COST MANAGEMENT BASICS Cost Controlling. Agenda 2 Cost Controlling Explanation Decision Support Data Required Data Analysis Requirements Process Efficiency.

COST MANAGEMENT BASICS

Cost Controlling

Agenda

2

• Cost Controlling Explanation• Decision Support• Data Required• Data Analysis• Requirements• Process Efficiency• Tools for Prioritization• Process Improvement• Dashboards• Control Budgeting

Cost Controlling Explanation

3

Cost Planning

Cost Controlling

Cost Analysis

Cost Accounting

Cost Management

Process

Full Cost Measurement– Accurate, timely and relevant data– Connecting operational output/performance

data to financial data– Allocate Overhead, Unfunded Costs,

Indirect Support

Cost Analysis– Variances– Trends and forecasting– Product, service or activity

cost by expense (labor, material, contracts, etc…)

– Understanding full costs of organizations, operations, products and services

Cost Planning– Operational managers

set cost targets and efficiency goals

– Plan cost based on outputs produced

Cost Management

After Action Review–Commanders Lead:

1. How did you perform relative to your expectation?

2. What are you doing to improve?

Cost ManagementLeadership Driven Management

4

FM

OM

FM = Financial ManagementOM = Operational Management

Cost Controlling

• Cost Controlling means taking the “Best Value” and/or “Best Practice” actions to realign an organization to achieve the defined objectives

• Act based on Analysis• Adjust Targets• Update Resources• Enhance Efficiency• Execution of Trade-off

Decisions

Cost Planning

Cost Controlling

Cost Analysis

Cost Accounting

Cost Management

Process

5

Cost Controlling

• It is where the benefits of Cost Management are realized

• The step where leaders and decision-makers use the results of their cost analysis as decision support, implement the changes and enhancements that ultimately move us to a more efficient Army

6

Looking to the Future

As the Cost Module of GFEBS matures, Army leaders and decision-makers will have the information which will best facilitate the optimal use of scarce resources.

EFFECTIVENESS

7

Decision Support

8

Decision Support: What is it?

• Enables decision makers to make informed decisions that wisely and better utilize resources, and improve program and operational effectiveness.

• Objective and systematic way of collecting, examining, analyzing and reporting information to support decision-making• Conceptual way of thinking• Applies to all aspects of managing programs,

finances, and operations

9

What It Means To YOU!

Today there are challenges in all areas of the Department of the Army.

BUT!

There are also opportunities for those who are prepared.

10

What’s Different Today? The New Resource Environment

Focus on achieving and measuring results!

Organizations must demonstrate that they are getting results when preparing budgets and

reporting performance results

Congress is more interested in seeing results from public expenditures and meeting their expectations

Greater scrutiny is being applied to DoD programs as the defense budget continues to shrink

11

Focus Of Decision Making

Ask the Important Questions:• What should/needs to be done?• For whom?• Why is it important – what is the desired /

expected impact?• How should it be done?• By whom?• When?• At what cost?

12

Leading to Performance Management Decisions

Execute Goal/Objective

Programs Outcomes – Results

Customers Outputs – Products/Services Activities Inputs – Resources

Budget

Key questions: Is the resource being used having intended results/impact? Is the investment worth the results? How good is the management process?

13

How Is The Analysis Done?

A decision-maker should always know how an analysis is done in order to:

• Know how solid it is (i.e. Analytical Rigor and Completeness)

• Be comfortable with and be able to defend any decision made based on the analysis

14

Utilizing Decision Support

To be effective, analysts must:• Understand an organization’s business• Understand how analytic “need” relates to the

business• Apply sound, thorough analytical methods

specifically tied to the “need”• Provide useful information to support

decision-making

15

Basic Guidelines For Decision Support

16

• Ask questions; be willing to wonder• Define the problem/concern/question/need• Examine the evidence (i.e. data) • Analyze assumptions and biases• Be objective; avoid emotional reasoning• Don’t use either/or thinking; don’t over-

generalize• Consider other interpretations• Accept that there will be uncertainty/questions

Define Questions

• Critical starting point • Questions will drive the entire

analysis• Analysis must focus in on users’

needs. Some critical questions are:• The user’s business and their role

in it• What the user needs/wants to

know and why• How the results will be used for

decision-making• Thoroughness requires asking 6 key

questions = what, where, when, who, why, and how

17

Example: What Are The Real Questions?

