Service-Based organizations should apply the same cost management concepts as for-profit companies, but their costing models will be a little different. Especially for government and regulated organizations providing services for a fee that must be justified and reported. Aligning the costs to provide their specific services is critical for these organizations.
Service-Based Costing and Pricing
Service-Based organizations may not be producing a product or stocking inventory, but they still need directionally correct and relevant economic information that will help them make decisions to achieve their cost and profitability objectives. Much of the economic information needed relates to Service and Customer costs. That means the economic cost models need to be broader than traditional cost accounting, which focuses on measuring and reporting costs for external financial reporting. Effective Costing and Profitability Models should include all costs consumed in creating, selling and providing the company’s services to its customers through the markets and service channels it serves. These Profitability and Cost Models need to reflect the economic realities of the organization and not be constrained by traditional cost accounting methods and systems.
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Government and Regulated Organizations
Having realistic economic models for decision making is just as important for government and regulated non-profit organizations as for-profit organizations. In fact, their cost systems often need to provide even more detailed and transparent service-cost information to support/justify service fees. Several government agencies now share their service expertise and systems across multiple agencies. These agencies require effective and transparent cost systems in order to charge for their cross-agency services. Government and other regulated organizations that charge fees for their services need to understand the costs to provide the services they provide to their customers in much the same as for-profit companies. The best of these organizations use advanced Cost and Profitability modeling solutions to understand, improve and report their costs and fees.
Effective Service-Based cost modeling systems will account for how services the organization provides consume activities and resources of the organization through “Cause and Effect” relationships, rather than using broad allocation methods to assign costs. These systems model causal relationships of how customers consume services, activities, and resources of the organization through its service channels. Armed with a complete picture of Service Cost, by Activity, by Customer, by Channel, decision makers are able to obtain the insights needed to make decisions that have significant economic impact on the organization.
PCS Consulting specializes in the design and implementation of Profitability and Cost Management systems using off-the shelf application software, data integration and business intelligence technology. With these tools, and the experience to effectively use them, we assist Service-Based organizations to implement valid cost modeling decision support systems that have significant positive impact on the organization.
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