Understanding the cost of profitability

It is no secret that today’s economic environment has introduced a number of challenges that make it difficult for companies to achieve and maintain profitability.
One of the first lessons of accounting is the equation Profit = Revenue – Cost. Since aggressive revenue growth is not in the cards for many manufacturers, they are refocused on managing costs as the best option to improve profitability. For many organizations, applying that equation to determine profitable products or customers is not as simple as it seems. Gathering the revenue values is fairly straightforward, but calculating the cost to manufacture a product is often more complicated than simply adding up materials and labor costs.
In an attempt to get more precise cost results, often times companies rely on spreadsheet tools because of their availability and familiarity to finance and accounting groups. While spreadsheets may work for smaller, ad-hoc analysis, they fall short in handling massive costing processes due to their limitations with scalability, data integrity, integration, and security.

Cost
intelligence

Working with Axiante , leading organizations have been able to get the level of detail about people, processes and resources needed to make accurate decisions that contributed to relevant financial performance improvements.
We can implement cost intelligence at an operational level, enabling managers to drill into any product, customer or service area to see the costs of underlying business processes. By uncovering these costs, operational managers are equipped to explore cost reduction opportunities that deliver a sustainable, significant competitive advantage.

The accountability gap

Organizations are now oriented much more around customers, and services with an end-to-end view, but financial accountabilities are often still firmly planted against cost centres or profit centres, departments or sales lines.
Interactive communication between departments to drive cost optimization is key. Financial accountabilities should reflect decision makers’ ability to influence the organization and support collaboration.
Changes to accountability can be emotive and it is important these are well considered and measures are established and trusted. The key aim is to instail commercial decision making cross-business collaboration at all levels. The reward in getting this right, and bridging the accountability gap can be significant.

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