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All Hands 2021 Award Winners

2021 Award Winners

Congratulations to these Associates for their recent award at the FocusCFO All Hands meeting.

Client for Life Award

Gold Level

Don Cain

CFO, Central Ohio

Tom Flynn

Area President, Central Ohio

Dan Bloom

CFO, Central Ohio

Client for Life Award

Silver Level

Pat Lang

CFO, Central Ohio

Jeff Lacy

Area President, Central Ohio

Jim McKinney

CFO, Central Ohio

Client for Life Award

Bronze Level

Ric Butler

CFO, Central Ohio

Don Cain

CFO, Central Ohio

Darren Cherry

Area President, Central Ohio

Jim Collins

Area President, Southwest Ohio

Scott Davis

CFO, Southwest Ohio

Mike Derringer

Area President, Central Ohio

Jon Doerer

CFO, Michigan

Jeff Farrington

Area President, Michigan

Tom Flynn

Area President, Central Ohio

Peter Geise

CFO, Central Ohio

Greg Gens

Area President, Northern Ohio

Jim Gilbride

Area President, Northern Ohio

Jeff Lacy

Area President, Central Ohio

Pat Lang

CFO, Central Ohio

Jim McKinney

CFO, Central Ohio

Bob Palmerton

CFO, Michigan

Todd Peter

CFO, Northern Ohio

Kyle Rhodebeck

CFO, Central Ohio

Jeff Semple

Area President, Northern Ohio

Skip Vermilya

CFO, Northern Ohio

Mark Vernallis

Area President, Pennsylvania

Todd Whetstone

CFO, Northern Ohio

Lynette Zody

CFO, Central Ohio

CFO Hall of Fame

Gold Level

CURRENT MEMBERS

David Bourke

Director, CFO Services

Bruce Collen

CFO, Central Ohio

Pat Lang

CFO, Central Ohio

Lynnette Zody

CFO, Central Ohio

CFO Hall of Fame

Silver Level

NEW MEMBERS

Sherif Matar

CFO, Central Ohio

CURRENT MEMBERS

Dan Bloom

CFO, Central Ohio

Don Cain

CFO, Central Ohio

Jim McKinney

CFO, Central Ohio

Jim Zins

CFO, Central Ohio

Joe Dougherty

CFO, Central Ohio

CFO Hall of Fame

Bronze Level

NEW MEMBERS

Ed Chong

CFO, Central Ohio

Bob Palmerton

CFO, Michigan

CURRENT MEMBERS

Wendy Brugmann

CFO, Northern Ohio

Will Cooper

CFO, Central Ohio

Dean Cole

CFO, Central Ohio

Kathleen Ferry

CFO, Northern Ohio

David Gouttiere

CFO, Northern Ohio

David Green

CFO, Central Ohio

Todd Peter

CFO, Northern Ohio

Jim Rowlands

CFO, Northern Ohio

Bob Stecki

CFO, Central Ohio

Skip Vermilya

CFO, Northern Ohio

Scott Lee

CFO, Central Ohio

Walter Himmelman

CFO, Northern Ohio

Scott Davis

CFO, Southwest Ohio

Richard Murch

CFO, Central Ohio

Ric Butler

CFO, Central Ohio

Area President Awards

Rookie of the Year

Michael Stier

Area President, Carolinas

Area President Awards

Rising Star

Lesli Matukaitis

Area President, Michigan 

Mitch Willis

Area President, Pennsylvania

Area President Hall of Fame

Gold Level

NEW MEMBERS

Forest Bookman

Area President, Northern Ohio

CURRENT MEMBERS

Mike Derringer

Area President,
Central Ohio

Tom Flynn

Area President,
Central Ohio

Jeff Lacy

Area President,
Central Ohio

Jeff Semple

Area President,
Northern Ohio

Jim Gilbride

Area President, Central Ohio

Area President Hall of Fame

Silver Level

NEW MEMBERS

Jim Collins

Area President, Southwest Ohio

Bob McAdams

Area President, Central Ohio

CURRENT MEMBERS

Darren Cherry

Area President,
Central Ohio

Fred Dannhauser

Area President,
Northern Ohio

Peter Geise

Area President,
Northern Ohio

Bob Miller

Area President,
Central Ohio

Area President Hall of Fame

Bronze Level

NEW MEMBERS

Mark Vernallis

Area President, Pennsylvania

David Tramontana

Area President, Pennsylvania

CURRENT MEMBERS

Jeff Farrington

Area President,
Michigan

Bob Miller

Area President,
Central Ohio

Greg Gens

Area President,
Northern Ohio

2020 Continuous Learning Award

Exit Planning Institute – CEPA

NEW MEMBERS

Kim Cooper

CFO, Carolinas

Mark Clower

Area President, Southwest Ohio

Michael Stier

Area President, Carolinas

Randy Feger

CFO, Pennsylvania

Mike Derringer

Area President, Central Ohio

Greg Gens

Area President, Northern Ohio

David Green

CFO, Central Ohio

Lesli Matukaitis

Area President, Michigan

Jeff Farrington

Area President, Michigan

Tom Bartos

Area President, Pennsylvania

Forest Bookman

Area President, Northern Ohio

Bob Palmerton

CFO, Michigan

Mark Rust

CFO, Pennsylvania

Peter Geise

Area President, Northern Ohio

Rex Bevis

CFO, Southwest Ohio

Lynette Zody

CFO, Central Ohio

VETERANS

David Bourke

Director,
CFO Services

