The key to increasing profitability is to identify which processes in your operations are or may become bottlenecks in the flow of work. Bottlenecks in business are the points where potential changes can have the most dramatic impact on the bottom line. While non-bottlenecks are important to consider from a cost accumulation standpoint, the majority of a manager’s focus should remain on the bottlenecks.
Have you downloaded our white paper, "The Six Levels of Financial Knowledge" by George E. Manners, Jr.? Though the original publication was released back in 2006 in Strategic Finance, the growing focus on Enterprise OptimizationTM makes it particularly relevant nearly 10 years later. It's a must-read for modern financial professionals looking to drive a new level of success within their company.
Within the white paper, Manner's provides a framework that Management Accountants can leverage in order to a) improve financial understanding across their organization and b) drive profitability within their company. Below are the six levels Manners addresses in the white paper.
Excerpt from "Six Levels of Financial Knowledge"
"The framework recognizes that we’re on a cusp of decades of development coming together in cost measurement and estimation, data management, business process modeling, enterprise resource modeling and planning, mathematical optimization, raw computing power, electronic visualization, application software development, and more.
As they said on The Six Million Dollar Man, 'We can rebuild him. We have the technology.' I term my proposed framework “the levels of financial knowledge.” As you read the description of each level, I expect you to ask, 'Where is my business?' Any reasonably sized business may find itself with elements of more than one level operating simultaneously — depending on the function, location, or business unit. Nevertheless, the framework should be quite prescriptive for evaluation and planning."
Pretty good stuff, right? Access the full white paper by clicking below.
What is Capacity Discipline?
When the infamous bank robber, Willie Sutton, was asked why he'd robbed banks, he purportedly said, "Cause that's where the money is!" Capacity Discipline is a buzz phrase that airlines like to use to describe their own version of airway robbery: restricting the number of available seats in many markets by flying smaller airplanes or fewer flights which then drives up the price per seat (law of supply & demand). Most of these markets could support more passengers with larger airplanes or greater frequency, albeit at a lower price per seat and/or a lower load factor (% of full) per flight.
In the first half of our blog series on cost and profitability modeling, "Are You Doing Cost Modeling Right?," we discussed in-depth how the traditional approach to modeling can disservice an organization’s key stakeholders. To support this, we also provided some real-world examples that described this shortcoming in various industries.