Providing sanitation and electricity to hundreds of thousands of people is no simple task. But it is the mission that Radees has taken on in Morocco, serving several communities with urban infrastructure solutions essential to the quality of human life.
Responsible for the distribution of drinking water and energy, Radees has just signed a contract to use the MyABCM solution in its cost and profitability management. Assisting in the software implementation process, the renowned consulting and auditing company BDO will be a strategic partner in the project.
With not only a corporate but a social commitment to provide quality drinking water and energy to over 300,000 people, the organization needed a tool to visualize the costs associated with managing miles of infrastructure equipment. Therefore, MyABCM is the chosen software to visualize the multiple sources of costs and the possible impacts of making decisions before subjecting hundreds of thousands of people to them.
The version of the software selected to serve the company offers features for flexible and intuitive multidimensional modeling with a relatively low implementation time. The system will allow allocations to be made through clear visual representations and with the application of business rules at various levels of complexity to allocate values from sources to destinations.
The organization will also benefit from advanced cost-tracking solutions that control resource consumption and pass-through to customers, as well as model summaries that allow potential distortions to be identified quickly and corrected before they damage business results.
To learn more about the solutions that serve Radees and other large companies distributed in more than 50 countries, contact us! Use the form below.
Crises often occur without warning. But this time the scenario is different. With an unprecedented economic and social context, experts predict a worsening instability in the world economy.
The expectation in 2020 was that economies would improve as we recover from the Covid-19 pandemic. However, the prognosis for the global economy through 2024 is not encouraging.
The projections reveal a slowdown in growth even in developing countries (which generally have better rates), with expansion well below expectations. The most recent Global Economic Prospects report from the World Bank indicates a probable global crisis in the face of high inflation, equally high-interest rates, and reduced investments.
World Bank projections indicate that the global economy will grow by 1.7% this year, and by 2.7% in 2024. These numbers reflect a generalized situation that will impact markets on all continents, with low growth expectations for 95% of the first-world economies and approximately 70% of developing economies.
It is estimated that the global economy in 2024 will grow 6% less than the forecasted rate for 2020, the year before the Covid-19 pandemic exploded. In a more alarming context, this data highlights a significant concern for companies around the world: with such a weakened outlook, any adverse event can start a recession.
An increase in Covid-19 cases, military tensions between countries, or banking fragility with the collapse of banks like Silicon Valley Bank and the bailout of Republic Bank and Credit Suisse could be the push that’s needed. Events such as these can cause GDPs to plummet, real incomes to fall, unemployment to rise, and industries to become idle, with companies in various segments experiencing severe crises or even going bankrupt.
Although on a downward trend by the end of next year, inflation will remain above the rates obtained before the start of the Coronavirus pandemic. High inflation, coupled with projections of low economic growth in 2024, is expected to lead to decreased demand for emerging economies’ exports and depreciation of their currencies. Advanced economies are expected to have their growth slowed from 2.5% in 2022 to 0.5% in 2023.
In the last 20 years, declines of this magnitude preceded global recessions (in 2009 and 2020). For the US in 2023, for example, the worst economic performance out of recession periods in 53 years is forecast.
However, some believe that the crisis is inevitable, with or without major global unforeseen events. Tom Simons, an economist specializing in the financial market, predicts that we are entering a period of classic recession.
According to Simons, the rise in inflation and interest rates should lead to a significant drop in organizations’ profit margins, resulting in cost cuts that should begin with a reduction in the workforce. Simons believes that this worsening of the crisis will start from the middle of this year, affecting both advanced and developing economies.
On the other hand, opinions are beginning to split among scholars. The abnormalities of the current economic context may imply a different market behavior, leading to unexpected developments. Mark Zandi, Head of Economics at Moods Analytics, states that the simple expectation of a recession can lead to unexpected results.
According to Zandi, with everyone foreseeing and preparing for the crisis, an unprecedented phenomenon, the picture may develop differently, leading to a cooling of inflation and even a possible drop in the unemployment rate.
The certainty we have is that the crisis is here, after all, levels of economic growth like the current ones historically point to the emergence of another global recession. However, it is difficult to say what the extent of the damage and the impact on the different markets will be.