Darren Cherry

Area President,
Central Ohio

Mark Clower

Area President,
Southwest Ohio

Kathleen Ferry

Area President,
Northern Ohio

Tom Flynn

Area President,
Central Ohio

Jim Gilbride

Area President,
Northern Ohio

Brad Martyn

Visionary and Founder
FocusCFO

Jeff Semple

Area President,
Northern Ohio

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Fighting Complexity

Fighting Complexity

By Todd Peter

I hear often the entrepreneurs’ lament – “it was all so easy and simple in the good old days when we were small and just made money so much more easily than we do now.”

There is a theory of complexity that states that the number of connections in an organization rises by the square of the size of the organization. In other words, linear growth in size leads to exponential growth in complexity. Organizations (or production processes) that become complex tend to exhibit certain characteristics. These include scheduling problems and late due date performance, lost or misplaced items, the need for increasing number of expeditors, indirect and supporting staff, and all of this increases cost or reduces efficiency and effectiveness of the workforce.

We all want to grow, so how do you fight the inevitable scourge of success? Three general strategies are available to the business owner to take action to fight or at least better manage complexity: 

  1. Simplification through segmentation
  2. Rationalization through elimination 
  3. Value Capture Changes 

Simplification

The simplification via segmentation is based on the idea of breaking the business into smaller self-contained units where each can be simplified to operate independently or at least quasi independently. The critical insights are usually built around a thorough analysis of what are the key performance elements of different segments that the overall business serves and how do you organize to serve them. A classic example comes from the industry of subcontract manufacturing. Customers and their requirements can usually be broken into distinct segments. One segment can be those that order in volume, with longer lead times, and work with a very sharp pencil. A second is customers who order with little planning, are always in a rush, and value a high service level over a finely honed price. An organization can be broken into pieces sometimes with splitting physical arrangements as in a manufacturing operation or dedicating staff in a service operation. The high-volume segment may have a very low ratio of indirect to direct staff and the high service the reverse. The managerial challenge is teasing out what the financial performance of these two segments working from the basis of the current blended cost and staffing structure. The simplification analysis can show both segments are good businesses and sometimes one is just a drain on the other excellent segment. In that case move to Rationalization. 

Rationalization

An effort to understand the economics a business segment can lead to the conclusion that overall average profitability is really the result of one segment showing strength and the other weakness. Should the weak segment be poor enough that corrective action and cost reduction in a segmented and focused organization is not possible that segment becomes a candidate to be discarded or removed from the business. Rationalization requires a sharp attention to detail and understanding direct and shared costs before exiting a business segment. Sometimes a lousy performance segment is in itself untenable but acts as an overhead absorption for costs that are not possible to segment. These non-segmental costs can be large fixed costs, regulatory costs, or even supply contracts that require large volume of purchasing power. 

Value Capture Changes

A third avenue that can flow from either as a consequence of understanding the economics of simplification or rationalization is changing the business pricing model. Typically, unsegmented businesses are driven by a pricing and costing model based on averages that can bias quoted prices both up and down. A clear understanding of actual segment costs can lead to opportunities to increase prices to capture value or in some cases to lower prices to capture increased sales that contribute to fixed costs and improve the overall business performance. 

