Activity Based Costing (ABC) provides financial intelligence, fairness / equity, better data for managing inventory, forecasting and higher profit margins. ABC provides details on the sources that hinder jobs from being profitable. The methodology looks at the all the variables that may affect the profitability outcome of a product or a service. ABC provides a snap shot into the different costing pools and enables organizations to better plan a job or project to profitability.
Advantages of Activity Based Costing / Job Costing:
- Understand All the Costing Pools – Not Just the Total Cost
- Real Time Analysis to Minimize Non-Value Added Activities
- Budgetary and Cost Control (Inventory, Resources, etc)
- Better Margins
Understand All the Costing Pools – Not Just the Total Cost:
It is crucial to understand all the cost factors associated to getting a product, project or service contract delivered to a customer. Hidden costs will kill the profitability of your job quickly. No two jobs are alike, so every job must be costed-out independently to measure the potential profit or loss. A blended cost formula provides inaccurate cost analysis and unfavorable results.
To understand the total running costs of a service or project, you must allocate costs pools:
- Utilization Rates
- Materials Needed for the Job
Real Time Analysis to Minimize Non-Value Added Activities:
Minimize non-value added activities each department performs to maintain your customer account. Being able to optimize business processes minimizes contract revenue leakage and unbillable time spent taking away from other revenue generating activities.
Budgetary and Cost Control:
On demand inventory or “carry what you need” allows for better cost controls. By having the right costing analysis behind every job and the ability to forecast pipeline opportunities has a positive trickle effect. It minimizes the risk of holding aging inventory and an under- utilized resource bench.
Always know where you stand at every phase of a project, job and customer lifecycle. Understand the ABCs variables in real-time can steer you from unforeseen overruns. Have full view of your profit margins at every lifecycle phase from implementation to go-live.