Thus, managers can only watch interest rates and carefully analyze how economic instability will affect different aspects of their business: from supplier relations to customers’ purchasing power. Only then will it be possible to take specific actions to help preserve margins without compromising production and market positioning over the next two years.
Managing 230,000 hectares of agricultural land across 6 different business operations in 3 countries is no easy feat. This is why Adecoagro turned to MyABCM for solutions to optimize management, control costs, and increase profitability.
With over two decades of experience, Adecoagro cultivates more than just raw materials for different markets; it also cultivates a long history of growth. The company, which was founded in 2002, started its operations with 70,000 hectares of agricultural and livestock production in Argentina.
In 2004, it expanded its plantation by incorporating new lands outside its country of origin, reaching Brazil and Uruguay. In 2005, the company increased its product line by implementing the production of sugar, ethanol, and energy. With its great evolution, in 2011 Adecoagro was listed on the NY Stock Exchange (NYSE). A major achievement that reaffirms the company’s enormous value.
Today, Adecoagro’s main operations include sugar, ethanol, energy, milk, rice, and grain production. It produced 2.7 million tons of agricultural products and more than 1 million MWh of bioelectricity. Throughout its history, Adecoagro’s planting area has increased by over 200% and its focus on growth and excellence in management has led to 2021 revenues surpassing US$1 billion.
Adecoagro continues to surpass its expectations each year. To further drive its growth, the company’s management team has decided to invest in technology to achieve complete transparency and traceability of costs, advanced business simulation capabilities, and most importantly, independence and autonomy!
It is in this scenario that MyABCM will operate. Adecoagro chose our solution to enhance its cost management processes, which were previously performed with difficulty using another tool and could no longer keep pace with the complexities of such a dynamic organization. With full integration with corporate systems, MyABCM will bring several key benefits to the company, including:
This will provide management with a clearer understanding of how costs are distributed throughout the company’s complex operations, from suppliers and distribution channels to other critical aspects of its business. The result will be much greater decision-making capacity and reduced risks, as well as increased profitability of its operations, paving the way for new investments.
Want to learn more about how MyABCM can provide detailed cost control for companies with highly complex structures? Request a Demo today!
Samara Lima e Andrade
Captain Intendant
Head of the Production Division of the Pirassununga Aircraft Farm
This case study aims to present how the Pirassununga Aeronautical Farm (FAYS), a Military Organization based at the Air Force Academy (AFA), employed cost analysis as a beacon for the optimization of management and public spending. The entire project aimed to meet the organizational demand of maturing public management and had as its scope the knowledge of the historical unit cost of assets produced in the fiscal year 2019. The analysis used the ABC (Activity Based Costing) method to prepare the report and sought to serve as a subsidy to assist management in making more assertive decisions to improve public spending.
Founded in 1942, FAYS has an area of 6,502 hectares in the State of São Paulo. It is a Military Organization of the Brazilian Air Force, whose mission is the productive occupation of the lands of the Pirassununga Air Force Garrison with agricultural activities, which result in the production of food products sold internally and externally to the organization, according to the Strategic Planning in force.
Public opinion has become increasingly demanding as to the efficiency of public management and the optimization and improvement of public spending, culminating in the strengthening of the cost culture as a promising solution to achieve these goals. In this context, to meet the organizational demand for knowledge of the historical unit cost of assets produced by the Treasury, FAYS has engaged in a survey of the costs of processes and macro-processes developed within the OM, studying the possibilities of tracking indirect costs, to produce useful information to assist management.
The first decision to be made for the preparation of the report was what will be the focus of the cost accumulation system, considering that it can occur either by project or by activity. Project costs must be accumulated by order, and are those related to the provision of services or production of goods linked to specific projects, with scheduled start and end dates; whereas activity costs must be accumulated by process, and refer to activities of a typical nature, which occur continuously. In the case of the FAYS project, the accumulation system by process was applied, setting as the analysis scope date of the Plant Production Unit the period from 06/01/2018 to 05/31/2019 and as the scope date of the Animal and Industrial Production Unit the period from 01/01/2019 to 12/31/2019.
