My central themes in my consulting practice are costs and cost control. To be truly competitive and profitable, you’ve got to know what your costs are to accurately price quotations. Whenever I talk to a new/potential or existing client in 2014, I resolve to ask them three questions:
- Do you have a system in place that accurately tracks direct costs?
- Does this cost system have the ability to add indirect costs to give you a complete cost structure for a particular part, job or customer?
- Do you review these costs for each job and customer to see how you are doing vis-à-vis the pricing of your products?
Pretty basic, right? Unfortunately, many companies I talk to, have little idea what things cost and/or have no system in place to feed back the numbers to estimators and production to investigate what’s driving the cost figures. Sometimes, it’s just a matter of taking the time to set up a system. Other times, it’s little to no enforcement of reporting requirements into the system. And sometimes, there just is no person assigned to a function that performs job and customer cost reviews.
Most of the time however, companies want to perform this function but urgent matters always seem to get in the way. Over time the estimators develop a ‘sixth sense” for what things cost and what to charge and rely on this instinct. Sometimes it’s right but often there’s “money left on the table” and that’s where I come in!
Whatever, the cause of an inefficient (or absent!) costing system, it must be corrected. I submit that this costing question should be job #1 in 2014.
I’d love to hear your comments in regards to how you have dealt with this matter and will be happy to discuss your situation if you’ve got a question.