Understand and manage profitability at the most detailed level
How can you boost profits from existing business without incurring higher costs? It’s a question businesses face daily. But while nearly everyone in an organization pays attention to profitability, often there’s no one actually tasked to manage it.
To boost profitability, you must first understand it. That’s a challenge, as many organizations combine inaccurate cost information from traditional costing systems with other financial and operational data to generate reports on customers and products. This approach, however, doesn’t measure true profitability, nor does it enable the development of customer, product or channel-mix scenarios that can be used to grow the bottom line.
True segment profitability can only be determined by accurately associating costs with business segments. The ability to do this depends on how revenue and costs are managed and tracked in accounting systems.
Revenue – generated by the customer – is typically straightforward and often associated automatically with business segments via sales orders, invoicing or funds transfer systems. Costs, however, aren’t associated with business segments as easily since IT, operational, distribution and administrative functions generally support multiple business segments simultaneously.
Traditional costing systems assign shared and indirect costs to business segments using arbitrary cost allocations with broad averages (e.g., number of customers), which usually results in severe over- and under-costing.
Hummingsoft offers a better way. The Profitability Management & Analytics System analyzes profitability at a more granular level than has ever been possible with traditional activity-based management systems.