Using Business Intelligence to discover your true business costs.
I’ve previously posted about Business Intelligence (BI) and how the data you already hold can tell you a lot more about your business. But in this post I wanted to pinpoint a real-world need for breaking down overhead or indirect costs.
The true cost of your service or product.
If you have an ERP system that allows you to track your jobs, tasks or projects as well as their direct costs then you can already tell what parts or services were paid for by your business to complete the job. From that you could work out an average cost per job, per department, per branch or per client.
But what about indirect costs – electricity, rent, salaries, IT etc? You may be able to see which branch they are attributable to but what if you could break these costs down by client or by department. Then you would know exactly what a client is costing you to do the job for them; or know the actual cost differences between your departments.
Importantly, you will see your actual business profit by client or by department.
However, indirect costs are usually posted as a single transaction at a head office or branch level. It has no direct relationship to the actual job, task or project that produces the revenue.
What we need to do is find a way to split or apportion the cost across your clients or departments based on some formula. In my time I’ve seen a few different ways including: using salaries per department or client as an indicator of how to break up a cost; or summing time or counting tasks and jobs to measure the effort completed for a client or by a department.
Once we know how to apportion the cost (and how we do that could differ depending on the type of cost transaction too) we can build that into a data warehouse and make it easily accessible to reports, dashboards, scorecards and other applications.
Attributing indirect costs to revenue provides powerful information that will allow you to find good and bad performing areas of your business.
At Whirl IT Solutions, one of our specialties is designing these sort of complex algorithms to produce easy to read and to understand reports for our clients. If you would like to know more please give me a call on 03 5420 7836 or email me at sdocherty@whirlit.com.au.
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