MULTICYCLE PRINCIPLE OF ATTRIBUTING THE COST OF SUPPORTING BUSINESS PROCESSES TO COMMODITY PRODUCTION COST IN LARGE INDUSTRIAL ENTERPRISES

(1)

MULTICYCLE PRINCIPLE OF ATTRIBUTING THE COST OF

SUPPORTING BUSINESS PROCESSES TO COMMODITY PRODUCTION COST IN LARGE INDUSTRIAL ENTERPRISES

Anton Nikolaevich Karamyshev Kazan Federal University e-mail: antonkar2005@yandex.ru ABSTRACT

The cost of supporting business processes in industrial enterprises is from 15 to 35 percent in its total costs. Process technologies of enterprise management propose new principles of assigning these costs to the cost of manufactured products. However, the existing process allocation methods do not take into account the complex economic relationships between the business processes of an enterprise and the problems of the occurrence of closed cycles in the allocation of the cost of supporting business processes.

Application of the proposed principle on multi-cycle attribution of the supporting business processes cost to the cost of marketable products will eliminate these shortcomings. Improvement of existing methods Taking into account this principle will allow more accurately to calculate the cost of production in terms of overheads and to make more informed management decisions. The paper gives a conditional example of the closed distribution cycles formation, calculates the multicyclic distribution of the supporting business process cost for the main business processes, as well as an algorithm for interrupting the multicyclic distribution; it also proposes and formalizes possible conditions for exit from the multicyclic distribution. The following possible conditions for an exit from a multicyclic distribution are proposed:

exceeding a given distribution level for the aggregate cost of supporting subprocesses; exceeding a given distribution level for the cost of one of the key sub-processes; the aggregate distributable cost of the subprocesses becomes below a specified limit; the distributable cost of one of the key sub-processes becomes below a specified limit; the economic inexpediency of further implementing a multicyclic distribution;

implementation of a set limit of distribution cycles; a combination of the above variants of conditions for exit from a multicyclic distribution.

Keywords: business process, industrial enterprise, production cost, overhead, process management.

INTRODUCTION

An enterprise activity represents a set of the interconnected works, each of which consumes some resources (labor, material, information). The result of the work is a certain product (material, information or service); a commodity product as a result of the whole set of works, as well as services for its servicing [1, 2].

The process approach to management assumes a description of all these works and definition of their interrelations on the basis of input (consumable) and output (useful) products. The interconnected works of an enterprise are a network where the edges are individual works, and the nodes of the network are products. Each product is outgoing for some works and entry for others.

Since tens of thousands of individual works can be singled out at an industrial enterprise (and if a high degree of detail is used, then hundreds of thousands), for the convenience of describing them and further analysis, individual jobs are grouped within larger elements: business tasks (also called business functions), subprocesses, and business processes (BP). The basis for grouping individual jobs within business tasks and subprocesses is a certain output with certain characteristics, which is subject to analysis in management accounting. Within the framework of a separate business process, which is a set of subprocesses (or business tasks at a lower level of decomposition), or a significant activity for an enterprise (for example, sales, purchases, production, etc.) is conducted [3, 4].

(2)

All business processes of an enterprise can be divided (in some cases, conditionally) to the processes which directly and indirectly affect the quality of marketable products. Based on this feature, all business processes of an enterprise are divided into main and supporting (maintenance). The cost of supporting business processes (SBP) of an enterprise forms overhead expenses of an enterprise, the share of which in the total costs of large industrial enterprises is from 15 to 35 percent [2, 5, 6].

MAIN PART

The justified and correct attribution of the costs of supporting business processes to the cost of marketable products is an urgent task for enterprises, since management decisions are made on the basis of this indicator.

Current process algorithms for attributing the supporting business process costs to marketable products are based on the following principles [8, 11, 12, 13]:

1.

Application of distribution bases. The cost of the business process or its structural elements is attributed to the consumer processes in accordance with some distribution base. As a rule, the volume of the products or services rendered to consumers is used as a distribution base.

2.

Assignment of the costs of supporting business processes is carried out through a network of interrelated supporting business processes.

3.

The aggregate costs of supporting business processes are accumulated in those of them that precede the main ones. The accumulated cost of supporting business processes is attributed to the basic (production) business processes also in accordance with some distribution base.

4.

The costs of supporting business processes distributed for the main business processes are attributed to the cost of commodity production in proportion to the time of operation of the main equipment.

The existing methods of attributing overhead costs to commodity products do not take into account a complex set of economic interrelations of supporting business processes, which manifests itself in the formation of closed cycles. The presence of closed cycles of interrelations between supporting business processes makes it difficult to adequately classify their costs into main business processes, and then to commodity products. To solve this problem, we propose to use the multi-cycle principle of allocating the costs of supporting business processes, the essence of which is a gradual transfer of the supporting business process cost consisting of several iterations.

