Consulting project
“Cost accounting to understand business complexity”
Get the information you need to make the right decisions

The summary of the intervention
The consulting intervention aims to provide the company with a complete understanding of its costs and related dynamics.
The ultimate goal is to make a careful accounting to get the answers necessary for the right decision making.
The way in which this accounting is carried out depends on the company’s IT situation: they can be simple cost cards or an organic system of industrial and analytical accounting managed by a management software.
Where available, a business intelligence program will retrieve data from industrial and analytical accounting, processing them according to formulas and algorithms which are themselves the subject of the intervention.
What is important in the intervention is not the technical or accounting mode, but the meaning, the logic of the reasoning and the information obtained.
The company is in fact a complex organism that moves in a complex environment: the meaning is therefore to understand and decode this complexity. The cost of a batch of production of more or less quantity, of an out-of-standard, of a single or split shipment, of a simple or problematic customer, are all aspects whose management must become comprehensible and structured.

The symptoms of his need
There is a perception that many cost-related aspects get out of hand and that there is no real knowledge of the profitability of many activities. The component relating to raw materials and direct labor costs is generally quite under control. Other items are not known, or there are doubtful numbers. Many questions therefore do not find an answer and the decisions that are made are based more on sensations than on real data. Strategic and operational decisions related to individual customers or groups of customers would require information on their profitability, including a large part of overhead costs. The prices of certain non-standard workings would need a certain and sure costing. Surcharges that are applied in certain cases, for example for particular or fractional shipments, have always been applied on a lump-sum basis, while they would need to start from a calculated cost.
Overall there is a perception that information is missing to make many decisions.

The course of the intervention
The first part of the intervention is dedicated to understanding the costs of the company: the purpose is to understand and analyze.
After analysis we have the second part in which the system must be structured in an organic way. This is the moment in which the cost cards are created, the algorithms are defined, the first answers are given regarding the cost of the various analysis objects.
Then we move on to the third phase which is that of synthesis. The report is developed and it must be immediate, flexible, suitable for use throughout the company.
Reporting must produce information for decision making. In fact, the system does not start from the production of data, but from its use, therefore from the decisions that will be supported by its information.
This means that the project will base its success not on the amount of data produced, but on how effective it will be in supporting decisions. So it will be analytical, but immediate, precise but fast.

The human resources involved
The intervention involves the management in the part of understanding their needs and strategies.
Human resources at the operational level will be involved in the technical and operational aspects of the project. Important operational aspects will be the processes of data feeding and the IT procedures used: therefore operators of the administrative and IT area will be involved.
The management of the company will subsequently be involved in the part concerning the decision-making of the instrument.
As in any Farnetani Consulting project we will tend to limit the impact on the company’s ordinary activities, alternating the people involved, limiting their use, and optimizing the interaction with the consultant based on the work requirements of the individual operators.

Timing
The intervention can have a duration from fifteen to twenty five days of work of a consultant, depending on the size and complexity of the company.
In any case, the duration of the intervention is agreed on the basis of a specific quote.
The days are scheduled according to the operational needs of the company.

The advantages achieved
The company obtains, in an operative and flexible way, many answers, among which the profitability of:
– products both singles and intended as categories or families
– customers, including these as individuals, categories or commercial sectors
– production batches
– transport and delivery lots
– specific activities, such as work, administrative requirements or commercial actions
– specific suppliers
– business areas
The dynamics of general costs will be very thorough and known.
Undoubted advantage will be the knowledge of its costs, usable in the processes of cost reduction.
The only limitation to obtaining these advantages will be the availability of data in the company, or the possibility of obtaining them.

Future developments
The system can be developed and refined, in the following phases, in many ways.
The level of analysis of the activities and the refinement of the algorithms can be increased.
The integration with the budget can be increased.
A classic development of the system is its growing integration with the IT environment.
Simple cost cards and bills of materials can become an industrial and analytical accounting system. This can be born autonomous, but subsequently integrated with the management system and finally integrated with the business intelligence programs.
Natural development of the intervention will be the cost reduction actions, which will be based on all the answers obtained.