Considering that, unlike the legal practices in the private sector, the choice of the public sector costing method is not restrictive, it was necessary to choose which costing method would be used in the analysis. Taking into consideration that previous FAYS projects have already used the Activity Based Costing method, the ABC method was the most favorable for the execution of this project.
With the costing method defined, the organizational structure of FAYS was analyzed and it was established that the work would be dedicated to the analysis of the primary processes of the entire organization, these being considered those essential for the fulfillment of the institutional mission, i.e., the processes that relate directly to the farm’s production complex, which is divided into three Production Units: Plant, Animal and Industrial. Along with these three units, the commercial aspect of the mission, which is the distribution of goods produced or processed on the farm, makes commercial activities also included under the list of primary processes. For the other non-primary processes, such as personnel management and infrastructure activities, the costs were registered as expenses.
Under the optics of this approach, it became essential, to ensure the continuity of the engagement in the Cost Accounting area with the desired fluidity, the acquisition of a software that could optimize the work required for the project. In this search, a temporary license of the MyABCM software was hired.
As recommended by the Cost Information Manual of the Federal Government (MIC), it is from the development of their own modeling that organizations begin to advance in the cost culture. In this sense, to optimize the analyses and understand the logic of the calculations to be performed, it became necessary to elaborate cost flowcharts (with cost sub-centers) that reflected the interrelationship between the activities that comprised the processes of the FAYS Productive Complex in the referenced scope.
Once the Cost Sub-Centers that reflect the consumption of resources by activities were known and their interrelation understood, it became necessary to calculate the monetary values cumulatively spent in the processes to calculate the unit cost of the objects of interest.
Therefore, the following order of priority was considered for the allocation of costs to the activities and objects of interest: direct allocation (when there is an objective identification of the sacrifice of resources for the development of an activity or an activity for the delivery of a product); tracing (when a cause and effect relationship is sought through the use of drivers); and apportionment (a more arbitrary criterion that should be avoided from the management point of view).
After completing the preliminary steps, the desired result was obtained by processing the application itself. This has the parameter of calculating the Unit Cost by dividing the costs that were accumulated in the allocations, by the “Volume Entered” of each verification object, i.e., by the total quantity of units produced during the period considered.
In this context, to optimize the managerial analyses, “triggers” were created along the cost modeling to enable a certain roll of results based on the same input. Thus, it was decided to name the different compositions to improve the understanding of the coming analyses, which are Basic Cost, Budgeted Cost, Production Cost and Cost Price.
Basic Cost:
Comprised of the consumption of materials used in production, and the settlement of services applied in production activities.
Budgeted Cost:
Comprised by the consumption of materials used in production; the settlement of services applied in productive activities; and the depreciation of permanent assets allocated to productive sectors in the asset controls of SILOMS (Integrated System of Logistics of Material and Services).
Production Cost:
Composed by the consumption of materials used in production; the settlement of services used in productive activities; the depreciation of permanent material allocated to productive sectors in SILOMS; and the labor allocated in productive sectors in SIGPES (Personnel Management Information System).
Its main application is the optimization of the Organization’s horizontal vision, providing an opportunity for process analysis and improvement, using activity performance improvement, and it can also be used as a benchmark for pricing items intended for external sale and the Reimbursable Section.
Cost Price:
Composed of the consumption of materials used in production; the settlement of services applied in production activities; the depreciation of permanent material allocated to productive sectors in the asset controls of SILOMS; the military manpower allocated to productive sectors in SIGPES; and the commercialization expenses.
With this in mind, in addition to guiding public pricing, the valuation of production stocks, the retro-analysis of operational practices employed in the production chain, the promotion of improved performance by managers through benchmarking actions, product reengineering, waste reduction, as well as the feasibility of changes to the current portfolio, the practice of measuring unit costs of goods produced by the Treasury can certainly be employed as a continuous improvement tool for the organization.
From the theoretical approach and the analysis of the results obtained through the implementation of a cost management model using the ABC methodology, it is expected that the proposed objective has been achieved and it is suggested that FAYS continues to pursue continuous improvement in terms of Cost Accounting, focusing on the goals of quality public spending.