Let's demonstrate a closed cycle of economic interrelations of supporting business processes and implementation of the principle on multi-cycle attribution of the supporting business processes costs on a conditional example (see Figure 1 and tables 1-6).

Three supporting and two main business processes are being implemented. Supporting business processes are linked together by a closed cycle and transfer their products to consumer processes in accordance with a certain distribution base (the proportions of the cost allocation of supporting business processes are shown in Table 1 and in Figure 1). The supporting business process No. 3 precedes the main business processes, through which the cost of all supporting business processes is assigned to the main business processes and, subsequently, to the marketable products.

(3)

Вспомогательный бизнес-процесс 1 Стоимость (бюджет)

процесса: 100 руб.

Основной бизнес- процесс 1

Основной бизнес- процесс 2

15%

60%

50% 20%

50%

85%

8%

12%

Figure 1. General scheme of cost allocation to supporting business processes Вспомогательный бизнес-процесс - Supporting business process -

Стоимость (бюджет) процесса: __ руб. - Cost (budget) of the process: __ rub. - Основной бизнес-процесс - Main business process -

At the first iteration, the initial (budget) cost of the supporting business processes is distributed. At the second and subsequent iterations, the product cost of supplier processes included in the previous distribution cycle at the previous business cycle is distributed.

Table 1. Initial information for the distribution of the supporting business processes cost

Business process name

Cost (budget) of the business process, rubles

Cost allocation of supporting business processes,%

To supporting business process 1 To supporting business process 2 To supporting business process 3 On the main business process 1 On the main business process 2 Supporting Business

Process 1 100 - 50 50 - -

Supporting Business

Process 2 200 15 - 85 - -

(4)

Supporting Business

Process 3 500 8 12 - 60 20

Total 800

Table 2. Distribution of the supporting business processes cost (budget) at the 1st iteration

Business process name

Cost (budget) of the business process, rubles.

Cost distribution of supporting business processes, rubles.

To supporting business process 1 To supporting business process 2 To supporting business process 3 On the main business process 1 On the main business process 2 Supporting Business

Process 1 100 - 50 50 - -

Supporting Business

Process 2 200 30 - 170 - -

Supporting Business

Process 3 500 40 60 - 300 100

Total 800 70 110 220 300 100

Table 3. Distribution of the supporting business processes cost (budget) at the second iteration

Business process name

The cost of incoming products of third-party supporting business processes at the previous iteration,

rubles.

To supporting business process 1 To supporting business process 2 To supporting business process 3 On the main business processes 1 On the main business processes 2 Supporting

Business

Process 1 70 - 35 35 - -

Supporting Business Process 2

110 16. 5 - 93. 5 - -

(5)

220 17. 6 26. 4 - 132 44

Total 400 34. 1 61. 4 128. 5 132 44

Table 4. The distribution of the supporting business process cost at the third iteration

Business process name

The cost of incoming products of third-party supporting business processes at the previous iteration,

rubles.

To supporting business process 1 To supporting business process 2 To supporting business process 3 On the main business processes 1 On the main business processes 2

Supporting Business Process 1 34. 1 - 17. 05 17. 05 - -

Supporting Business Process 2 61. 4 9. 21 - 52. 19 - -

Supporting Business Process 3 128. 5 10. 28 15. 42 - 77. 1 25. 7

Total 224 19. 49 32. 47 69. 24 77. 1 25. 7

Table 5. Distribution of the supporting business process cost at the IVth iteration

The cost of incoming products of third-party supporting business processes at the previous iteration,

rubles

To supporting business process 1 To supporting business process 2 To supporting business process 3 On the main business processes 1 On the main business processes 2

Supporting Business Process 1 19. 49 - 9,745 9,745 - -

Supporting Business Process 2 32. 47 4. 87 - 27, 6 - -

Supporting Business Process 3 69. 24 5. 54 8. 31 - 41. 5 13. 89

Total 121. 2 10. 41 18, 06 37, 35 41. 5 13. 89

(6)

Table 6. Distribution of the supporting business process cost at the Vth iteration

Business process name

The cost of incoming products of third-party supporting business processes at the previous iteration,

rubles

On an supporting business process 1 On an supporting business process 2 On an supporting business process 3 On the main business process 1 On the main business process 2 Supporting

Business Process 1

10. 41 - 5.205 5.205 - -

18, 06 2.71 - 15. 35 - -

37.35 2. 99 4. 48 - 22.41 7.47

Total 65. 82 5. 7 9. 685 20. 56 22.41 7.47

Based on the data of the first five iterations, we compile summary tables and analyze them.

Table 7. Summary data on the cost of supporting business processes at each iteration.

Cost of the business process, rubles.

