Cost management and profitability improvement

Cost management is critical in all organisations but especially in Engineering and Technology companies as they can be very capital intensive, project orientated and exposed to supply chain issues. Steven has tackled cost and profitability in several companies and in one case, a company was struggling to understand why profitability was deteriorating rapidly.

situation

SOLUTION

Steven implemented a CVP (Cost, Volume, Profit) methodology to help the business better understand the relationships between these three variables. In addition, Steven introduced the “Engine” and “Chassis” concept. These are less well recognised but are simply representations of what components of the business deliver cash (engine) and the overhead that supports the business (chassis). Understanding this helped the business understand the contribution each service & product stream must contribute to the business so that the chassis can be paid for and a profit delivered.

The business was geared towards delivering in volume so as soon as the volume dropped off, the negative impact to profit delivery was more acute. Steven worked with both the operations and sales team to produce a forecasting model to help predict performance so options could be assessed prior to suffering losses.

OUTCOME

The business became more agile and recognised that delivery streams had to be balanced both to manage capacity and adjust to changes in volume. Cycles were recognised and sales effort deployed to maximise consistent profit.

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