With 30 years of history, Quatá, a dairy products manufacturer, impresses with its potential and speed of growth. The company, founded in 1990 in the countryside of São Paulo, started its operations with only 16 employees and a processing capacity of 3,000 liters of milk per day. Today, the company is responsible for more than 1,600 jobs and has a production capacity of around 1.1 million liters of milk a day. The industrial plant has expanded and currently six factories are producing the various goods in the industry’s portfolio, which includes dry and refrigerated lines among cheeses, kinds of milk, creams, zero lactose options, and specialty cheeses.
Growth is undoubtedly one of the greatest goals of any business. However, it is a process that brings with it great challenges. And for Quatá it was no different. The company uses in its management one of the best ERPs available in the market, TOTVS. However, even with all its versatility, the platform proved to be insufficient to offer the level of detail required to control the indirect costs of such a complex industry. Thus, to support the cost management process, Quatá employed in its logistics and distribution areas a costing model partially by absorption and by activities, using Excel spreadsheets.
Even with the association of these resources, the company still had difficulty in visualizing the costs of all the processes accurately and productively. With a varied portfolio and different production methods, one of the biggest challenges was to efficiently measure profitable and loss-making products. In this context, the production of the industry’s refrigerated goods line proved to be particularly challenging. With an almost manual process for manufacturing their specialty cheeses, accurate costing was not an easy task, but it was a must.
MyABCM has provided Quatá with the possibility of implementing a new cost management model, capable of serving all sectors of the business, integrating smoothly with the ERP already in use. The cost modeling by activities (ABC/M) is now applied from the industrial plant, in the Production area, to the Commercial sector (covering delivery, logistics, and customer service) and also in the back office and the correct allocation of the indirect costs of the business.
The company, which does accounting and management closing every 5th business day, uses MyABCM to extract various dimensions of analysis, which are then published at a very high level of detail. Through integration with Power BI, the findings are quickly made available for viewing by the entire company, which can use the data provided to improve the decision-making process.
Quatá is a company that is growing a lot and it is essential to understand where it is making and losing money, so one of the company’s greatest gains was in the diversity of the performance information and its analysis. And the outcome of this process is the empowerment of the management teams, who now have much more control over the business performance, since strategic decisions are taken based on the data provided by the software. Among them, it is worth highlighting the contribution margin analysis, which is now performed by Product, Channel, Customer, Management, Salesman, Representative, and Region.
With this detailed vision, Quatá has gained an important competitive advantage. The tools of the MyABCM solution are also used for Planning and Budgeting, in addition to providing historical budget data and solutions for scenario simulations that are fundamental in pricing studies and in obtaining sophisticated forecasts.
This is another benefit of great prominence for the organization. With the agility of the market transformations in the dairy segment, being ready for all the possible unfolding of the sector facing economic and supply chain fluctuations put Quatá ahead of the competition. And it is not only in preparing for market fluctuations that the resources for costing, simulation, and scenario forecasting have optimized Quatá’s operations. The industry launches several products every year. As such, the previous studies with the application of target costing techniques produced with the support of MyABCM are a fundamental pillar in the decision-making process regarding these new launches.
According to the Controller Manager, Jullian Soares, who was responsible for the implementation of costing in Excel and later led the MyABCM project at Quatá, “The model has to make conceptual sense for the business. Today, we have everything tied to MyABCM: understanding key business dimensions, individual goal analysis… I can say that without MyABCM, it would be extremely difficult today to manage the organization with the agility that it demands.”
It is also important to note that the support of the MyABCM support team was evaluated by Quatá’s board as fundamental throughout this process. Not only for their experience with the platform itself and its tools but also their knowledge in the implementation of the activity-based costing method and expertise with 100% dedication focused on the topic.
Before the Covid-19 Pandemic, Duke University research gathered 848 financial executives in the United States and asked, “What are your organization’s top three concerns?” The number one concern of these executives was “Being able to maintain margins.”
Another study, this time from Gartner, of 482 executives asked, “What is your biggest technological challenge?” The biggest challenge identified was “Properly measuring Product and Customer profitability.”
In other words: obtaining adequate profit margins has been a difficulty and a widespread concern among companies. In this article, we will shed light on some of the factors that may be causing this problem in your organization, and how you can reverse the situation.
