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Doing More With Less – Improving Productivity

Whether in response to low oil prices or simply in an effort to run leaner, companies across the globe are cutting jobs.  Last week, Chevron announced that it plans to lay off roughly 10% of its workforce, roughly 6000 to 7000 workers, in 2016 to deal with the plunge in crude prices.  Deutsche Bank recently declared its intention to reduce headcount by 23,000, roughly a quarter of its personnel, as part of a broader restructuring plan.

Dealing with a reduction in staff, regardless of the reason, can be challenging.  The workload doesn’t change simply because there are fewer people to share it, so companies must figure out how to get the same amount of work done with fewer people.  In short, they must improve productivity.

Improving Productivity – Doing More With Less

Improving productivity begins with measuring it.  In his book The Goal, Eliyahu Goldratt defines productivity as:

Productivity = Throughput ÷ Resource

…where Throughput = “stuff we got done” (widgets produced, concrete poured, invoices written, etc.)

…and Resource = “what we did it with” (people, time, dollars)

Sounds simple enough, but determining what really drives productivity in an organization can be tricky.  For help determining what your company’s Key Performance Indicators (KPIs) are, check out our KPI Discovery Cheat Sheet here.

Now that you’ve discovered what productivity measures to track, it’s time to track them.  Including these KPIs on your weekly flash report or dashboard allows you to keep an eye on how key resources are being utilized.  And when resources (such as people) are scarce, even small gains in productivity can yield big results.

The final piece of the productivity puzzle is to tie improvement to recognition or rewards.  Employees are likely reeling from the reduction in staff.  Providing incentives for meeting productivity goals will not only help ensure that the goals are met, but can provide a much-needed boost in morale.

We’d love to know what steps your company has taken to do more with less, so leave us your thoughts in the comments section below.
Improving Productivity, doing more with less

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Improving Productivity, doing more with less

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Key Performance Indicators (KPI’s)

See Also:
Flash Reports
Normalized Earnings
Continuous Accounting: The New Age of Accounting
Collection Effectiveness Index

Key Performance Indicators (KPIs) Definition

Key Performance Indicators (KPIs) are defined as the key drivers of economic activity for a company In essence, KPIs measure the productivity of an organization. By performing a key drivers analysis of the most important business activities that drive profit and cash flow you can then develop a set of key performance ideas. Included in your key drivers analysis should be a sensitivity analysis of your financial projections in order to identify the key financial drivers. The best way to manage and report KPIs is through the use of Flash Reports.

(Find out why KPI’s are important!)

Key Performance Indicators (KPIs) Metrics

Key performance metrics should include both financial and operational metrics, as well as, combinations of the two. Key performance measurement is as much an art as a science. The actual numbers themselves are not as important as the trends in the key performance measures. By combining financial measurements with operational performance measurements you can gauge the productivity of an organization.

Key Performance Indicators (KPIs) Calculation and Examples

KPIs measure productivityProductivity can be expressed as:

    Throughput    

Resource

Examples of throughput would include the following:

  • lbs concrete poured
  • widgets produced
  • # of invoices or tickets written
  • product shipped

Examples of resources would include the following:

  • man hours
  • # of full-time equivalent employees (FTE)
  • cubic feet of warehouse space
  • machine hours

So, in order to calculate productivity over a period (expressed as a KPI), we would take a measure of throughput such as widgets produced and divide it by a resource such as machine hours.  The resulting KPI would be widgets produced per machine hour.

Examples of key performance indicators (KPIs) would include the following:

Key Performance Indicators (KPIs) Dashboard

KPI reporting should be done on a daily or weekly basis. Furthermore, you should prepare a key performance indicators dashboard on the shortest timeframe feasible. The KPI dashboard should be easy to prepare and not take more than thirty minutes to generate. If it does, then you are making the process too complicated. A template should be used to generate the key performance indicators. This template should enable the CFO to identify both positive and negative trends.

Key Performance Indicators

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Key Performance Indicators

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Cost Accounting

See Also:
Accrual Based Accounting
The Future of the Accounting Workforce
Absorption vs Variable Costing
Implementing Activity Based Costing
Process Costing
Management Accounting

Cost Accounting Definition

The common cost accounting definition is accounting which seeks to create then compare a budget to the actual cost of doing business. In cost accounting, budgeting aids in decision making with regards to minimizing costs and increasing profit.

Cost Accounting Description

Cost accounting is a form of managerial accounting and is used for the benefit of internal managers. Due to this fact reports need not follow GAAPFASB, or other accounting standards and procedures. Cost accounting, ultimately, is focused on reducing costs and increasing profit. Costs, for the purpose of creating uniform reports, are measured in one form of currency.

The purpose of cost accounting is strategic decision making. With effective cost accounting measurements managers can make key decisions on price, product offerings, technologies, and controls for short term and long term planning.

The foundation of this purpose is measurement and analysis. With incomplete records come partial decisions, some managers must take great effort to ensure proper data procedures. After completing this daunting task, managers must then derive accurate decisions based on quantitative and qualitative analysis of internal records and external variables.


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Cost Accounting Techniques

There are many methods for a cost accounting standards guide. Pivotal cost accounting techniques include the following:

Cost accounting is an extensive field. The cost accounting basics, however, are simply described as the following:

These explanations may fall under a different name, however the concept and purpose behind most cost accounting terms will remain similar.

Cost Accounting Example

For example, Stan is the CFO for a financial services company called Financeco. Stan believes the company is spending too much in total costs for servicing one customer. As a result, he wants to reduce the total cost of servicing one customer to increase the profit received from each one. A trained CFO is an authority for any situations that require cost accounting solutions.

So, Stan begins by looking at the company cost of goods sold (COGS). He sees satisfactory results but wonders if he can do better. While looking at this he realizes that a large portion of these expenses come from processing customer paperwork and monthly reports. He begins to study, measure results, and form a plan of action.

Stan finds that the company makes $2400 per year off of the average customer. In comparison, he also finds that the company spends a total of $400 per year in paperwork processing. He studies the experience of the customer and realizes a main flaw.

Financeco uses paper-based record keeping instead of computerized databases. On the front end, by encouraging the customer to apply to Financeco online the company can slash the first half of total paperwork processing by 30% ($200 X 30% = $60 cost reduction per customer). To encourage this he suggests waiving the $25 application fee for clients who apply online.

Stan’s Plan

On the back end, Stan believes he can convince clients to “go paperless” with monthly reports. By providing clients with an online system to view reports he can completely remove the other half of paperwork processing. To do this, Stan suggests a new portal to their website. With a one time capital expenditure of $20,000 he can remove $200 of yearly costs per customer. Stan suggests that the company market this change as “Financeco going Green”. For customers not motivated by the environmental benefits of the new system, give a temporary price reduction. A per client, year-end rebate can be budgeted to each sales agent on an as needed basis.

Stan estimates that this change will cost the company approximately $40,000 ($20,000 for web design and an additional $20,000 for training hr for the transition.). He creates his report and prepares to meet with the company’s Board of Directors.

Stan’s plan is a welcomed change to the Financeco Board of Directors. They embrace the plan and begin making the necessary changes to company processes.

Cost accounting systems, cost accounting software, and other tools will ease the task of the manager. Without a foundation of measurement and analysis, however, Stan would have never experienced success in his project.

If you want to increase the value of your organization, then click here to download the Know Your Economics Worksheet.

cost accounting, cost accounting techniques, cost accounting definition

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