Resource consumption accounting

Resource Consumption Accounting (RCA) is formally defined as a dynamic, fully integrated, principle-based, and comprehensive management accounting approach that provides managers with decision support information for enterprise optimization. RCA is a relatively new, flexible, comprehensive management accounting approach based largely on the German management accounting approach Grenzplankostenrechnung (GPK) and also allows for the use of activity-based drivers.
Background

Initially, RCA had emerged as a management accounting approach beginning around 2000, and was subsequently developed at CAM-I (The Consortium of Advanced Management, International) in a Cost Management Section RCA interest group[1] commencing in December 2001. Over the next seven years RCA was refined and validated through practical case studies, industry journal publications, and other research papers.

In 2008, a group of interested academics and practitioners established the RCA Institute to introduce Resource Consumption Accounting to the marketplace and raise the standard of management accounting knowledge by encouraging disciplined practices.

By July 2009, Professional Accountants in Business (PAIB) Committee of International Federation of Accountants (IFAC), recognized Resource Consumption Accounting in the International Good Practice Guidance (IGPG) publication called Evaluating and Improving Costing in Organizations and its companion document,
Costing Continuum // Levels of Maturity Copyright 2008 Gary Cokins All rights reserved. Used with permission of the author,courtesy of International Federation of Accountants-Professional Accountants in Business, International Good Practice Guidance p.23
Evaluating the Costing Journey: A Costing Levels Continuum Maturity Model. The guide focuses on universal costing principles and with the Costing Levels Maturity Model[2] acknowledges RCA attains a higher level of accuracy and visibility compared to activity based costing for managerial accounting information when the incremental benefits of RCA's better information exceed the incremental administrative effort and cost to collect, calculate and report its information. As stated in the IGPG, “A sophisticated approach at the upper levels of the continuum of costing techniques provides the ability to derive costs directly from operational resource data, or to isolate and measure unused capacity costs. For example, in the resource consumption accounting approach, resources and their costs are considered as foundational to robust cost modeling and managerial decision support, because an organization’s costs and revenues are all a function of the resources and the individual capacities that produce them.”[3]

Resource Consumption Accounting was also recognized in a Sustainability Framework Report issued by the International Federation of Accountants (IFAC), for having the capability of helping organizations “improve their understanding of environmental (and social) costs through their costing systems and models”.[4]
This Sustainability Framework highlights RCA under the sub-heading Improving Information Flows to Support Decision and informs readers that proper cost allocation can be built ‘directly into the cost accounting system’, thereby enhancing an organization's performance for “identifying, defining and classifying costs in a useful way”.[4]

[edit] Concepts of Resource Consumption Accounting

RCA concepts that distinguish it from other management accounting approaches include the following:

Germany’s GPK method of quantity-based operational modeling using fixed and proportional costs established at the resource level in a company (i.e., cost center/resource pools or value streams");[5]
Gordon Shillinglaw’s concept of attributable cost;[6]
Flexible use of activity-based drivers (only where needed) based on specific, and restrictive rules;
Value chain integration[7] of management accounting into operational systems;
Use of fundamental operations transactions as the primary source for financial and quantitative data (rather than the general ledger);
Replacing the principle of variability with the principle of responsiveness for operational modeling;[8]
Support for a multi-level, contribution margin-based profit & loss statement that supports managerial decision making without the cost distortions and complexity of inappropriate (not based on the principle of causality) allocations of cost.