In fact, we realize that the margins of organizations have fallen dramatically in recent years. This is due to several factors, such as the pandemic itself, pressure from government agencies, logistics problems, competition, and even increasingly demanding customers.
It is common to find companies that do not realize that one of their products is making a loss and continue to sell it below cost out of total ignorance! And in their eagerness to serve customers, organizations are often practically forced to give significant discounts – which in many cases ends up generating a loss-making sales operation, resulting in a significant impact on the overall profit margin.
In this context, it should be noted that those customers who demand a lot of effort from the organization are deficit customers. They are those who make special orders, impose a great logistical challenge of any nature, or require significant post-sales. Now imagine what it is like to sell to such a customer!
And, making matters worse, many of these clients are treated as “key” customers, because they buy a very large volume of goods (or in the case of the services segment, transact a large volume of services), often giving the false impression that they are “profitable” when in many cases they are loss-making!
On the “shop floor” the adversities are equally great. Every process or activity done in duplication, the rework, represents huge costs that the company must bear. Defective products or layout problems and high idleness are good examples.
If we go to the back office, several factors must also be evaluated in order to maximize the company’s profit margin. Is the size of the organization adequate for the challenges of producing, selling, delivering, and after-sales? Is there a way to be more efficient? These are some important questions.
These scenarios are reinforced by a study done at Harvard. The research found that on average, 20% of customers are very profitable, approximately 70% “stall”, and 10% are loss-making. The big challenge is to understand which ones they are and what to do with this information!
The issue of controlling profit margins is urgent for companies in all sectors. A pre-pandemic survey by Exame magazine pointed out that the average net margin of organizations in the last 10 years was 2.54%.
This means that a transaction made outside of compliance, or some additional discount offered to a customer is often the difference between profit and loss for the company.
From the moment we can measure costs and results properly, we can make the best decisions. Discount policies, salespeople commissioning, process outsourcing, exporting or not, opening new divisions, etc., are just some of the possibilities when we have true information for this decision-making.
Want to find out what is causing your company’s profit margin to drop and reverse this process? Contact our experts!
Extended Planning & Analysis (xP&A) is an evolution of the traditional FP&A, widely known and employed in organizations. In a scenario where technologies have developed to the point of allowing the collection, relationship, and integration of large amounts of data, this deployment of analysis and financial planning is an expected phenomenon.
After all, why ignore departments whose activities impact the financial results of the business, if it is now possible to understand how their actions at a specific level have repercussions on the overall picture of the company?
Want to understand better? Then continue reading to learn about xP&A!
The simplest definition is that xP&A is an FP&A that broadens the view of the financial sector. And as we have already mentioned, it is a natural result of the advance in management software, which is now able to fluidly interrelate information from all sectors of a business.
In other words, the xP&A differential is the proposal to centralize the data from the company’s various departments and manage them in a single interface. It allows the different cost centers of a business to be identified and correctly considered in the organization’s financial analyses.
xP&A fills a very important gap: it uncovers costs that in other analysis models remain hidden. Read more about overhead costs and hidden costs and their dangers here.
When integrating the needs and operations of the different sectors of the company, it is easy to create information silos that isolate departmental data and prevent the finance team from understanding its origins and validating its acuity. With tools that allow the organization to adopt xP&A, managers can observe how the various sectors (marketing, human resources, distribution, production, technology, research, etc.) contribute to the generation of costs and results.
In short: xP&A creates a real map of the inflow and outflow of resources within the organization.
xP&A allows the visualization of costs and financial allocations at the sector level. As such, it allows the identification of cost sources and bottlenecks, improving the decision-making process regarding the application of resources.
Here we are talking about a unification of data within the company. Financial, sales, marketing, HR, etc. All within the same platform with a unified model in data collection and presentation, making the information more consistent and reliable.
By connecting information, xP&A opens the door for the creation of integrated planning. This way, we have the company working more like a uniform gear, where everything is connected and working coordinated.
Companies that adopt xP&A can have much more agility when it comes to planning and projections. This impacts all niches, but especially those that deal with greater economic uncertainty and volatility.
Visualizing the origins of costs and the way resources flow through the organizational structure guarantees much more predictability regarding the results and the impacts of actions.
