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On the most recent episode of Performance Management Edge, Mitch answers a question by Safdar Imam: What is the role and importance of identifying correct “Activity Drivers” and “Resource Drivers” in planning/ managing profitability in service industries? This turned out to be too complex for one single response, and I chose to break it into a two-part response, with the first on Resource Drivers and the second on Activity Drivers. I’ll update when the second part is released. For both, I rely on the underlying framework of the CAM-I Cross.
I make the case that the use of fixed resource assignments certainly has its place, but for many organizations, it is critical to look at Time-Based assignments to more dynamically reflect the frequent changes that occur in many parts of service companies.
Part 2 of the video response to Safdar Imam’s question is now live at PerformanceManagementEdge.com. In searching for the elusive perfect activity driver, we frequently need to look to see what drivers are practically available, and use them in conjunction with factors to build a model efficiently. In the case of time-based drivers, building consumption models often requires us to use an activity driver – such as number of business days – that is not measured by cost object. While this gives us a true measure of activity consumption, a push-down of costs to the cost object level is then required.
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Presenting options for raising your organization's level of cost consciousness as a means to promote cost effective behavior across the company.
A more rigorous approach to measuring and managing costs across multiple dimensions provides greater sustainable impact than across-the-board cuts, or short-term efforts to meet budgets. Central to this is the use of better tools and techniques to measure and – more importantly in my opinion – communicate cost measures in a transparent and actionable way.
Some of our colleagues are disappointed that more organizations have not truly “abandoned” budgets. What is apparent is that while many have not fully abandoned budgets, they have truly begun to understand those other concepts that enrich management practices.
PerformanceManagementEdge.com has posted the first of our four-part series on “Raising Your Cost Consciousness”. In the first instalment, Mitch Max examines some of the root causes of difficulty in managing costs in organizations.