• How effective is the property accountability contract. . .• Do resources used provide adequate accountability?• Are millions of dollars in lost property going down?

• . . . at reducing FLIPL reports?• Is the dollar value associated with the FLIPL reports

decreasing?• Are there fewer incidents for FLIPL reports to be

filed?• Is there less property missing?

18FLIPL: Financial Liability Investigation of Property Loss

Data Required

19

Identify Data Required

• Key question = What data do you need to answer the question?

• Data collected from:• Primary sources = you collect• Secondary sources = others collected

• Sources and quantity of data gathered depend on:• The questions needed to be answered• The availability of data• The time allowed for the analysis

• If data does not exist, revisit your questions

20

The Data Quality Axiom

All decisions are data driven.

The quality of the decision can be no better thanthe quality of the data supporting the decision!

21

Collect the Data

• Key questions in deciding how to collect data:• Where and how are you going to get the

data?• Will it enable you to answer the questions?

• Common data sources:• Records = cost reports, analyses• People = within and outside the

organization• Time available key to source and amount• Verification important

22

Data Analysis

23

Analyze The Data

• Analytic method = steps taken to understand, display, or interpret data

• Methodology dependent on question(s)• Methods numerous and varied

• Important to know purpose and function of each and when to use them

• Review results of analysis:• Did it address question(s)?• How sensitive is it to internal and external influences?

24

Analysis Axiom

The rigor of the analysis must reflect the risk and significance of the

potential impact of the decision!

25

Determining The Type Of Analysis

• Primary Data Analysis• Collect, assemble, and analyze data

• Secondary Data Analysis• Use data gathered and in some cases analyzed prior

to your own analysis

• Evaluation Synthesis• Use the combined results from two or more previous

analysis

26

Report Analytic Results

• Important phase of process• Impact decision-making; bring about change

• Reporting methods (written vs. oral vs. video) have different advantages

• Goal = convince audience that the work done and the results reported are reasonable, appropriate, and actionable.

• Answering analytic objective, i.e. question, is the most critical goal

• Remember what drove the analysis – customer’s need / interest / role, and planned use of results

27

Revalidating Questions

28

DefineQuestions

IdentifyDataSources

CollectData

Conduct Analysis

ReportResults

• Regularly re-check and validate questions.• Questions may need to be modified, dropped, redefined or added.

Analysis Feedback Loop

Requirements

29

Determining Requirements

Problem/ Opportunity Statement

Critical Customer

Requirements & Efficiencies

Prioritize Requirements

S.M.A.R.T. Objective

30

S.M.A.R.T. = Specific, Measurable, Achievable, Realistic, Time-bound

Key Elements of a Problem/Opportunity Statement

• There is an inherent relationship between problem/opportunity and customer, output, and processes.

• The objective is to meet customer expectations consistently31

Problem/ Opportunity

How, Where, and When?Process

Who?Customer/End Users

Expectations

What/Extent?Output(s)

Products/Service Performance

Determining Requirements

Problem/ Opportunity Statement

Critical Customer

Requirements & Efficiencies

Prioritize Requirements

S.M.A.R.T. Objective

32

S.M.A.R.T. = Specific, Measurable, Achievable, Realistic, Time-bound

Defining “Who” is the Customer

• A primary customer is anyone who receives or uses the outputs (product/service) from our work activities (process)- the end user– They define Critical Customer Requirement (CCR)

and measure characteristics (Quality, Speed, Cost)

• Internal customers are referred to as business partners or “process partners/owners”– They define the Voice of the Business (VOB)

requirements to meet CCRs

33

Sample Categories of Customer Performance Metrics

Quality Reliability, Availability, Effectiveness, Completeness, Freedom from Rework or Defects

Cost Resources, Repair Costs, Purchase Price, Sustainment Cost, Training Cost, Doctrine Cost, Material Cost, Facility Cost, Depreciation, Productivity

Speed Lead Times, Delivery Times, Turnaround Times, Setup Times, Cycle Times, Delays, Throughput

Service and Safety

After-Purchase Reliability, Parts Availability, Service, Warranties, Maintainability, Product/Service Safety

Stewardship Business Risk Management, Regulatory and Legal Compliance, Ethical Business Conduct

34

Process Efficiency

35

Purpose of Process Efficiency

• To identify inefficient steps and activities across business processes

• To identify measures of efficiencies and cost drivers across an enterprise

• To define types of inefficiencies/process waste (cost drivers)

