An effective cost modeling system will account for how the products and services the organization provides to its customers consume activities and resources of the organization through “Cause and Effect” relationships versus easier arbitrary allocations often found in traditional accounting. These cause and effect relationships model how customer behavior in their various markets and channels of service uniquely consume the activities and resources of the organization, from sales and marketing and product/service development to operations and product/service delivery and support.

Companies often have better information on the revenue side of the profitability equation, but not always a complete one that intelligently includes complex discounts and credits programs, etc. An effective Profitability and Costing Modeling system will include causal logic in both sides of the profitability modeling system at a level of detail with directional accuracy appropriate for assisting decision makers at multiple levels of the organization to achieve their cost and profitability objectives.

Armed with a complete picture of Costs and Profitability by Product/Service, by Customer, by Channel, etc. decision makers can gain insights needed to make decisions that have significant impact on the organization’s profitability.