Current market conditions around COVID-19 have reduced workload and forced difficult cost-saving decisions. In addition, heightened marketplace competition makes it critical that you understand what really drives your profits. A strategic cost review grounded in the knowledge of your cost structure, workflow and productivity measures can help managers focus on activities that bring the most value and allow you to align your pricing strategies to maximize profits.
A strategic costing review will help you understand your current cost structure and determine areas of opportunity to become more competitive. Opportunities that are most often reviewed include the following:
- How to attain higher profits and increased sale volume
- Improved labor utilization and efficiencies
- Gaining a better understanding of break-even points and contribution margins
- Identification of most profitable work mix and/or customers
- Areas of cost structure that need attention
- A better understanding of the connection between estimating standards, pricing and cost structure
- Enhanced utilization of current MIS systems
- Improved understanding of production standards
- More reliable management information and production measures
- Opportunities to reduce spoilage and waste
- A better understanding of equipment utilization and identifying cost centers or areas that are unproductive
- Improved workflow
- And more
Typically, a strategic cost review will begin with a detailed analysis of your current cost structure. There are several ways to approach a cost study but one of the most common is to review the existing full absorption costing methods and to identify costs, logical allocation methods and productivity assumptions. These factors should be reviewed on an organization wide level and serve as the base line for understanding your current state.
Often a budgeted hourly rate review is a good process to use to review the current structure and method for cost allocation. We have developed a comprehensive model to assist in that review and have created templates that can help make this review as efficient as possible. Our model was developed based upon proven accounting principles and best practices that can help you streamline the review and establish an appropriate cost allocation for your organization. Upon completion of the costing model we spend time with management to truly understand the opportunities, issues and concerns that are intrinsically identified in your costing study. The review will result in a summary of recommendations aimed at improving performance, streamlining your workflow, aligning reporting and information flow and specific actions aimed at driving strategic success through improved profitability and sales growth.
Contact Jacque Bistodeau or Rick Riesgraf at LB Carlson if you would like more information about how a strategic cost review can help your organization.
Jacque Bistodeau firstname.lastname@example.org 320-230-1720
Rick Riesgraf email@example.com 763-971-4803