15 March 2011

Time really does equal money!

 With the economy remaining uncertain at best, it is essential that top management take firm action on the areas of the business that they can control. One of the first places to start would be to have accurate cost rates.

In 2011, printers can expect to be stuck between the same two hard places: 

1. Pressure from customers to reduce their costs: 
2. Pressure from suppliers to secure higher prices. 

Being squeezed between these two threats, a printer’s pricing policy will be crucial for survival.

A skilled and experienced estimator will have invaluable knowledge and evidence about the ‘price’ that will secure orders and retain customers, but without equally robust and accurate information about the ‘cost’ of these items he will not have the information to be able to make reasonable and justified decisions.

Cost rates are at the root of all the sophisticated calculations that a printer’s estimating software is structured to perform, but these are made misleading at best, and potentially fatal at worst, if these rates are out of date or just plain wrong!

Cost rates exist in a separate but parallel universe from that occupied by a printer’s financial budgets and accounts. They use the same basic information about a company’s cost structure but add the important ingredient of TIME.

Recording time is not a feature of a printer’s accounting routine, but being aware of how many hours’ staff attends, how many of those hours are recovered from customers, and the rate of return that is made on those hours is a vital element in the management information that should be available to a printer’s decision makers.

The other ingredient that is revealed in a review of cost rates is the extent and value of ‘missing costs’. For printers these will include depreciation charges for assets fully written off, or rental costs for premises benefitting from freehold ownership. The ‘free ride’ that customers will enjoy if no adjustment is made for these  items in cost rates may be an unfortunate reality in current economic conditions, but these concessions should be offered consciously and not through ignorance and neglect. 

Having accurate cost rates brings into sharp focus the margin and gap between ‘cost’ and ‘price’. This information will not change the price a customer will accept, but it will define the real impact of that margin, whether positive or negative.

A cost rate review by an experienced practitioner will reinforce and strengthen the investment made in the Management Information System, and provide an objective health check on a printer’s costs, pricing policies and the management of his main resource – time.