Global Cash Systems

Archive for the ‘cost’ Category

During the last 20 years, Activity-Based Cost is growing from an obscure almost novelty costing methodology to your commonly accepted Cash strategy methodology. Proof this is actually the plethora of supposedly new variations. Many of these variations derive from marketing efforts to tell apart one software or consulting provider from the remaining pack. Yet, the regular problem associated with a company striving to enhance its profitability through better cost management isn’t particular cost methodology variant but neglecting to abide by basic underlying principles of proper Cost Management.

First, let’s review several common Activity-Based Cost variants. Then we’ll consider the violation of basic principles.

Variant # 1 – Grouping expenses. One variant is always to group multiple expense accounts into one larger bucket before assigning these resources to activities. The thought would be to group expenses that behave similarly into one assignment. Some would call such groups “Cost Pools”. However, this term evokes images of countless old and very bad cost allocation practices from your past.

This variant is not actually unique since many consultants and applications have either incorporated this ability directly or assumed that any grouping has already been done before importing the fee to their application. Some observations on this very detailed degree of assignments from every individual expense account will be in simple training illustrations, academic publications, plus models developed by inexperienced modelers. Otherwise, they only appear in marketing presentations while wanting to show the amount better their approach is comparison to others.

This capability is often a threshold or minimum capability. In modeling situations, tend not to spend a lot of time modeling excessive details. It is not a distinguishing feature unless absent.

Variant number two – Capacity considerations. Capacity considerations can be hugely crucial in business decisions. Identifying and measuring excess or idle capacity should indeed be important. A suggested book on capacity is “Capacity Measurement & Improvement”.