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WK #7 (Strat): Cost Structure Analysis PDF Print E-mail

The Cost Structure analysis delineates how the Company spends money to achieve the Company Goals.  This analysis provides the basis for understanding where efforts spent in reducing costs will provide the best results.  Although any effort made to reduce costs is generally good (If the effort costs less than the cost reduction results), it is preferable to understand where the large cost targets are located and to specifically attack these large cost areas.

In many cases the data for this analysis is not available directly from the Company accounting system.  Note: "Most Traditional financial systems don’t provide a good way to measure and manage costs.”  GordianKnot provides the tools and the expertise to extract the costs from the Company accounting system and categorize them in a significant manner.

Cost Structure - Macro Analysis

General Cost Breakdown & Trends

  • Operations as a % of Sales
    • Materials
    • Payroll & PBE
    • Overhead
  • SG&A as a % of Sales

Cost Breakdown by Process Cost

  • Structure to Operate Processes
  • People, Supplies, Depreciation & maintenance, Space & Utilities,
  • Utilization Characterization – Core, Specialized, Fungible


  • Total inventory and Turns
  • Slow moving/Obsolete inventory
  • Sales Backlog  “inventory value” as % of total

Cost Structure - Key Product / Service Analysis (Pareto Analysis)

Key Parent Items or Services

  • Concentration & Frequency
  • Top Value items - Key Items
    • Growth Trends
    • ASP & GM/Contribution Margin Trends

In-house Manufactured Items

  • Concentration & Frequency
  • Top Value Items
    • Cost Breakdown and trends
    • Process Fungibility

Purchased Materials & Supplies

  • Concentration & Frequency
  • Top Value Items
    • Pricing Trends
    • Unit Cost & Lead Time
    • Specification Fungibility

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