Strategy. Cost. Analysis.
Three words that individually carry immense value and when put together makes huge sense. So what the heck does strategic cost analysis really mean?
Costing IMO, fundamentally is a science (there goes the accounting guy) to manage value incurred to the value gained. Now, one may ask – what does that mean? It means everything that you do everyday is being measured for a return on investment, and how the return is calculated might be the decision making point between weather what you/your team is doing is worth the value or not.
Remember: All cost allocation is arbitrary.
Costing is developed to encourage behavior that is tagged profitable and discourage behavior that is not tagged a good practice. Now the art really is to define the taxable and subsidized practices. Good practice is subsidized and practice that causes value degradation/erosion is taxed.
So, lets look at an example:
Engineering Operations accountant gives you a call and says that your project budget is going really overboard and you need to cut cost, believe me this happens everyday with a lot of us. 
Don’t surrender, and say here are the things I’ll do. First understand the allocation structure, understand the breakdown and then make a call on which areas you would want to allocate differently. For example, if you run an operations in the US or UK the cost of the employee overhead is so significant that it almost adds up to 40% of employee wages at times. In that case, approach the facilities management (don’t try this at work, unless you really know what you are doing ); and tell them about the wonderful things you are doing. Brief them about how your project will reduce carbon footprint by X% in coming years and having the project stay where it is critical, if the management finds value in your work and just makes an accounting exception to allocate facilities cost elsewhere, you are off-the-hook. So, there, not easy as described above, but I have seen in past cost allocations being differed and changed to accommodate behavior that would help organization.
Don’t believe me, take up any balance sheet and look at the goodwill as an asset (mostly technology firms) and you would feel compelled to ask, how the fu** do you quantify goodwill in a dollar amount? There- I told you so!!
So let’s bring this to the OSS/NMS/Engineering world,
- can you add R&D as an asset? – YES
- can you qualify SLA penalties, goodwill loss if Mean-Time-To-Resolve decreases? – YES
Think about if folks, this gives you power like never before. If you know how to get your way across accounting standards for your industry, you will know much more…..
Much more, later!! Good luck…
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