Activity Based Costing
The benefits of the Activity Based Costing (ABC) exercise are HUGE. When we say HUGE we mean large increases in Profitability and Cash Flow.
Our analysis and reporting in this area addresses two key areas of importance being Productivity (efficiency) and Profitability.
The process is not complicated or time consuming and the results are a dramatic improvement in the performance of the business being analysed. From the experience gained in undertaking the ABC exercises we can clearly state that business owners are not aware of their productivity levels and are often unaware of a simple technique to improve their Profitability margins.
The process is not complicated:
We require a basic Profit and Loss statement for a recent historical period (say 6 to 12 months), about 10 to 12 invoices over the same period and some brief information such as number of employees and the key activity driver (e.g. hours, units, metres, tonnes etc) of the business. From this information we can provide a report on Productivity (efficiency) and Profitability.
Profitability:
From the invoice analyses we provide both a list of Gross Profit/key driver (e.g. hours, metres, tonnes units etc) and an Average Gross Profit/key driver. The Average Gross Profit/key driver is critical because by putting in place a system that targets jobs and processes that have a greater than Average Gross Profit/key driver will automatically increase profitability and cash flow.
Productivity (efficiency):
From the information supplied we can determine the productivity or efficiency level of the business. The answers are quite visual and easy to see and comprehend. Often the efficiency levels are less than 50% of available key driver units. Needless to say that even a small improvement in the efficiency level will have dramatic improvement in profitability and cash flow.
Our report also shows the impact of realistic changes in the key profitability and efficiency levels.
In addition the business can access a system to monitor and manage its key drivers for a small outlay (usually less than $1,000pa) for the system itself.
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