Issues with Profitability & Margins

Finance Director: Jeremy Kirk, Associate Director  

Root Cause: Lack of Management Information for Pricing Decisions

Corrective Actions: Ten step plan

1.    Visited company and talked with key people about the issue
2.    Prepared proposal – received support from board and management team
3.    Installed new IT system and trained staff
4.    Implemented system of departmental reporting to measure profitability by business segment
5.    Implemented job costing to track profitability of contracts
6.    Retrospectively analysed profitability by product using existing financial data
7.    Cross referenced product profitability data to model used to make pricing decisions
8.    Challenged the existing costing assumptions and updated model to reflect actual costs:

a.    Material yields
b.    Material prices
c.    Labour rates
d.    Labour productivity
e.    Variable expenses
f.    Overhead absorption

9.    Used new data to drive change, resulting in both price increases and cost reductions
10.  Introduced Key Performance Indicators to measure success