| A cost cutting strategy is very popular in the | | | | Cost drivers relate to direct production costs for |
| business world, especially during recession or falling | | | | which assignment is obvious, as well as indirect |
| revenue periods. The Business which achieves to | | | | production costs for which assignment is done via |
| maintain the 'cost leader' position, has a major | | | | calculations (e.g. estimation of a room space which |
| competitive advantage. The ability to sustain a low | | | | is hosting a specific procedure). Beyond production |
| cost position, is a precondition for long term | | | | cost, facts should be monitored on marketing |
| development in any highly competitive | | | | resource consumption, logistics costs and technical |
| environment. To achieve that, a business has to | | | | support costs. Cost and revenue monitoring per |
| develop core competencies in lean production, | | | | Customer, allows per Customer profitability |
| which cannot easily be copied by Competition.The | | | | analysis. This way, priority can be given to |
| use of financial and managerial accounting | | | | profitable Customers. Information on Customers |
| systems for production cost measurement and | | | | with low or negative profitability, should be used |
| control, is a common practise.Profitability | | | | to carry out a root-cause analysis. Use of |
| monitoring is also enabled by accounting systems. | | | | aggregated information on production cost & |
| The use of profitability ratios at the organizational | | | | revenue, instead of detailed information per |
| level, at a profit-center level, or at the product | | | | product, business unit, even Customer, does not |
| level, is a common practice which is based on the | | | | yield actionable insight on the production activity |
| effective recording and structured analysis of | | | | and the profitability. Many Businesses do not have |
| business information. Production cost analysis | | | | sufficient information on the profitability of each |
| contributes to the product pricing strategy and | | | | product or Customer group. On the other hand, |
| profitability estimation. Use of cost accounting | | | | detailed monitoring allows decision support for |
| techniques like activity based costing, requires | | | | better product and customer management. The |
| monitoring the following facts:Unit rate for each | | | | ability to capture integrated information like: speed |
| cost driver which is related to the production of a | | | | and setup cost of each production procedure, |
| product or a service (e.g. man hour cost for a | | | | production rates, time to conclude a production |
| specific specialization is 35 Euro)Actual | | | | cycle, resource and activity cost, waste cost, is |
| consumption of each cost driver for the | | | | very important. Information capture should |
| production of a unit of a product (e.g. 4 man | | | | support the optimization and cost reduction of |
| hours are required for the drafting of a contract). | | | | production processes. |