CAPTURE JANUARY 2016 Q1 ISSUE 01 | Page 12

12 CAPTURE. COSTTREE 2016 Q1 ISSUE

capturing & understanding your true costs

THE

PROBLEM

NONPROFIT

In this scenario, a nonprofit provides three services to the homeless: a nightly shelter, the delivery of 3500 daily meals, and a job placement assistance program. The nonprofit has a fleet of cars used to deliver meals and drive candidates to job interviews. They have three locations used for classroom training and sleeping facilities, as well as an administrative team providing accounting, payroll, procurement and recruiting. They also have a maintenance team to maintain the fleet and warehouses. All of these shared services benefit some or all of the nonprofits programs, but at what cost to each? Our CFO in this scenario knows the cost of each meal, how much she pays her trainers, and what the warehouse rents are, but what about the true cost of feeding one person a meal, helping someone find a job, or providing a place to sleep after the cost of shared support is added? How much funding will be needed in the next grant cycle and which programs must be subsidized with additional fundraising efforts?

GOVERNMENT

In this scenario, a city government provides trash and recycling pickup, a police department, several city parks, and a litany of other services on which the public depends. All of the city departments have departmental budgets for their direct operations, but the general fund provides critical citywide support including accounting, legal, human resources, and IT. Just like in a nonprofit, these shared services are a critical part of service delivery, but the cost of support to each of the city’s operations is once again elusive. What is the true cost of maintaining each park, dispatching one police officer, or picking up garbage for a new development in the city? To set rates for these services and ensure that the general fund stays solvent, a fully loaded cost of service is needed. How much should the city budget next year, where can services be expanded and what must be trimmed?

PRIVATE

In this final scenario, we have a car company with global sales in seven countries, and manufacturing and support services located in three of these countries. Fourteen models of cars are manufactured in four different facilities, located in two different countries. Different phases of production on the same vehicle are done at different facilities in different countries. Additionally, their globally shared customer support, human resources, finance, intellectual property, and internal IT are all located in various countries. Sound familiar? Once again, the cost has become blurred. In order to pay appropriate taxes on the value added in each tax regime and to have clear insight into the operational efficiencies of each business segment, the leadership team must be able to assign a portion of the cost of all shared services, intangibles, and manufacturing costs to the business unit and product line receiving benefit.