Avoiding Disruption

Sometimes a competitor arrives on the scene and serves only a narrow segment and by reducing complexity, reduces costs, or increases service level and eats away at their larger complex competitors. These disruptive competitors often emerge from the “internet space” where technology is used to simplify major elements of the cost chain and allow price-based disruption.

Growth is usually considered a core strategic goal of most organizations. Carefully understanding the consequences of growth that has created divergent cost performance when mixed inside a single organization, factory, or business model should be on the agenda for a periodic strategic review. The analytical process is complex, and often messy and imperfect, and requires sound business judgment and care. Ignoring complexity challenges, however, is a dangerous game where the next guy not burdened with current inertia carves away your business while you are tangled in your self-made web of success driven complexity.

A better option: consider engaging help from a trusted advisor who understand the complexity and will help you avoid those business-killing assumptions and disruptions.

Todd Peter is a FocusCFO principal, based in Cleveland, OH.

Founded in 2001, FocusCFO is the leading onsite fractional CFO services provider in the Midwest and Southeast, with more than 100 CFOs and Area Presidents throughout Ohio, Indiana, Kentucky, Michigan, North Carolina Pennsylvania, South Carolina, West Virginia and Tennessee. FocusCFO works closely with small to medium sized businesses helping business owners gain control over three key financial and operational areas: increasing cash flow, reducing business risk, and creating a platform for scalable growth. This allows business owners to then realize full financial control and increased value in their businesses.

For more information, visit us at focuscfo.com or follow us on LinkedIn.

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Is a Fractional Executive in Your Future?

Is a Fractional Executive in Your Future?

By Todd Peter

The world has seen disruption like never before due to the Covid-19 pandemic and experienced fractionalization and structural disruption in many industries; some of the best results being Zoom video conferencing, DoorDash food delivery and any retailer that was able to pivot their business to online ordering and delivery. The business models are all unique in their implementation, based on insightful changes to how goods and services are purchased and delivered. In fact, these new models became equally (or perhaps more) effective for the consumer. 

Sales Pipeline Fractional CFO

Another disruption, the use of fractional executives, is also on the rise. Small businesses suddenly become more competitive with larger businesses, because they are able to utilize seasoned executives too. These fractional executives work part-time, and are usually in the second half of their career, bringing a life-time of experience and knowledge to help small businesses with strategy, analysis and building value. They come in all the favorite varieties like CMO, COO, CTO and CFO. This article will review the role of the fractional CFO. 

Setting the Stage 

The term Chief Financial Officer (CFO) is used to describe a senior level executive, typically with 20+ years of experience, who is fluent in strategy, capital markets and banking, acquisitions, budgeting, forecasting, and forward planning. They have insights based on their experience in sales, marketing, engineering, and operations. A CFO’s focus is on assuring that the company’s profitability, growth plans, capital structure, and short- and long-term strategic action plans are consistent, coherent, and are building value for the shareholders. The CFO works intensely on the financial health of the company, but is not the one primarily focused on financial reporting (the controller). Most companies under $50M in sales do not employ a Chief Financial Officer (some will have a controller with that title) due to the relatively high expense of a CFO. 

 

CFO vs Controller vs Accountant vs Bookkeeper

In most smaller businesses the role of CFO gets blended with the role of controller; the same person is chartered with the management of the cash cycle (AR/AP) and financial reporting, and in their spare time between the daily pressures, is expected to change gears and time horizons and look to the future, dive deep into profitability or capital planning. While on average these true CFO tasks may entail a day a week, experience shows that the forward planning and deep analytical “CFO” tasks are often deferred, short changed, or tackled only once a crisis has arrived. 

Enter a fractional CFO, who can be laser focused on key performance indicators (KPIs), strategy and analysis. The premise of a fractional CFO(f-CFO) is to engage the highest possible skill set and experience base to “work” the CFO tasks, typically one day a week, and allow the financial accounting staff to “work” the daily routines and reporting mechanics. Depending on the size of the business, the finance team may be “f-CFO plus controller”, “f-CFO plus senior accountant”, or even “f-CFO plus bookkeeper”. This is a mighty combination of skills that should give the entrepreneur/business owner a level of confidence and security. Knowing your numbers and having a plan for the future, will provide the best chance of having predictable cash flow, and best managing business risk, and providing focus on accelerating growth and value. 

Disruptive business models typically offer a large step-up in value to the buyer. The business owner can now engage seasoned c-Suite level help, at an affordable price, by engaging a fractional executive. Almost like a free doughnut with your coffee! 