• Refine problem/opportunity statement

36

Definition of Efficient Process Steps

• An activity in a process that is essential to deliver a service/product to the customer– Must be performed to meet customer needs– Adds form or feature to the services/product

• Those tasks which the customer would be willing to pay for if he/she knew what we’re doing

• Tasks should be optimized

37

Determining Requirements

Problem/ Opportunity Statement

Critical Customer

Requirements & Efficiencies

Prioritize Requirements

S.M.A.R.T. Objective

38

S.M.A.R.T. = Specific, Measurable, Achievable, Realistic, Time-bound

Common Tools to Prioritize

• Once you have defined CCRs, TIMWOOD, and customer issues, then various graphical tools can be used to prioritize the selection criteria and solve problems and take advantage of opportunity, as follows:– Kano Model: Are the issues related with performance/quality

requirements?– Pay-off Matrix: What is the impact of CCR/TIMWOOD issues on the

organization’s requirements? – Run Charts: Is the CCR/TIMWOOD issue showing significant step

changes over time or a steady performance?– Pareto’s Law: Are 80% of the customer issues described by 20% of the

CCR/TIMWOOD?– Histograms: Are customer issues showing significant variation?– SIPOC Process Map: What is the extent of the problem?

• These tools help characterize and quantify the extent of the problem/opportunity in terms of magnitude (quantity) or trends (changes in magnitude)

39

Pareto Chart

• A simple graphical display of problems (or other data), in columns in descending order to show the relative size of each category

• Used when you need to improve communication by presenting data which is difficult to express in words or as raw data.

• Highlights and prioritizes multiple problems in a process. • Identifies and quantifies the few vital priorities.

40

Step 6

Step 7

Step 5

Step 2

Step 3

Step 4

Step 1

Step 8

Step 6

Step 7

Step 5

Step 2

Step 3

Step 4

Step 1

Step 8

Defects

4 4 3 2 2 2 1 0

Cumulative %

22.2222222222221

44.4444444444441

61.1111111111111

72.2222222222222

83.3333333333333

94.4444444444447

100 100

0.251.753.25

5.035.065.095.0

Defects

S.M.A.R.T. Objectives

Problem/ Opportunity Statement

Critical Customer

Requirements & Efficiencies

Prioritize Requirements

S.M.A.R.T. Objective

41

S.M.A.R.T. = Specific, Measurable, Achievable, Realistic, Time-bound

Define S.M.A.R.T. Objective

• S.M.A.R.T. objectives ensure that there are measureable outcomes

• The objective should be evaluated to ensure that it aligns with the mission and strategic goals of the organization

• When defining initiative goals, they need to be verifiable through formal measurement

42

The objective of the effort is to improve, reduce, or increase some aspect of a process, procedure, or program.

Process Improvement

43

Process-What is it?

• A series of steps or actions that lead to a desired result or output

• A set of common tasks that creates a product or service for a customer

• Processes are largely affected by one or more of the following factors:

a) people operating the process b) materials used as inputs (Ex: information)c) machines/equipment used d) methods (Ex: documentation)e) work environment

It is vital to understand how these factors interact and affect processesStep 1 Step 2 Step 3

44

Process Improvement

• A systematic approach to help organization’s optimize their underlying processes through the closing of process or system performance gap

• Streamlining and cycle time reduction • Identification and elimination of causes below

specifications quality, process variation, and non-value-adding activities.

45

Mathematical Foundation of Lean:Little’s Law

The Avg Lead Timeof Any Process =

The Number of “Things” in Process

The Avg Completion Rate

Example:

• The Procurement Department Processes (12) Orders per Hour

• There is a Backlog of (89) unprocessed orders

• A 90th order is put into the queue

• How long must the 90th order wait to be processed?

7.5 Hours = 90 Orders in Process

12 Orders per hour

Order

Lean is a set of tools to reduce the number of “Things” in process without reducing the completion rate

46

Everything We Do Follows a Process

• Everything that is involved with getting a product or service to our customer is part of the overall process or “value stream”

• Looking at the value stream, we determine what portions of what we do “add value” for the customer and what portions are non-value-added

• We need to look at the performance of the whole system when getting services or products to the customer, instead of focusing too much on optimizing portions of the overall process

• Every process has some level of variation – Variation is evil!

47

The output (Y) is the direct result of the inputs (x1, x2, …) and how they are processed

By improving process and inputs, the end productwill be improved

Y = f(x)

How Processes Work

48

49

LSS Starts With the Voice of the Customer

• Who are the customers?• What are their needs?• Do our services or products:

– Answer the Voice of the Customer?– At a price he/she is willing to fund?

