To operate effectively, cost drivers should be selected with specific product. That's all part of being a good executive, having the insight to make the right decisions with regard to how you invest the organizations resources to achieve the performance goals you've established. These types of business cost management techniques and analysis approaches are nothing new. Facility-level costs are generally regarded as fixed costs and do not vary unless capacity is increased or decreased. Classification and design of cost drivers by Apple Inc.
What are Structural Cost Drivers? A cost driver triggers a change in the of an activity. Cost is primarily a function of output volume Cost is a function of strategic choices about the structure of how to compete and managerial skill in executing the strategic choices. Our people are ready for it, and they will enjoy it. So we established a metric and kept a laser-focus on maintaining our revenue at where we were in relation to that metric when faced with hiring revenue-producing headcount or overhead headcount. This is understood by considering the various drivers shown in Table 1. This has a bearing on strategic cost management since cost drivers can actually be determined by both structural cost drivers and executional cost drivers. Authorizing lower-level employees to make decisions to solve problems is an example of an organizational cost driver.
Examples Of Executional Cost Drivers Adobe cs6 key free. Decisions affecting structural cost drivers are made infrequently, and are very hard to change once a decision is made. All have a bearing on the cost of executing activities within the firm. Therefore we could assume that the cost drivers determine the cost behavior within the activities, reflecting the links that these have with other activities and relationships that affect them. In other organizations, the cost of capital might carry more weight as a cost-driver than headcount. Assembling a product is an example of an activity cost driver.
The ultimate goal of this work is to ensure the continuity of the company. For instance, economies and diseconomies of scale are well-known economic phenomena. They cannot get directions from the home base because their cell phones are out of service, out of area, or the battery has died. Pillar 1: Cost driver analysis Cost driver analysis is concerned with determining what the actual drivers of activity costs are within your operations. The firm is privately held and has been financed with a combination of bank loans, personal investments of top managers, and venture capital funding. The basic decisions concerning which available activities will be used to respond to customer requests precede the actual performance of activities. If your goal is to be a cost leader such as Wal-Mart or Costco , you will want to make sure that the structural cost drivers, such as the type of buildings acquired and the displays used are consistent with this strategy.
Organizational Cost Drivers Like structural cost drivers, organizational cost drivers influence costs by affecting the types of activities and the costs of activities performed to satisfy customer needs. With inexpensive housing, mild weather, beautiful scenery, traffic-free roads, a new international airport, and plenty of development, an influx of people and jobs raised the cost of labor substantially. Several examples of activities in a restaurant were mentioned on the preface. Production employees may, for example, offer product design suggestions that reduce manufacturing costs or reduce defects. All of the examples of structural and organizational cost drivers involved making decisions. In my experience, employees have been either the 1 or 2 cost-driver in every business I've been involved in. To better understand the hidden factory, several researchers have developed frameworks for categorizing cost-driving activities.
Strategic cost management since cost drivers can actually be determined by both structural cost drivers and executional cost drivers. Activity Based Costing is based on the belief that activities cause costs and therefore a link should be established between activities and product. It's also helpful if you have a metric for measuring your success in relation to your major cost-drivers. Other costs may be driven by the number of different products produced. In managing costs, management makes choices concerning structural and organizational cost drivers. This on the other hand will also increase efficiency and productivity of the company as well as 2020 words - 9 pages measurement is desired. This is not a fine science but requires careful analysis of how strategic management concepts provide positive or adverse reactions to each element of your value chain, positioning decisions and cost drivers.
But this should actually be seen as providing much richer results and more in-depth analysis of your manufacturing environment. Pillar 3: Value chain analysis Value chain analysis is an approach used to determine the series of activities involved in creating and building value within your operations. This also has a bearing on your , , , , etc. Much emphasis should be directed towards employee involvement, product configuration, quality management, organization layout, and the number of product lines. Executional cost drivers relate to the execution of the business activities, such as utilization of employees, provision of quality service, and product design and manufacturing. The operations of the organization may actually be split out into both primary as well as support activities.
To manage activities and their costs, it is necessary to understand how costs respond to cost drivers, which are the factors that cause or influence costs. To serve a customer at a restaurant, for example, a waiter or waitress might perform the following units of work: seat customer and offer menu, take customer order, send order to kitchen, bring food to customer, serve and replenish beverages, determine and bring bill to customer, collect money and give change, clear and reset table. Airline aficionados find the swordplay entertaining. So understanding the connection between the strategic management decisions being made and how these affect costs requires careful analysis to establish where waste is occurring. If regression analysis is used, the analyst considers the coefficient of determination. At Oneida Silversmiths, product-level activities for a specific pattern of fork include initially designing the fork, producing and maintaining the mold for the fork, and determining manufacturing operations for the fork. Not regard to the strategic context Design of cost management system changes dramatically depending on the basic strategic positioning of the firmScore keeping, Problem solving, attention direction How should we try to understand cost behavior? In Customer service, cost drivers are Number of service calls attended, number of staff in service department, number of warranties handled, Hours spent on servicing etc.
Decisions affecting structural cost drivers are made infrequently, and once made, the organization is committed to a course of action that will be difficult to change. It requires a systematic approach to examining each different element in your primary activities as well as support activities. Currently, the firm has 10 permanent administrative staff, 6 customer service representatives who respond to customer inquiries, and 12 employees who pick, pack, and ship customer orders. Cost Drivers and Company Activities Organizations require different types of supporting activities administration, purchasing, marketing, logistics, etc. Besides, the minimum acceptable level of inventories to be kept at every process and suggested lead time for supply of materials to succeeding stations have to be finalized. Analysis starts with establishing what trends you can perceive.