Todd Peter is a Principal with FocusCFO based in Cleveland.

Founded in 2001, FocusCFO is the leading onsite fractional CFO services provider in the Midwest and Southeast, with more than 100 CFOs and Area Presidents throughout Ohio, Michigan, Kentucky, Indiana, Pennsylvania, Tennessee, and North Carolina. FocusCFO works closely with small to medium sized businesses helping business owners gain control over three key financial and operational areas: increasing cash flow, reducing business risk, and creating a platform for scalable growth. This allows business owners to then realize full financial control and increased value in their businesses. 

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Five Questions for Your Headache

Five Questions for Your Headache

By Todd Peter

You, the small business owner, are on a roll. Every day you are out, landing a new customer at least once a week. You hired a great engineer and she is turning your new product ideas into reality and you can barely build enough to keep up with orders. But it’s payroll week again and the cash in the bank is barely enough to cover your employees. It looks like another month of explaining to your spouse the thrills of working 16-hour days and the stress of never seeming to have enough cash. You wonder, “Is this roller coaster ever going to end?” You call your Uncle who is the CFO of a Fortune 500 company and he reveals to you 5 questions that you must answer, and assures you that your headache will be gone by morning!

Question 1: Am I making any profit?
Question 2: What is the gap between profit and cash?
Question 3: Is there cash hidden in the balance sheet I can uncover?
Question 4: Can I obtain a bank loan to support the gap between profit and cash?
Question 5: Can I reach my growth goals and not run out of cash?

The Dilemma

You conferred with your bookkeeper and your CPA, and you again sought the counsel of you Uncle.  He said you need a CFO to help you answer these questions.  He noted CFOs are typically highly skilled professionals with backgrounds that span multiple decades of financial and operational experience but they may command a salary that might be unaffordable. 

The Role of the CFO

A CFO typically functions as the third leg of the stool for your company. They are as good at understanding cash as most owners are at understanding customers and operations. They are an owner’s financial partner; they work to make sense and provide business insights from the numbers that emerge from your accounting software; they work to integrate the past into a picture of the future. A CFO is there to help the owner make sure the business is healthy. They provide a little aspirin to dull the short-term pain, strong antibiotics to cure any illnesses, and a wellness and fitness program to build long-term health.

Fractional CFO Solution

Alas, many small businesses cannot afford the expense of a full time CFO. A perfect solution is the use of a fractional CFO. The use of a fractional service model allows the investment to be very moderate relative to other professional services. Most are engaged on an ongoing long-term basis, work onsite at their clients, and average a day a week over time. They work as partners and confidants of the business owners to help them meet their goals and assure the financial health of the business. How do I know this? I’ve been a fractional CFO for four years.

Todd Peter is a FocusCFO principal, based in Cleveland, OH.

Founded in 2001, FocusCFO is the leading onsite fractional CFO services provider in the Midwest and Southeast, with more than 100 CFOs and Area Presidents throughout Ohio, Indiana, Kentucky, Michigan, North Carolina Pennsylvania, South Carolina, West Virginia and Tennessee. FocusCFO works closely with small to medium sized businesses helping business owners gain control over three key financial and operational areas: increasing cash flow, reducing business risk, and creating a platform for scalable growth. This allows business owners to then realize full financial control and increased value in their businesses.

For more information, visit us at focuscfo.com or follow us on LinkedIn.

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Hands on Guide to Cost Modeling

Hands on Guide to Cost Modeling

Article 5 in a Series of 5

By Todd Peter

In prior articles the key concepts and structures of developing a Cost Model were discussed. Important ideas to review are:

Granularity: Where in your portfolio of products/customers do you want to be able to calculate cost. The finest granularity is for an individual line item on an individual invoice. Higher granularity can be product groupings, or even at the level of a single plant or office. There is no right answer. The decision rule is your measurement granularity should be the same as your required decision making.

Processes: All products (and services) have a cost related to the business processes used in delivering them. Process cost plus material gives total cost. Determining the processes you want to include is a balancing act between accurate detail and practical data measurement and collection. 

Level: This idea refers to how you desire to carve the total cost into different groups. The groups typically are considered incrementally variable, variable, semi variable, semi fixed, and fixed. Selecting the groups properly will give you the best information about cost / volume relationships. The tradeoff is again complexity versus improved insights. 