• And how do we know?!

It is common for organizations to ASSUME they know what their customers want based on either “they always wanted it that

way” or “it’s the way I would want it.”

SIPOC

Computer Acquisition ProcessSuppliers Inputs Process Outputs Customers

1 2

3

4

Input Metrics Process Metrics Output Metrics

Quality

Speed

Cost

50

Swim Lane

Client IT Contact

Client HR

Admin

Client Mgr

Places information

into HR database

Sends Email to NT Admin

Sends exit date to IT, telecom & facilities

Re-verifies with manager on employee’s exit status

ITS NT Admin

Email Vendor

Utilize e-mail vendor’s web tool to submit delete

request to vendor

Sends Email to Admin

Generates IT ticket & forwards to NT

Admin

Delete account

Mark request as completed on

admin web site

Create ticket if request coming

directly from client

Avg.Delay2 days

Avg. Delay2 days

Avg.Delay1 day

Avg.Delay1 day

Avg.Delay

4 days

Notify HR of employee exit date

Form require

approval?

no

Secure approval (s)

Yes

Green (CVA); Amber (NVA-R); Red (NVA)

Admin closes ticket and

manager notified

Avg. Delay2 days

115

Trend Chart

1.52

2.53

3.54

4.55

OS

HA

Ra

te

Actual Target

52

– Simple display of trends with observations over specified periods of time

– To monitor a process to see whether the long range average is changing

– To focus attention on truly vital changes in the process

– To identify meaningful trends or shifts in the average

Control Chart

Observation

Ind

ivid

ua

l V

alu

e

2442171901631361098255281

40

35

30

25

20

_X=29.13

UCL=37.70

LCL=20.56

Observation

Mo

vin

g R

an

ge

2442171901631361098255281

10.0

7.5

5.0

2.5

0.0

__MR=3.22

UCL=10.53

LCL=0

I-MR Chart of Delivery Time

– Statistical technique for analyzing the variation of a process

– To determine whether process is in control

– To know when to adjust a process

– To know the difference between assignable and chance variation

Control limits are determined by the data119

54

Process Capability

36322824201612

LSL Target USL

Process Data

Sample N 266StDev(Within) 2.87033StDev(Overall) 2.69154

LSL 10Target 20USL 30Sample Mean 29.1203

Potential (Within) Capability

CCpk 1.16

Overall Capability

Pp 1.24PPL 2.37PPU 0.11Ppk

Cp

0.11Cpm 0.35

1.16CPL 2.22CPU 0.10Cpk 0.10

Observed PerformancePPM < LSL 0.00PPM > USL 281954.89PPM Total 281954.89

Exp. Within PerformancePPM < LSL 0.00PPM > USL 379619.67PPM Total 379619.67

Exp. Overall PerformancePPM < LSL 0.00PPM > USL 371895.18PPM Total 371895.18

WithinOverall

Process Capability of Delivery Time

Specification limits are decided by the customer

– Compares process performance against requirements

– Ability to measure how well the output from the process meets requirements

Cause & Effect Diagram

Too much reliance on Pallet jacks

Delays in processing

(Y) Effect: CWT = 3 days

(too long)

Facilities & Equipment

Manpower

Mother Nature

Unforeseen Circumstances

Materials

Methods Measurements

Lack of Controls for FIFO / LIFO

Lack of multiple lanes

Segregation of pallets

Unplanned Deliveries

Multiple deliveries showing up same time

Too Long (Time)

Lack of Knowledge

“Dedicated” to Task

Number of printer stations

Lack of Computers

Wrong Location

Time Based upon completing entire pallet

(Competing for Same Space)

Location

1

2

Utilization of experience

3

Lack of parallel processing

Multiple Processing tables

Limited scanners

Manual movement of parts

Lack of single flow measurement

Manual labor moving around numerous boxes

Lack of single flow

4

Lack of heat or Air Conditioning

55

▶ Measure of process improvement

▶ Represents output relative to input

▶ Only through productivity increases can our standard of living improve

Productivity

Productivity =Units produced

Input used

56

Productivity Calculations

Productivity =Units produced

Labor-hours used

= = 4 units/labor-hour1,000

250

Labor Productivity

One resource input single-factor productivity

57

Multi-Factor Productivity

OutputLabor + Material + Energy +

Capital + Miscellaneous

Productivity =

• Also known as total factor productivity• Output and inputs are often expressed in

dollars

Multiple resource inputs multi-factor productivity

58

59

The Measurement Problem• Organizations by nature have many

– Elements and functions– Diverse activities– Varied resources

• There are a variety of opportunities for– Inefficiency– Ineffectiveness– Redundancy (overlaps)– Gaps in operations

