Choosing cost management software is an important investment for any company given the various advantages that access to this technology can provide to your organization, such as better information access and analysis.
However, you need to devote some time to deciding which company is best prepared to meet your needs. Should you try a spreadsheet implementation? Should you customize an ERP? Can BI help you tackle this? In this post we’ll suggest a few questions that businessmen should ask before choosing cost management software.
Implementing a Cost Management and Profitability solution requires full-time dedication to this subject. The supplier should be a company that’s 100% dedicated to dealing with all the individual complexity that an implementation of this type requires. All of the services should be executed by the company’s own team and not by partners who may not have the necessary commitment to a successful implementation.
The company should also have proven international experience in specific cost management and profitability projects with companies of all shapes and sizes – which benefits interested buyers because implementation time should thus be diminished at the same time as the quality of the modeling should be enhanced.
Here it’s important to know the business consulting companies that create the conceptual modeling for these solutions. These companies possess valuable know-how in terms of international best practices for the implementation of cost models ranging from the most simple to the most complex and won’t risk recommending a solution that’s not the best.
The solution should have received a positive evaluation from a formal market publication published by a renowned institution (Gartner, IDC…), a Big 4 Consulting Firm (Deloitte, KPMG, PwC and EY), Accenture or a large independent consulting firm.
The solution should be installable in local environments like notebooks that facilitate the prototyping of cost models in an independent manner so that they can be later uploaded to a production environment or scalable hardware with very sophisticated infrastructure. It obviously should also be possible to run it on a 100% web environment with absolutely no local installation necessary.
The user should have the autonomy to run the model and manage costs and profitability independently of the suppliers; the solution should contain specific functionality for this, facilitating the modeling, analysis and the execution of basic and advanced business simulations – all of this with adequate data security, data access levels and performance.
The solution should permit quick and easy analyses through advanced reports or even dashboards or gauges that can be developed by the user. The more functionality and the better the quality the solution offers, the better your monthly and final work results will be.
No one imagines that it’ll be necessary to type out the account list or do manual work. The data that feeds the cost and profitability model should come from existing systems, whether it’s an ERP, spreadsheets, payroll, BI and/or or any other system responsible for a part of the system’s input data.
The solution should have its own ETL (extract, transform and load) mechanisms that will enable it to transform source table data to a format that the software recognizes, making it even possible to take a critical look at the source table data before importing it. The goal is to gain efficiency and avoid rework.
This is a very common question on the part of managers. Let’s begin with spreadsheets: modeling in Excel can be very simple in principle (and it really is), but it’s natural with the first few times you go through the figures and draw conclusions based on your cost modeling that new needs arise. This isn’t even considering the issue of data security and integrity. According to EY, “it is possible to model using spreadsheets, but only with very simple cost models, and even these simple cost models have severe limitations in terms of extracting data for subsequent management analysis.”
ERPs offer the false impression that “they already contain everything required for a cost model,” but this isn’t true: accounting information, technical specifications, revenues and volumes are just some of the data needed to begin modeling costs and profitability. Various other types of data such as process and activity data, capacity, indicators, details of administrative costs and specific business rules aren’t found within an ERP, meaning that the system will have to be customized to meet the needs of an efficient cost model. And we all know how complicated, expensive and time consuming it is to customize any ERP. The supplier can even argue that “the cost model already is included in the package ‘for free,’ but it will require many customizations and adaptations that will often take more than a year to complete. Even when this occurs the model may rapidly become obsolete because, as we know, organizations are becoming more and more dynamic with new products and services, departments, cost centers, processes, channels, and clients appearing continually and there may eventually even be mergers and acquisitions. Unfortunately many companies still believe that ERPs can handle this and continue using compromised modeling which no longer reflects neither what’s present in the ERP nor the reality of the company’s operations.
Trying to accomplish costing within a BI is another innocuous challenge. Professor Bala Balachandran of Kellogg always says that “these systems make it possible to extract extremely wrong data in a simple manner.” A BI will always present data that already exists within an organization. It doesn’t transform data or take into consideration the demands of modeling such as reciprocal cost assignments, the prevention of double counting and the understanding of received costs and costs themselves. Modeling basically represents the effort made in transforming data for subsequent presentation/analysis, not the opposite!
