This framework is developed by a team of former McKinsey and Big 4 consultants. The presentation follows the headline-body-bumper slide format used by global consulting firms.
This product (Profitability and Cost Structure Analysis: Internal Data Analysis Frameworks) is a 17-slide PPT PowerPoint presentation slide deck (PPT), which you can download immediately upon purchase.
Profitability and cost structure analysis provides many invaluable insights. Obvious examples include identifying profitable products and projects and identifying key cost driving activities and resources—which lead to better strategic decisions.
There are a number of business frameworks to conduct profitability and cost structure analysis. In this consulting training series, we will discuss 4 common frameworks split into 2 categories:
1. External Data Analysis
2. Internal Data Analysis
This deck will focus on Internal Data Analysis only.
This PPT delves into cost driver analysis, providing a comprehensive understanding of the underlying cost base and identifying opportunities for improvement. It emphasizes the importance of quantifying strategic opportunities and enhancing pricing and production decisions. The analysis is closely linked to Activity Based Management, explaining the main drivers of costs.
The presentation also covers the value chain approach, assigning costs to each step and identifying major activities. This method allows for a detailed examination of cost drivers at each stage, enabling businesses to validate cost allocations through client workshops. Understanding these drivers helps in pinpointing relative differences in overall costs based on scale, experience, technology, and location.
Activity Based Costing (ABC) is highlighted as a more effective tool than conventional costing systems. By focusing on business activities and corresponding activity drivers, ABC provides a clearer picture of product and customer profitability. This model traces the flow of resources to products and services, offering insights into resource allocation and cost management.
This PPT slide presents the ABC (Activity-Based Costing) model, illustrating how resources flow to products and services. It is structured into 2 main sections: the ABC Model and ABC Traces.
In the ABC Model section, the flow is depicted from the General Ledger to various components: Resources (R), Activities (A), and Cost Objects (CO). Each resource is linked to multiple activities, indicating that resources are consumed through various activities. The arrows suggest a complex interrelationship where resources are allocated based on their usage in different activities, which ultimately leads to the creation of cost objects. This model emphasizes the importance of understanding how resources are utilized across various activities to accurately assess costs.
The ABC Traces section elaborates on the implications of this model. It breaks down the flow into distinct categories: Resources, Resource Drivers, Activities, Activity Drivers, and Cost Objects. Each category is accompanied by a brief description. For instance, it notes that the cost of resources is tied to the time spent on activities, which are in turn driven by specific activity drivers. This highlights the sequential nature of cost accumulation, where costs are traced back through activities to their originating resources.
The overall message is clear: understanding this flow is crucial for effective cost management and decision-making. By tracing costs from resources to cost objects, organizations can gain insights into their operational efficiency and identify areas for improvement. This model serves as a foundational tool for businesses aiming to optimize their cost structures and enhance profitability.
This PPT slide outlines a systematic approach to cost analysis within a client’s value chain. It emphasizes the importance of assigning costs to each segment of the value chain to gain a clearer understanding of the overall cost structure. The visual representation categorizes various activities, such as Design/R&D, Sourcing, Manufacturing, and Marketing and Sales, while providing percentage allocations that indicate the relative cost contribution of each segment.
The initial step highlighted is the assignment of costs, which serves as a foundational element for deeper analysis. By identifying major activities within each segment, organizations can pinpoint areas where efficiencies can be improved or costs can be reduced. For instance, the Manufacturing section shows a breakdown of costs associated with Inventory, Pre-fabricate, Production, Testing, Rework, and Distribution. Each of these activities has a specific percentage allocation, which helps in understanding where the bulk of costs are incurred.
The slide also suggests that understanding these allocations can lead to better decision-making regarding resource allocation and operational improvements. The percentages indicate that Sourcing and Manufacturing are significant cost drivers, accounting for a combined total of 48%. This insight can guide strategic initiatives aimed at optimizing these areas.
Overall, this slide serves as a practical tool for executives looking to enhance their understanding of cost structures and identify potential areas for operational efficiencies. It provides a clear framework for analyzing costs, which is crucial for informed strategic planning.
This PPT slide presents a framework for understanding activity drivers within the ABC (Activity-Based Costing) model. At the top, the General Ledger serves as the foundational element, linking to various resources indicated by the letter "R." These resources are essential for the subsequent layers of the model. Below the resources, resource drivers are depicted, which connect resources to activities, represented by the letter "A." This illustrates how resources are allocated and utilized in the execution of activities.
The central focus of the slide is on activity drivers, which are defined as events that initiate activities. These drivers are crucial as they trigger the use of activities associated with cost objects, shown at the bottom of the slide. The term "cost objects" refers to the specific items or services for which costs are measured and analyzed.
On the right side, the slide elaborates on the authorization process, which is a key mechanism through which activity drivers operate. It outlines how various proposals (W, X, Y) lead to the initiation of activities related to specific products. This connection emphasizes the importance of understanding how different proposals serve as activity drivers, ultimately influencing the cost structure of products.
The structure of the slide effectively communicates the relationships between resources, activities, and cost objects, providing a clear visual representation of how activity drivers function within the ABC model. This framework can aid executives in identifying and analyzing cost behaviors, enabling more informed decision-making regarding resource allocation and operational efficiency.
This framework is developed by a team of former McKinsey and Big 4 consultants. The presentation follows the headline-body-bumper slide format used by global consulting firms.
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