Dashboards

60

61

Dashboards Definition• “Dashboards” are a compilation of standardized performance measures. These measurements are designed to:

– Facilitate achieving objectives– Provide feedback– Enable learning

• Dashboard measurements should accomplish each of the above at all levels of the organization• Dashboards should be clearly defined, simple to produce, and easily understood by users• Dashboards are the tactical tool used by lean implementations to measure and track project performance

Order Managmement Cycle Time

0

5

10

15

20

25

30

35

40

45

J an Feb Mar Apr May J un J ul Aug Sep Oct Nov Dec

OM Cycle Time

OM CT Goal

On-Time Delivery

57%58%59%60%61%62%63%64%65%66%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

OT

D (

%)

OTD

Overhead Labor Productivity(Applications Closed / Payroll

Hours)

45%50%55%60%65%

OL

P (

%)

Labor Productivity

Labor Prod Goal

Linear (Labor Productivity)

Unbilled Accounts

$140.00

$145.00

$150.00

$155.00

$160.00

$165.00

$170.00

Jan Feb Mar Apr May Jun

DSO

42

44

46

48

50

52

DS

O (0

00s)

DSO

18.5

19

19.5

20

20.5

Jan Feb Mar

Rework Costs

Rework Costs Goal

Rolled Throughput Yield

0%

50%

100%

RTY

(%)

RTY RTY Goal Linear (RTY)

Owner:J. Stubbs

Gross Revenue

0

1

2

3

4

5M

illio

ns o

f Dol

lars

Revenue

Revenue Goal

Dashboard – Example

137

63

Dashboards Support Corporate Goals

• Minimal and balanced • The objective in a dashboard is to use the smallest number of metrics that still provides a balanced picture of process, site and/or organizational performance.

• For example: just measuring and driving towards lower WIP may starve the process and destroy productivity

• Objective – Metrics chosen for dashboards should be objective, rather than subjective• An objective metric is one that is well defined and yields the same value regardless of who is conducting the measurement.

• For example: mission effectiveness can be subjective unless a clearly defined, quantifiable approach is used to measure it

Budgeting Controls

64

Budgeting for Control

• Budgets are often used to assign responsibilities by allocating resources to managers

• Budgeted amounts can be used as goals to motivate• Budgeted amounts can be used as targets by which performance

is evaluated and rewarded

65

Participative Budgeting

• Participative Budgeting is a concensus process• With Participative Budgeting the person ultimately being held

responsible for meeting the target makes the initial budget forecast

• Motivation to achieve the target is higher

66

How Budgeting Helps Resolve Organizational Problems

Budgeting Systems

Budgeting Systems

Links knowledge with responsibility to make

planning decisions

Links knowledge with responsibility to make

planning decisions

Measures and rewards performance for

control

Measures and rewards performance for

control

Distributes Responsibilities

Distributes Responsibilities

An administrative device to resolve

organizational problems

An administrative device to resolve

organizational problems

67

Short-Term vs. Long-Term Budgets

1.Selecting overall objectives2.Choosing markets3. Selecting products to produce4. Determining price/quality mix5. Choosing technologies

Strategic PlanningLong-term Budgets

(more than one year)Forecasts of large asset acquisitions

Financing plansResearch and development plans

Short-term Budgets (1 year or less)

Quantities to produceQuantities to sell

Supplies acquisitions

68

Line-Item Budgets

• Budgets that authorize the manager to spend only up to the specified amount on each line item

• Managers cannot spend savings from one line-item on another line-item

• The manager does not have the responsibility to substitute resources among line items as circumstances change

• Impose more control on Managers• Prevalent in government organizations

69

Static budgets do not vary with volume and are used when a manager has control over

volume or the consequences thereof

Static budgets do not vary with volume and are used when a manager has control over

volume or the consequences thereof

Static versus Flexible Budgets

Flexible budgets are adjusted for changes in volume and are used mainly in manufacturing where the manager does not have control over

volume

Flexible budgets are adjusted for changes in volume and are used mainly in manufacturing where the manager does not have control over

volume

70

Incremental Budgets

• Rolling the Budget from a previous time frame to be the Base of the next Budget (priori Budget or Actuals from Prior Budget time frame as base)

