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Cost Optimisation Through Cost Transparency

Companies today are under constant pressure to improve profitability and eliminate cost out of their business. This has prompted them to seek greater transparency into their financial performance and discover actionable insights that can enhance their decision making and create value. The key to unlocking value is cost and profitability transparency that helps finance professionals analyze profitability along such dimensions as product, service, and customer.

When finance leaders can get a handle on what’s truly driving profitability, they can recommend actions that may have the greatest positive impact on the bottom line—such as adjusting pricing, reducing product costs, and containing overhead. While many companies can effectively analyze revenue by these key dimensions, costing data is another matter. Often, this data is poorly managed or not attributed to the right products, customers, or business units, which may lead to suboptimal decisions.

To improve performance, companies need costing data that goes beyond what’s necessary for financial reporting or inventory valuation. Organisations need a raft of other measures to enable them to make optimal decisions. Some of the business questions companies are trying to answer include:

  • What’s driving profit performance and what areas in the business need attention?
  • Where are we making decisions on contribution margin but losing money when considering total product cost?
  • What are the levers to reduce overhead and shared services costs?
  • What’s the total cost to serve by customer, channel, or region?
  • How many variations of a product do we make, and what’s the cost and profit of each product variation and customer group?
  • What costs are we putting into the product and not recovering on price?

Companies often struggle to understand their true costs due to the complex issues rooted in the systems, processes, and capabilities across the enterprise. Therefore, it’s not surprising that, although information to support strategic decision making is a top priority, most organisations identify it as one of their top areas for improvement.

Contact us at Mentor List for more information about how we help you through the Cost Optimisation journey.

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