Although it serves a management need to understand and manage expenditure, it is no longer aligned with the reality of data driven markets and consumers. The process of cost allocation can be manipulated to generate paper profits as was the case with the famous and well-documented implosion of International Harvester, a global company completely destroyed by cost accounting manipulations in the 1970’s. Many other cost approaches have been developed such as Activity-based accounting, Throughput Accounting and others. None answer the question well of “why the expense was incurred?”
Supported by the massive increase in data availability, it is possible to restructure and repurpose cost allocation to drive better management decisions. We help and guide organizations to better allocate, interpret and use cost information for more effective management decisions. To do so, the new concept and approach are:
Every enterprise consists of set of business activity systems. These systems are fractal by nature.
Costs are originated inside each system at the level of fractal position.
Costs can be assigned to each level based on the reason of its need.
Costs can therefore be managed by business system and not by allocation.
This concept is illustrated below:
Only the incremental addition in expenditure is allocated to the super-system. This may include the senior manager’s employment cost, additional insurance, etc. Conversely, operating expenses such as data management is allocated to the system that consumes the cost.
Our four decades of experience in defining, quantifying and developing comprehensive productivity improvement initiatives with top management have made us leaders in the field of productivity improvement. Are you cutting cost and raising selling prices as a means of shoring up profits or are you driving true competitiveness through productivity gains?Can You Wait?
What You Will Gain
What Your Company Will Gain
Ability to frame better cost management decisions.
Reality-based cost management that drives better pricing models and thereby higher profitability.
Significant gain in your managerial competence to better manage cost.
Common-sense understanding of cost drivers and how to better manage cost.