O5.004 (Processes Under Control) BURDENING EVERYTHING WITH TRUE COSTS - WILLIAM EASTMAN

I know this is dreary stuff until its done then suddenly you look like a genius.
​
INTRODUCTION
When you think about getting processes under control it is not a difficult concept. You are going to make visual maps of all major processes, then look for improvement opportunities. These usually take the form of fewer steps, less interactions and therefor improved quality and reduced cost.

Once you are comfortable with how things will be done going forward, the next step is to burden every step with true cost.
​
OBJECTIVES
This is critical. Get it right and you will achieve too critical results at the same time - improve quality while reducing cost, and have an accurate picture of what are your most profitable products & services, and the most profitable customers.

1. Which are our most profitable products & services - stop guessing.
2. Whom are our most profitable customers - necessary to Top Grade Accounts and move into adjacent markets.
3. How well have we priced our offer - can we raise prices to improve profitability?

​
WHAT YOU NEED TO KNOW

• Every major process must a visual map - both internal and external.
• Economies, improvements, reduction in steps in every process has been identified and the map updated.
• Understand all costs - fixed costs (like power, rent, office staff etc) and variable costs (materials, labor, equipment maintenance).
• Working forward each step has a margin assigned. When completed has does the final number compare to the price?  Hint: the best companies are operating at 40+ margins.
• Determine whether you need more process improvements ot alter the price?

WHAT YOU NEED TO DO
ABC - Activity Based Costing only works when your processes have been mapped, and only worth the effort after improved.

1. Identify all the activities required to create the product or service;
2. Divide the activities into cost pools, which includes all the individual costs related to an activity—such as manufacturing. Calculate the total overhead of each cost pool;
3. Assign each cost pool activity cost drivers, such as hours or units; 
4. Calculate the cost driver rate by dividing the total overhead in each cost pool by the total cost drivers;
5. Divide the total overhead of each cost pool by the total cost drivers to get the cost driver rate; 
6. Multiply the cost driver rate by the number of cost drivers. 

Follow the "Processes Under Control" Series all season.​

1. Join our private Facebook Group and go way beyond what is possible on radio
2. Get your business growth news everyday from IBGR.News​
3. DOWNLOAD the IBGR Growth App
4. RESEARCH anything related to Starting, growing, or Exiting a business on the IBGR Network