasonable level of detail may also give some of the information one need.

The ROI reflect the percentage ratio between profit and invested capital (profit: invested capital = ROI). A comparison is made possible by the investment return on investment of two objects that is used. The investment with the higher return on investment is more profitable.

More difficult is the situation when complex decisions have to be made. It is not always easy to assess the costs and benefits and find a relationship. The greater the impact of indirect costs or general, the less reliance on ROI as an indicator of profitability, should be made.

The ROI again refers to the relation between investment and profit. It thus expresses the percentage that an investment has gained and in this way shows, which value flows back from an investment. This view is possible for individual investment projects, but also for the profitability of an entire company (Du Pont-ratio system).

Not all investments are as easy to relate to the amount shown as revenue. Investment in staff is one example. It is difficult to figure out a certain training costs: these might include the salary of the coach, the personnel costs for those employees who have a known number of hours of production, and costs of any reductions in that process.

Economic Value Added

It is a way of measuring performance and is simply the money earned by a company less the cost of capital required to achieve these ...