21st Century Profit Optimization (5 days)

Introduction

It sounds easy to increase sales and reduce costs, but if it was straightforward, we would all be printing money. You need to identify your least profitable products and customers. You need to understand why that is the case, and then you need to take action. Profit Optimization enables you to answer such questions as:

• How should you price your products to make best use of your manufacturing capacity, raw materials, storage, and distribution capabilities?
• Who are your best customers? Which customers should you cherish to increase both revenues and profits?
• Which channels are the most effective? Where should you focus your efforts?
• What is the least expensive way of stimulating demand when sales are lagging (e.g. below plan or when a competitor has reduced its price) or specific sales objectives must be met (e.g. end of quarter) or the pipeline cleared (e.g. for a new product introduction)?
• How should our capacity, supply chain and supporting infrastructure be adjusted for specific strategic objectives such as market share targets, competitor positioning, market expectations, and other goals?
• How do you take unnecessary cost out of your organisation?

In short this is all about understanding your market, using activity based costing to reveal the true economics of products and customers, using zero based budgeting to prioritise your activities, and having metrics in place to measure progress as you implement change.

In this 5-day course we will give you tools and techniques to:

• Determine the true profitability of each of your customers
• Segment customers and markets
• Understand the true costs of your products and services
• Make better pricing decisions
• Eliminate costly and non-value adding activities
• Effectively challenge your operating costs
• Generate effective budgets that will allow you to manage and control cost

During the workshops, you will:

• Use the cause-and-effect “lens” of activity-based costing to design a cost model that accurately reflects the fundamental economics that underlie your organisation
• Accumulate a “toolbox” of costing concepts, tools and techniques that will help to incorporate seemingly complex issues into your costing model with a minimum of difficulty
• Incorporate your cost model’s design into an Excel-based predictive cost model that can be used to perform incremental cost analyses, measure the cost of key processes and develop rates that can be used to assign costs to individual jobs, products, services, customers, etc.
• Create Excel-based templates that will use your model’s costing rates to accurately assign costs to your company’s jobs, products, services, customers, markets, etc.
• Practice using your model to support a variety of management decisions
• Run workshops with your business to develop costing models, better budgets and rolling forecasts
• Learn techniques for gathering your company’s detailed information for populating your models and templates after your return home

Please note that this course is one in a series of management accounting titles. See all related courses below:

• Skilling up to be a 21st Century finance business partner (5 days)
• 21st Century Finance Business Partner (1 day)
• 21st Century Business Strategy & Reporting (2 days)
• 21st Century Zero Based Budgeting and Cost Management (2 days)
• 21st Century Activity Based Costing (3 days)

Learning Objectives

• Learn how to design a predictive cost model of your small or mid-sized business that reflects economic reality
• Develop an Excel-based predictive model that can be populated with your company’s data to become a powerful decision support tool
• Develop Excel-based job/product and customer costing templates to accurate measure the costs of your company’s jobs/products and customers
• To understand the different tools and techniques available to you to control and remove cost from your organisation
• To understand the practical tools and techniques that are available to help you, and to get practical hands on experience of using them in a safe environment

Who Should Attend

• CFOs, Controllers and Cost Accountants
• Cost Estimators, Budget Analysts
• Industrial Engineers, Manufacturing Engineers
• Financial Analysts, Systems Analysts

Topics

• Modelling product costs, customer profitability and customer value
  • The importance of models in decision making
  • Oxenfeldt’s rule
  • The causality principle – Understanding what drives cost
  • Designing cost models that match economic reality
  • Designing cost models that both assign and predict costs
  • Special costing tools and techniques
• Data accuracy and relevance
  • Precision vs. accuracy
  • Financial costs vs. economic costs
  • The periodicity problem
  • Depreciation expense vs. long-term capital preservation
  • Cost of capital
  • Cost behaviour “direct” vs. “indirect”; “fixed” vs. “variable
• Planning and decision support
  • Pricing and quoting
  • Decisions covering multiple periods
  • Make / buy decisions
  • Outsourcing decisions
  • On shoring / off shoring decisions
  • Capital expenditure decisions
  • Target costing
  • Discrete event simulation
  • Supply chain management
  • Product mix management
  • Manpower planning
• Designing a cost model that fits your firm
  • Material support activities
  • Value-adding and other direct activities
  • Event and transaction activities
  • Customer/market support activities
  • Product/service line support activities
  • General and administrative activities
• The Excel-based cost model
  • Basic structure of the model
  • Populating your model with test data
  • Using the model to support decisions
  • Creating Excel-based job/product costing templates
  • Creating Excel-based customer costing templates
• Gathering your company’s data to populate the model
  • Estimates vs. precise measurement
  • Using the general ledger to model reconciliation worksheet
  • Gathering cost driver data
• Effective Budgeting
  • Why traditional budgeting doesn’t work
  • How to build a Zero-Based Budget
  • ZBB and ABC working together
  • Beyond budgeting…using rolling forecasts instead
• Taking Cost Out of the Organisation
  • Project justification
  • The danger of recurring costs
  • Sharing services
  • Running a cost reduction exercise
  • Managing cost through continuous improvement

Teaching Method

• Group live instruction, discussion cases, examples, group work, open discussions
• Hands-on model and template building using Excel
• Interactive participation is encouraged
• All participants receive a comprehensive binder containing copies of the presentation slides, handouts and other course materials

Instructors

Venue

CPE/CPD Accreditation

IASeminars is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.nasbaregistry.org .

 

Field of study: Accounting

Prerequisites

Understanding of basic management accounting principles and practices and familiarity with Excel. No advance preparation is required for this course, but a working knowledge of your company’s operations will be necessary. It will be helpful bring along a layout of your manufacturing facility or process maps of the services you deliver, your company’s organization chart and a listing of the costs incurred by your organization.