Iteration I Iteration II Iteration III Iteration IV Iteration V

Supporting Business Process 1 100 70 34. 1 19. 49 10. 41

Supporting Business Process 2 200 110 61. 4 32. 47 18, 06

Supporting Business Process 3 500 220 128. 5 69. 24 37, 35

Total 800 400 224 121. 2 65. 82

Table 7 shows that, at each subsequent iteration, the total amount distributed between the supporting business processes decreases. This is due to the attribution of the supporting business process cost to the main (production) business processes in each cycle.

(7)

Table 8. Aggregate cost of supporting business process products distributed to main business processes

Cost of incoming products of supporting business processes, rubles.

Iteration I Iteration II Iteration III Iteration IV Iteration V

Core Business Process 1 300 432 509. 1 550. 6 573

Core Business Process 2 100 144 169. 7 183. 55 191. 02

Total 400 576 678. 8 734. 15 764. 02

Table 9. Share of the value of supporting business processes distributed to the main business processes

Index

Cost of incoming products of supporting business processes, rubles.

Iteration I Iteration II Iteration III Iteration IV Iteration V Share of the aggregate supporting business process

cost distributed 0. 5 0. 72 0. 85 0. 92 0. 955

It follows from Tables 8 and 9 that 85% of the total supporting business process cost was assigned to the main business processes already at the third cycle and 95.5% at the fifth cycle. There is an inverse relationship between the number of cycles and the total distributed sum. If the number of distribution cycles tends to infinity, the distributed sum will tend to zero.

The generalized algorithm for interrupting a multicyclic distribution will be as follows:

(8)

Запуск алгоритма многоцикличного

распределения

Реализация (N+1)- го цикла распределения

Выполняется условие выхода из цикла?

Вся стоимость продуктов вспомогательных бизнес- процессов на финальном цикле

распределения переносится на основные (производственные)

бизнес-процессы

нет да

Figure 2. Generalized algorithm for interrupting a multicyclic distribution Вся стоимость продуктов вспомогательных

бизнес-процессов на финальном цикле распределения переносится на основные (производственные) бизнес-процессы

All cost of products of supporting business processes at the final distribution cycle is transferred to the main (production) business processes

нет No

да Yes

Запуск алгоритма многоцикличного

распределения

Starting the multi-cycle algorithm

Реализация (N+1)-го цикла распределения Realization of (N + 1) th distribution cycle Выполняется ли условие выхода из цикла? Is the exit condition satisfied?

In the presented algorithm, N is the number of previously performed iterations of the cost allocation of supporting business processes (that is, the number of previously unsatisfied exit conditions from the cycle).

We can propose the following possible conditions for an exit from a multicyclic distribution:

(9)

1.

Exceeding the given distribution level of supporting subprocesses aggregate cost.

2.

Exceeding the given level for the cost distribution of one of the key supporting subprocesses.

3.

The cumulative distribution cost of the sub-subprocesses becomes below a specified limit.

4.

The distributable cost of one of the key supporting subprocesses becomes below a specified limit.

5.

The economic inexpediency of further implementing a multicyclic distribution.

6.

Implementation of the directively set limit of distribution cycles.

7.

A combination of the above variants of exit conditions from a multicyclic distribution.

We formulate some of the proposed conditions for an exit from a multicyclic distribution:

1. Exceeding the given level of the aggregate cost distribution for supporting subprocesses. This exceeding will be achieved at one of the considered cycles, i. e. on 𝑧^!-th cycle.

𝐾_!"#× ^!_!!!𝑃𝑉_! < _!!!^!^! ^!_!!!!! ^!_!!! ^!_!!!𝐴𝐶_!"#^!!! (1)

Where 𝐾_!"# - given distribution level coefficient;

𝑃𝑉_! - budget cost of the j- th supporting subprocess;

c - a number of sub-processes in an enterprise;

z is the serial number of the distribution cycle;

𝑧′ - a distribution cycle at which the condition for exit from the multicyclic distribution will be satisfied, 𝑧^! ≥ 2;

𝐴𝐶_!"#^!!! - the distributed cost of the i- th supporting subprocess of the j- th process at the z- th cycle to the s- th subprocess-consumer;

b - the number of subprocesses in the j- th process;

s is the serial number of the subprocess - product consumer of the i- th supporting subprocess of the j- th process;

𝑙 - the number of main business processes - product consumers of the i- th supporting subprocess of the j- th process (𝑠 = ℎ + 1, 𝑑).

The number of main business processes is calculated by the formula:

𝑙 = 𝑑 − (ℎ + 1) (2)

2. Exceeding the given distribution level for the cost of one of the key supporting subprocesses.

𝐾_!"#×𝐵𝐶𝑆_!" < ^!!_!!!𝐷𝑀_!"^!!! (3) Where 𝐵𝐶𝑆_!"- budget cost of the i- th subprocess of the j- th process;

(10)

𝐷𝑀_!"^!!! - the value distributed from the i- th supporting subprocess of the j- th process at the z- th cycle to the subprocesses-consumers.