Try to find out if other clients are satisfied with the service provided. Never wait until some unforeseen event occurs to find out if the company’s customer service meets your needs.
As we’ve seen in this article, there are many doubts that arise when you’re thinking of acquiring cost management software. If you’re interested in this technology, get in touch with us! It will be our pleasure to clear up any of your doubts!
Cost management is a fundamental aspect of corporate planning. Without good analysis and good management of a company’s investments and internal finances, it’s impossible to know how much each product and service costs and which products, services, clients and channels are really profitable.
Many companies tend to use Excel spreadsheets or Enterprise Resource Planning (ERP) software, which can handle company needs in terms of cost analysis only up to a certain level of precision. However, when more accuracy and flexibility are needed – and the time available for retrieving and analyzing data decreases – cost management software offering greater detail, practicality and flexibility, becomes indispensible.
For this post, we’ve gathered together information on this subject. If you want to know why you should invest in cost management software, read on!
Why invest in cost management software?
In many cases organizations of various sizes perform cost analyses using simple spreadsheets. Despite their ease of use, the creating a model using Excel spreadsheets presents various problems in terms of model flexibility, information security, and a lack of cost tracking and forecasting components; invariably the user ends up dedicating lots of effort to maintenance and spends little time on continually improving the model. It isn’t rare for us to come across clients who construct truly integrated systems based on hundreds and frequently thousands of associated spreadsheets.
A recent report by Ernst & Young states that “modeling costs with spreadsheets can only be done for very simple models and even with these models it can be very difficult to analyze them and make decisions based on them, which is why they are not recommended.”
By using cost management software, you’ll have the tools and components necessary to control all your company’s costs in a simple manner. Complex analyses such as an analysis of capacity/idle time costs, profitability per Product, Service, Client and Channel, and detailed analyses of effort related to processes, as well as other analyses, can be accomplished easily using an appropriate tool designed and built for this very purpose.
How can I calculate costs correctly?
One difficulty that companies constantly face is determining their costs correctly especially when they have a wide variety of products, services, clients and channels. In addition, the progressive increase of administrative and overhead costs in general makes determining costs a true challenge for any type of organization. Assigning costs using simple rules such as quantities or revenues was good enough when administrative costs were not significant, but in today’s environment greater accuracy is needed and this is no longer a viable approach.
In general companies know their total costs, revenues and results, but how much does this mean in terms of each product, service, client and channel? Using business rules and cost drivers that correspond to reality and cause and effect is essential to achieving greater accuracy in this calculation. Questions such as reciprocal cost assignments where different administrative areas charge each other various costs (for example: HR provides services to Systems and Production; Systems provides services to HR and Production) and the need to understand exactly how the costs in support areas affect the costs of Products, Clients and Channels cannot be determined using simple spreadsheets, which won’t provide the results necessary to facilitate good management.
How do I control process costs?
In general, organizations have already mapped or are mapping their processes to reduce inefficiency, diminish rework, and document their practices. But how much does each task, activity or process cost? How many of these costs are inherent to the Process and how many come from Support Areas? Furthermore, how much do these costs contribute to your company’s various Products, Services and Channels? These are some of the questions which are answered by cost management software.
These systems also make it possible to generate graphics quickly, selecting only data that is of interest, which makes it easier to observe crucial information that can be used to make decisions in terms of Costs and Profitability.
How do I analyze cost indicators, flow charts and cost tracing?
Another efficient way to control costs is through the use of cost indicators. They are completely integrated in cost management software, making the overall control of costs easier.
Besides this, you can control how different areas of your company affect costs, generating flow charts and detailing the contributions of each department.
Another useful tool is cost tracing which allows you to determine the source and destination of Product costs, analyzing the impact of different tasks related to the Product, enabling you to reallocate investments or costs, optimizing the process as a whole.
If you’re a manager and perceive that you need to make more efficient financial decisions more quickly and more strategically, installing cost management software is without a doubt a great choice.
Are you interested in the resources that this kind of software offers? Does your company already use cost management software? Leave a comment!