This last benefit is the result of the union of all the others. Thanks to all the visibility promoted by xP&A, decision-makers can be more efficient in seeing improvements, opportunities, and risks. Scenario modeling can simulate situations and anticipate changes, preparing the company to act strategically.
However, one must keep in mind that not just any software is suited for the adoption of xP&A. Traditional ERPs, as well as less sophisticated accounting systems and financial solutions, traditionally are not able to integrate information at such a detailed level.
To obtain all the benefits of this methodology, it is indispensable to count on a solution that can manage and update in real time a high volume of information, as well as collect data from the various sources fed by each department.
MyABCM was tailored to provide this level of detail in the analysis, in a flexible model that adapts to the most diverse segments and business models.
Want to know more about MyABCM? Contact our consultants using the form below.
After several public and private investments directed to the waterway sector, the ports have increased their activities regarding the displacement of products and services in recent years. According to Statista data, world seaborne trade has been growing in volume since 1990. Between 1990 and 2020, the volume of cargo transported by ships has more than doubled, from 4 to nearly 10.7 billion tons.
However, this intensification of activities in the sector makes a challenge evident: the ports still lack skilled and instrumented leaders to develop good port management and logistics.
For this reason, the results obtained end up being lower than expected, even in an optimistic scenario. In this context, it is essential for companies in the segment to develop actions to improve their management, to provide the extraction of the best possible results.
And this is exactly the theme of our article today. Read on to understand the importance of technology in port management!
Maritime transport was the first mode of international trade on a global scale. With hundreds of years of history, port management techniques have evolved as new naval and communication technologies have developed.
However, factors associated with the intensification of trade and the leadership of certain nations in the imports and exports of certain products are also determining factors for the establishment of techniques capable of producing the best results. In this scenario, modern port management must rely on systems capable of collecting, managing, and reporting an unprecedented volume of data from the various administrative and operational fronts of the business.
The first step towards more efficient port management is to implement good planning of the organizational processes. In other words, it is necessary to map all the information and operations that are involved in port activities and outline the best strategies and action plans to adapt the business model and prepare the company for constant market transformations.
In this context, it is essential to have well-defined objectives concerning the goals and development plans of the port. This allows efforts to always be directed in the right direction of growth, besides foreseeing potential problems and simulating scenarios to guide decision-making.
And that is where technology comes into play in port management. Having tools that record and automate processes makes the visualization of the history of transactions and operations more efficient, basing the management on real and objective data that help in determining the next steps.
The port challenges are many. Bureaucracy to adapt to government requirements, maintenance and improvement of infrastructure, legal issues specific to the goods transported, implementation of intermodal infrastructure, training and safety of teams, storage of assets, transport logistics, and environmental issues are among some of the most latent problems faced daily.
Recording the actions taken to intervene in each of these areas and understanding how they impact the health of the business is indispensable for port development. And by having specific software and systems to monitor activities, it is possible to optimize the resolution of these and other vital issues.
Firstly, because the technologies allow all the information relevant to port management to be concentrated in a single place. Second, having a system that automates processes and integrates workflows helps reduce the error rate and increase the productivity of the teams.
Another crucial factor is that the implementation of technologies to improve port management is a crucial step toward visualizing how resources are applied. This makes it possible to direct investments to priority areas, enhancing their returns.
In this scenario, one of the most prominent technological solutions is a software specialized in cost and profitability management. They create the basis to make the port more efficient and attract investments and business through the allocation of resources in an intelligent way, capable of propitiating the development of the port.
MyABCM has a solution focused on the port segment that can offer several functionalities to the manager:
Find out about My Ports.
Want to know how a system like this can transform the results of port management? Contact our consultants using the form below.
Active in the property, personal and life insurance market since 1971, Assurances du Crédit Mutuel (ACM) is one of the large European organizations that rely on MyABCM to manage their costs and profitability.
The organization is one of the most important insurers in France, and has a portfolio of services that is not limited to the French territory. The insurer also distributes part of its portfolio in Luxembourg and Belgium, and has financial participation in products that serve the Canadian and Tunisian markets. This large coverage brings together in ACM’s customer portfolio more than 12 million people insured by its different products.
To meet all this demand and manage its diversified portfolio, the organization employs more than 3,800 employees. With these numbers, in 2021 the company was responsible for more than 35 million insurance contracts on various fronts.
