RCA Open Source Application: ROSA Manual/Demonstration of the Base Model/Step 1/Analyze Rates

Step 1: Discover RCA - Analyze Rates


The Analyze Rates report shows the internal rates (Fixed and Proportional - accessed through the “Value” selection field) for Resource Pools and Business Processes. These rates provide important information for marginal decisions about resource pools and business process by identifying the fixed and proportional rates for them.

Note how resource pools and business processes are numbered in ranges to make identification easier in terms of function, group, hierarchical position etc. The 6 range is for the supporting areas, the 7 and 8 ranges are production areas each with a labor and machine resource pool. The 9 range is for packaging and the 10 range identifies the business processes.

Let us look at a few of the rates in Figure 24 above and see how they fit in the Get Well Storyboard. Refer back to page 8 for the initial discussion on how rates are calculated. Consider the rate for Resource Pool: 6101 Utility Electricity, measured in Kilowatt-hour (kWh) units. Note that the Electricity rate is very low compared to other rates. The reason could reveal that the Resource Pool’s cost is actually low; however, in this instance the output and capacity numbers are high. Therefore, the numerator and the denominator should always be verified, particularly if the rate analysis points to abnormalities in the rates.

It is also possible to compare the total rates of like resource pools as well as their fixed and proportional rates. For example, we can compare the two Production machines to see if improvements can be made to the production lines. Production 1 Machine (7002) has a rate of $74.25 per hr for January while Production 2 Machine (8002) has a rate of $93.48 (rounded). This view allows a manager to ask questions and examine the differences between the rates. For example, “Does one of these lines produce the same product, if so, why is there such a difference? Does one of these machines require more maintenance or calibration to cause the difference? This gives the manager a starting place to investigate a possible operational improvement.

Although not shown in Figure 24 a further breakdown of the rate is possible by using the Value field to display the fixed and proportional rates. With this fixed and proportional analysis, a manager could compare the differences between the fixed and proportional costs as well. If the proportional elements are not that different, then that may indicate these machines are very similar; therefore, the rates should be similar. If the fixed cost rate is higher, then it is possible that Production 2 Machine occupies greater floor space causing the higher rate. So all the sources of cost and there nature must be verified.

For resource pool Packaging Machine (9002), machine hr rate is $69.03 (rounded). Let us assume that the fixed and proportional rates are close in value to each other. While the resource pool is working towards its planned output, the total rate will be charged. Once the planned production output has been reached all additional production could be charged to the proportional rate, thereby giving you a competitive advantage. The resource pool fixed cost has been taken care of by the fixed rate and charged while working towards planned production output. For an outsourcing decision, if another packing machine supplier offers his services to you for $59.00 per machine-hour, then it would be wise to outsource for low volume production quantities, but not for large volume production quantities.

Resource pool output cost rates split into their fixed and proportional components are key pieces of information in a whole range of decision scenarios. These include outsourcing decisions, throughput decisions, and mutually exclusive resource application decisions. Particularly for the latter, where the opportunity cost of committing the resource to a specific course of action is required. In these instances, the resource’s proportional cost serves to approximate the opportunity cost of the resource.