Special Process Cases: we discussed several that can add some twists and turns to the calculation of cost, review article #4 to check if these may impact your situation.

The Universal Cost Modeling FORMULA

At the risk of insulting every reader, the cost formula is simple:

Cost = Sum for each material and process required (qty-each * cost – each). The more difficult part is defining all the materials and processes and defining the numbers qty-each and cost- each. In some cases, qty-each is pretty easy if the engineering department has specified by design the quantity each required and the purchasing department can get vendor quotes clearly defining the cost-each. The amount of data however can be very large with material list running 100’s or 1000’s of parts per product and the number of products in the 1000’s. The Cost-each is usually harder for processes.

The Process Cost, Cost-each Calculation

Here is where the cost modeler earns their keep. Again, the formula is not hard.

Process Cost Each = Total cost for that Process / Total quantity produced.

Your first challenge is to define a process where you can collect from readily available data and data you can get periodic updates the total cost of a process. Your accounting system may not collect cost by process and you must prepare a pre-analysis to collect total cost by process. You may find that your process has a mixed bag of costs at various levels – from incrementally variable to fixed – and this cost must be broken into several pieces to analyze. For example, you have collected the total cost for the “smushing department” for each of the last 3 years. The company ran that department for 1000, 800, and 2200 hours respectively, or in other words the volumes were greatly different. You would need to break out variable and fixed costs to get good measures of total cost for your model.

The second challenge is the denominator – quantity. In some businesses with a single product quantity is a simple sum of the units produced. Once product complexity increases and the required-qty-each begins to vary, then a common basis for quantity must be developed. Often this common metric is hours. But it can be any number of quantifiable numbers such as pounds of finished product, cubic feet of product, square feet of space utilized, pounds of a component product, man-hours, machine hours, cell operation hours, plant operation hours, or some more clever and unique numbers as we discuss below.

The challenge for the cost modeler is finding common units for the denominator that best reflect the nature of the cost/volume relationship. Ideally if the relationship between the quantity in the denominator is 100% linear with incremental costs, pretty linear with variable and semi variable costs, and seems “rational” as a way to split fixed costs. What does the term “rational” mean; an example helps. If you were dividing up the cost of your maintenance expense, using square feet for the process department times quantity produced as the denominator that is more rational than quantity as the denominator. (Now, the perceptive reader should recognize that the term square-ft * quantity is an odd idea. But recall that when we do this for all parts and are dividing the total cost for ALL spreading it by this metric, that while non-tangible, is rational). The process of spreading costs is called in the profession, allocating costs; it is an art not a science.

Choosing good denominators requires skill and experience. The CPA profession prefers the time honored “direct labor hours” as a familiar and defensible GAAP compliant method. And this made more sense in the days of high labor intensity, and a high mix of variable to fixed costs. In today’s world where automation has driven direct labor to relatively very low levels of total cost this can be a very misleading denominator. Just think of a $2M machine run by one operator versus a $100,000 machine by 2 operators. Allocating overheads by labor hours could be very, very, misleading.

Keeping Track of Incremental, Semi-variable, and Fixed Costs is Important

Many business decisions require an understanding of the (up or down) impact on the business from a change in sales volume. We have discussed these costs in earlier article #3. To improve the quality of your cost model you should group and maintain all the costs in these buckets.

So practically what does that mean? A single cost element = qty-required * cost-each. So, as you develop the cost-each for incremental costs it should include all the costs that are tied to the element. Take labor as a familiar cost element. You pay your workers $16/hour. You also pay their payroll taxes (10%), some health care costs (8000/year). Overtime is not allowed (for simplicity). Their labor cost each hour is $16 + $1.6 + $4. While health care seems a “fixed cost” and many firms include it in SGA overhead unrelated to direct labor rates, the discerning analyst will understand that changes in employee counts are going to drive health care costs. This simple example must be repeated for every process in your cost model. Maybe you have one labor rate? Maybe you have some employees at $16 and some at $28.

A well-founded knowledge of incremental, variable and fixed costs components of a “product” is critical to understanding margins and impact the quality of all 10 of the reasons costing is important (article #2).

Costing is hard; it has taken 30,000 words to just scratch the surface! Unlike financial accounting, there are no GAAP rules that dictate right and wrong ways to cost. The goal of the cost modeler is to provide costs and margin estimates, that are close enough to allow prudent tactical and strategic decision making. In many small businesses, owners “know” deep in their bones what makes them money and what does not. At some point in the maturation and growth of a business and especially should an owner desire to sell the business to third party, costing and margins become critical.

