You’ve probably heard the saying, “Insanity is doing the same thing over and over and expecting different results,” or, “We can’t solve problems by using the same kind of thinking we used when we created them” – both are quotes attributed to Albert Einstein. Even though Einstein spoke these words more than 60 years ago, they are more relevant than ever when applied to the way managers try to increase the profitability of their companies.
Time and again, managers try to grow revenues or decrease costs without the visibility of true “cause and effect” revenue and cost relationships, so decisions are commonly made with blinders on. The good news is that there is a way to avoid this insanity and apply a way of thinking that offers tangible benefits — Driver-Based Planning and Costing.
It’s widely known that you can’t accurately predict the future, but you can be prepared for it. By implementing Driver-Based Planning, macroeconomic drivers are used to forecast your costs based on unit sales and other business transactions and provides you the ability to adjust for market variability, causalities and eventualities. Many companies are using Driver-Based Planning on a continuous rolling basis as a means for replacing their budget processes.
One of the best ways to increase your organizations profitability is by managing the cost contribution at the customer, product or channel level. And the only way to accomplish this is by using Driver-Based Costing. This cost management approach assigns resources to activities and then activities to end consumers or products based on demand or use. An important aspect of Driver-Based Costing is that is associates the causal relationship of costs to activities through the use of economic and operational drivers. This enables management to understand the actual cost of performing each activity, rather than trying to figure out the impact of allocated costs to the product or service provided.
Beyond EPS Advisors is a leading global provider of Driver-Based Planning, Performance Measurement and Cost Management Solutions; helping companies to become more productive, profitable and competitive.