Managing all this information is undoubtedly a great challenge. For this, the corporation used the SAP PCM (Profitability and Cost Management), but with the removal of the tool’s support, the board chose to migrate to the MyABCM system.
This choice was guided by the need for a solution that not only offers complete features for cost management and business profitability, but also provides the necessary support in its implementation and daily use.
Other factors were also decisive for the MyABCM system to be chosen as the ideal solution for ACM, out of other renowned software available in the market.
Among them, it is worth mentioning the fluid integration with the ERP used in the organization and its ability to add powerful and flexible cost and profitability analysis tools, capable of processing the robust volume of data coming from its operations.
Want to know more? Learn about MyABCM solutions and find out how your business can go further too!
In case you’ve just stumbled in here, read our full article that explains how the ABC costing method works by clicking here.
Let’s recapitulate some trivial points that underlie “Activity-Based Costing”.
If you are already familiar with the term, let’s go ahead and discuss why ABC (activity-based costing) has the power to increase your profitability.
Let’s get right to the point.
The focus of the ABC method is to have maximum control over the indirect costs (also called overhead) as well as the direct costs associated with a product, service, customer, or channel.
Through a costing system using drivers that respect a cause-and-effect relationship and aiming to bring an advanced analysis of the costs per activity within the operation.
And with this dense range of data, intelligently filter the numbers and transform them into strategic decisions.
The first step comes from what we call “data-driven culture”.
This is the natural habit of ALWAYS making decisions based on collected data and not on a gut feeling.
It all starts by identifying the main KPIs (key performance indicators), which are our key performance indicators.
If you intend to make decisions based on data and not just intuition, yes.
Performance indicators make it possible to measure how much a strategy is generating the expected result or not.
It is important to mention that KPIs are always measurable and concrete.
Analyzing data is something automatic in large companies, however, not always creating strategies and defining next steps is provided by a study on top of what has already been collected and digested.
The ABC costing method is useful for companies that already have this data-driven culture and are looking for optimizations through detailed data analysis.
The more knowledge you have about how much and where your resources are being spent, the more precise your improvements associated with cost management will be.
And that is what we at MyABCM offer.
The ABC method results in an advanced costing analysis based on each activity involved in producing some product, providing some service, or serving some customer or channel.
This is where pricing comes in.
One of the biggest challenges within a business can be made easier by applying the ABC method.
Keep in mind that failing to calculate your total costs can result in sub-optimal pricing, resulting in an unfavorable profit margin for the company.
With all the control of segmented expenses in the palm of your hand, pricing becomes clearer and effectively correct. The consequence of this is the real impact on negotiations with customers, discount policies and commissioning of salespeople, resulting in the end in greater profit for the company!
The option of being able to precisely manage all the organization’s costs. This opens up the possibility of making more assertive decisions about where to act to reduce costs, invest, and even serve the best channels and customers from a profitability standpoint.
2. Associate overhead costs with the products, services, channels, and clients that actually consume it
Instead of associating the same cost to all products, services, customers, and channels, you can allocate the fair value consumed by each.
This also helps identify costs that apply to more than one segment, making this feature more valuable because it potentially eliminates distortions in cost calculations.
3. Evaluate production efficiency and apply improvements
The ABC method makes it possible to assign value to overhead costs by working the data as if it were direct costs. By breaking down overhead costs and assigning them by activity, we can look for breakthroughs with precision.
In the same way, we can make processes more efficient and correctly monitor the key KPIs for each activity in the organization.
4. Accurate data to obtain the desired profit margin
Having accurate data will directly impact a leader’s decision making. It opens up the possibility to reduce or shift production costs and apply effective pricing strategies to obtain an adequate profit margin.
5. Unique Benefits
Other methods cannot cover what the ABC costing method provides.
Directly related to the particularity of activity-based costing, it can measure expenses related to activities, however small they may be.
All the questions below must be answered with a yes.
Then you are prepared.
To be clear, there are not only advantages.
But it is the solution to a number of complex problems for those seeking cost optimization through a robust system.
After you have finished reading this post, you certainly have the clear answers as to how ABC cost management can increase your profits.