I would argue that margin % is likely the single most important guide to the health and future success of a business, and understanding cost and how they impact margins a critical skill for business success and survival. Thanks for reading. Call us if you need any help.

Todd Peter is a FocusCFO Principal based in Cleveland.

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Practical Costing Situations and Concepts: 4 Cases

Practical Costing Situations and Concepts: 4 Cases

Article 4 in a Series of 5

By Todd Peter

You are ready to begin building your cost model, or perhaps in the process of selecting/upgrading your ERP software and want to plan through how it will support your cost model. As we have discussed, at the core of a cost model are the business processes that make up your cost, plus any materials used of course. Here we discuss 4 concepts to guide your thinking. Especially when considering the platform (e.g., ERP or Excel) where you will build your Cost Model, you must determine if your ERP system will accommodate some of these cases. A skilled Excel modeler can accommodate just about anything!

By and large these concepts apply to manufacturing situations and are most easily understood in that context.

Discrete and Batch Processes

In a discrete manufacturing process product, finished parts are distinct and identifiable. What this means is even though you may make 10 (or 10,000) at a time, they are made individually. The time or effort or resources (costs) to make discrete products are driven by the countable number made. Examples are common household products like a toaster or a PC. Cost models for discrete processes are the easiest to model as most costs follow the formula of Time/each or QTY/each and cost can be calculated multiplying by the cost rate ($/time, or $/qty) to get cost.

Batch process products are made a batch at a time. A common example is a chemical reactor process. Materials are placed in the reactor, heat applied and some fixed time period later (say an hour) a batch of reacted chemicals is ready. The batch size can be 100, 200 or 2000 gallons up to the size of the reactor tank, but it takes an hour to process regardless. Batch costing requires assumptions about the average batch size to be manufactured at any one time. Products with sequential batch process steps can be tricky as efficient operation requires operation not always at the max of all “tanks” but in fitted sets. Well designed and engineered processes will typically be set so that a BIG tank feeds exactly X smaller tanks. In real life this is often not the case as recipes change faster than do hard fixed assets.

Continuous Processes

A continuous process is best thought of as a batch process in interconnected pipes. This is quite different than a highly automated discrete process that seems to flow but each unit is still an individual. An example of continuous processes are oil refineries. Here flow rates per hour and costs per hour and varying yield rates are common elements of costing. Other complexities typically arise in continuous processes as a common feedstock branches into different products undergoing different processes along the way. Other common issues are dealing with and assigning a negative cost to by-products that are generated and (hopefully sold off) to reduce cost. Other challenges often involve items like catalysts which are used in the process, and can be regenerated for a lower cost than buying new and recycled back into the process. Manpower in continuous processes is often quite low and heavily weighted towards fixed costs.

Man vs Machine Processes

Many manufactured products require both manpower and machinery to perform. Sometimes the relationship between man hours and machine hours is 1:1. Sometimes it is less when a single man can tend multiple machines. Sometimes a crew runs a machine. Calculation of cost rates in man/machine environments is usually best attacked with a developing a man cost rate and a machine cost rate and tracking and applying those rates separately.

Some of the challenges in developing these rates are addressed in the final article. But for developing the overall approach to your Cost Model, recognizing that you have both man and machine rates is important. Most sophisticated ERP systems allow both rates, which makes cost modeling much easier at even the most granular level.

Man/machine processes are very common in certain construction projects and the same concepts apply.

Cellular Processes

A close cousin to man/machine processes are cellular processes which will typically involve a number of machines executing sequential process steps manned with 1 to several operators. While similar to the simple man/machine model a cell is costed based on its “tac” time of the time interval to produce a single part. The cost for the collective manpower and machine cost gets spread to an individual part based on the time to complete the entire cycle. This contrasts to calculating the cost at each of the machine steps and summing it. The cellular cost is based on the time of the slowest o bottleneck process in the cell. In a culture of continuous improvement, the pacing process can change and the “tac” time reduced. Careful construction of your model to allow for changes will make you updating process much easier and quicker.

These special processes are the most common in manufacturing costing. Thinking through what kind of processes will speed you path to building a model as you recognize common process type can be duplicated for specific individual cost elements.

The next article provides a hands-on guide to cost modeling.

Todd Peter is a FocusCFO Principal based in Cleveland.

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