• Incremental expenditures are then added to meet a new objective

• Inefficient base budgets are not eliminated• Incremental Budgets are most frequently used• Easiest to generate • Best when in a stable environment with little large scale

fluctuations in organizational objectives and outputs

71

Zero-Base Budgets

• Starting from Zero to develop the Budget each Budget cycle

• ZBB motivates managers to maximize firm value by identifying and eliminating those expenditures whose total costs exceed total benefits

• Incremental expenditures are deleted when their costs exceed their incremental benefits

• Inefficient base budgets are eliminated• ZBB is used infrequently• Most useful when new top-level management come from

outside a firm• Costly to conduct

72

Performance-Based Budgets

• PBB links the programmatic Budget request to the expected performance results

• Improves knowledge of agency operations• Cuts waste and enhances cost savings • Performance Plans required by GPRA 1993 to move

Government entities to be more output and outcome focused; better stewards of the taxpayer's dollars

• Incorporation of the Planned output/Outcomes drives to the Budget requested

• Requires an understanding of the conversion of inputs to outputs (Cost Management)

• Difficult to do since more Government entities are not Cost focused

73

Budget Method Comparison

Base budget is the previous budget

Only incremental changes from the previous budget are examined in detail

Base budget is the previous budget

Only incremental changes from the previous budget are examined in detail

Incremental Budgets

Each line-item is

set at zero each year

Every line-item must be justified and renewed each year

Each line-item is

set at zero each year

Every line-item must be justified and renewed each year

Zero-Base Budgets

74

Each line-item is associated with a Output/Outcome

Every line-item must be justified and renewed each year based on new Performance objective

Each line-item is associated with a Output/Outcome

Every line-item must be justified and renewed each year based on new Performance objective

Performance - Base Budgets

Conclusion

75

76

CAPSTONE CASE

• FORSCOM INC is a four person company finishing its first year of operations. The company started with a good idea and the desire to own the F150 Platinum edition.

• The company has one sales manager and three hourly employees that provides ~10,000 service actions/year.

• Travel is necessary for business development.

Plan & Actuals

77

• What are the variances? Are they good, bad, ugly?

• What is the unit cost of service?

Plan Year 1 Actuals

Quantities Cost Quantities Cost

Sales Manager 1 $ 100,000 1 $ 100,000

Hourly Personnel 3 $ 300,000 3 $ 360,000

Equipment 2 $ 110,000 1 $ 80,000

Travel 10 $ 20,000 12 $ 21,000

Total $ 530,000 $ 561,000

Units 10000 11000

78

• Which costs are fixed and variable?• Determine the target budget (should’ve been)

and new variances.

Plan Year 1 Actuals

Quantities Cost Quantities Cost Variance

Manager 1 $ 100,000 1 $ 100,000 $ -

Hourly Personnel 3 $ 300,000 3 $ 360,000 $ 60,000

Equipment 2 $ 110,000 1 $ 80,000 $ (30,000)

Travel 10 $ 20,000 12 $ 21,000 $ 1,000

Total $ 530,000 $ 561,000 $ 31,000

Units 10000 11000

Cost/unit $ $

79

Plan Year 1 Actuals Flex Budget

Qty Cost Qty Cost Variance Qty Cost Variance

Manager 1 $ 100,000 1 $ 100,000 $ -

1 $ 100,000 $ - Hourly Personnel 3 $ 300,000 3 $ 360,000 $ 60,000 3 $ 330,000 $ 30,000

Equipment 2 $ 110,000 1 $ 80,000 $(30,000) 1 $ 110,000 $ (30,000)

Travel 10 $ 20,000 12 $ 21,000 $ 1,000 12 $ 20,000 $ 1,000

Total $ 530,000 $ 561,000 $ 31,000 $ 560,000 $ 1,000

Units 10000 11000 11000

• Output is estimated to increase to 13,500 for next year.

• Determine a new plan for the next two years.

Performance measures

• In order to further grow the business, the company needs to mature its planning processes.

• Determine your performance measures and future targets.– Sales price of each unit was $55.– Orders are dependent upon business development

trips and sales price.

80

YEAR 1 2 3 4 5 6 7 8 9 10 11 12

TRAVEL 1700 1900 2100 2300 2000 1900 1700 1600 1500 1600 1400 1300