3. The distributable value from one of the key supporting subprocesses at one of the distribution cycles becomes lower than some specified limit.

𝐺𝑉𝐿 > 𝐷𝑀_!"^!!! (4) Where 𝐺𝑉𝐿 - the amount of the set limit;

4. The cumulative distribution cost of supporting subprocesses at one of the distribution cycles becomes lower than some specified limit.

𝐺𝑉𝐿 > 𝑇𝐶𝐼𝑃_!^!!! (5)

Where 𝑇𝐶𝐼𝑃_!^!!!- the aggregate distributed value at the z- th cycle to the s- th basic business processes.

METHODS

In the course of the research, the author used the following methods:

1. Selective analysis of specialized literature with a high citation index for the subject matter specifed in the title of the paper.

2. On the basis of experimental data, the principle of multi-cycle allocation of the supporting business process cost is formulated.

3. For the purpose of unambiguous understanding of the proposed principle, a conditional example of attributing the cost of supporting business processes to the main ones is considered.

4. A generalized algorithm for interrupting a multicyclic distribution is proposed, and possible conditions for completing the distribution process are formalized.

5. The results of the study were given with the author's interpretation, and conclusions were drawn.

RESULTS

The proposed principle of multi-cycle attribution of the supporting business process cost to the cost price of commercial products of large industrial enterprises allows the complex economic interrelations between the supporting business processes of an enterprise to take into account, that are manifested in the formation of closed cycles. The proposed conditions for an exit from a multicyclic distribution and their formalization are intended for further application in the methods for formation of production costs of industrial enterprises that take into account the principle of multicyclic attribution of the supporting subprocesses cost to main business processes.

DISCUSSION

It should be noted that the specific features of large machine-building enterprises make very problematic a detailed description of business processes. Under these conditions, a description of business processes with a high level of decomposition is often used, which helps to minimize the negative impact of specific factors.

Multicycle distribution is designed to improve exactly such management systems, where business processes are detailed at the level of subprocesses.

(11)

CONCLUSIONS

The methods improved on the basis of the above-mentioned principle and the algorithm of the exit from the multicyclic cost allocation of supporting business processes will allow reasonably to calculate the cost of production in terms of overheads and to make more effective management decisions.

ACKNOWLEDGMENTS

The work is performed according to the Russian Government Program of Competitive Growth of Kazan Federal University.

REFERENCES

Makhmutov, I.I., Karamyshev, A.N., Sych, S.A. (2008). Methodology for assessing the services of supporting units. M. : Integral. №6.

Karamyshev, A.N., Makhmutov, I.I., Sych, S.A. (2009). Institutional approach to the analysis and formation of supporting business process management systems of an industrial enterprise. M. : Integral.

No. 3.

Karamyshev, A.N. (2009). The supporting business process cost management system for industrial enterprises. M. : Integral. №4.

Isavnin, A.G., Karamyshev, A.N., Makhmutov, I.I., Sych, S.A. (2010). Methods for estimating and distributing the supporting business process cost of large industrial enterprises. Naberezhnye Chelny:

Publishing House KFU v g. Naberezhnye Chelny.

Hammer, M. , Ciampi. , J. (1993). Reengineering the Corporation: a Manifesto for a revolution in the business. London: NB

Repin, V.V., Eliferov, V.G. (2013). Process approach to management. Modeling of business processes.

Publishing House: Mann, Ivanov i Ferber.

Bjorn, A. (1999). Business Process Improvement Toolbox.

Rother M. , Shook J. , Womack J. , Jones D. (1999). Learning to see: Value stream mapping to add value and eliminate muda.

Barilenko, V.I., Berdnikov, V.V., Bulyga, R.P. (2013). Basic Business Analysis: A Training Manual. M. : KNORUS.

Paklin, N.B., Oreshkov, V.I. (2013). Business Intelligence: from data to knowledge. Publishing House:

Piter.

Smirnov, Yu. N. (2008). Methodology of business processes budgeting for an enterprise. M. : Integral.

№4.

Smirnov, Yu. N. (2008). On the economy of business processes of an enterprise. M. : Integral. №2.

Samusenko, S.A. (2006). Elements of the AVS method in the system of the creep-based accounting of costs and the production costs calculation. M : Managerial accounting. №5.

Odintsova, E. (2006). Classification of cost accounting and calculation methods. M. : Konsul'tant direktora. №20.

Liker, J.K.(2008).The Toyota Way: 14 Management Principles from the world`s greatest manufacturer.

Shingo S. (1996). Quick Changeover for operators learning package. The SMED system.