Spreadsheet Ideas

Trip over to my Excel blog to see two new posts. Long but very useful explanations:

1 Building a population pyramid to compare business data
2 Interest based functions using Excel's built in functions

You need them both!

http://excel2007master.com/

Duncan Williamson

You WILL pay ... I WILL NOT!

Manchester Airport has been asking passengers to put a refundable one Pound coin in a slot to allow them to use their baggage trolleys for quite a while now. I have never used that "service" as I come home and quite often do not have such a coin with me. As I depart I found it very inconvenient to try to get rid of the trolley and get my Pound back: so I stopped doing it.

No great problem.

I just had a newsletter from Manchester Airport that tells me that from April this year there are going to be brand  new trolleys for us ... they are investing one million Pounds in them ... the Pound or two Euro coin will now be non refundable ... they will have GPS tracking in them!

They say

To continue making multi million pound investments in the airport when the cost of air fares are reducing, means that airports can't continue to provide services like trolleys for free. We know that charging for trolleys will not be a popular decision. This is why we are following the advice of consumer groups ...

http://www.manchesterairport.co.uk/manweb.nsf/Content/trolleys

Which consumer groups? No one asked me and I use the place more than most people!! Air fares are reducing are they: I'd like to see their evidence for that!

I will be independent of Manchester Airport's RyanAir style money making scheme.

Duncan Williamson

Swings and Roundabouts

I checked into an hotel from one of my favourite chains and was immediately disappointed. The check in experience was dreadful. The towels are grey and old. There was just one bar of soap in the bathroom (and yes, there is a bath in there!). And a few other annoyances. I was going to rate them as poor: excellent hotel with three star service.

Then bit by bit the staff have changed my opinion: chamberpersons couldn't be better, the egg chef at breakfast is excellent, the breakfast waiting staff are very good. Finally, I just went for a sandwich and not only did I get a brilliant veggie sandwich but one of the waitresses came and made me an offer of a free cake! I accepted and when THEY came I was overwhelmed: the carrot cake was really very good. I could only eat three of the five they gave me ... all small, by the way!

Well done the staff at the Sheraton Deira Dubai

Duncan Williamson

Cost Accounting ... YES!

I got a fascinating message by email today that I want to share with you all. At the end of the message is my reply. See what you think!

Message TO me:

Dear, Mr. Williamson!

I have stumbled upon your homepage via Google search. The reason why I have done that is because I am working on the Thesis. It is dealing with the problem of maximizing the profit of a company X, within a concern Y.

The thing is that I work for a manufacturing company, that is a producer of a household products. And I would like to use Excel modelling to help our managers with a sensible peace of advice, about maximizing profits. The fact that we are part of a bigger concern and deal with only production puts some limitations e.g. our transfer price is fixed. We sell all of the finished goods to a distribution center (so we have only one client) and the profit would be everything we produce cheaper than a transfer price. The problem I see is that our cost price was calculated many years ago and it utilizes outdated principle, when naked price of labor and materials is increased with a fixed percentage of transportation costs, marketing costs etc. I find it very disturbing to read such a cost price, and definition of additional expenses with a fixed rate percentage might be misleading for the management.

The question is can you please advice some good reading? I might say that all of the articles (like "Linear Programming and Excel's Solver") that could be found on your website are quite good, but nothing new to me, as this was a part of financial class at the college I study in. Any book with some insights and tools how to make a company more profitable would be of a use!

The second question is that ok, if I build a model for a whole factory this would be nice, but it does not cut our costs. If I would come up with a proposal how to economy on let's say painting (use thinner paint job for the products, with same level of quality) would be more useful, but the model itself does no tell you where to "tighten the screw". One of the solutions would be to make economies on taxes. With our existing cost price calculation we make around ~12% profits of net sales. And we should pay a company income tax. If we can build a costprice that would lead us to a 3-5% profit, we would economy a huge amount in income tax, and we could decide to make profit in an other unit (we are a concern and might utilise our Hong Kong branch where CIT is very low). But this is the only opportunity I see for company X to maximize it's profit within concern Y. Maybe you can advice me something better?

Any information would be helpful. And I would like you to thank you for the presentation found on your website :Cost Model Building: a simple example" because it explains cost model building in plain words and makes it easy to understand. I might use your ideas for a presentation if I write a good thesis.

Best regards,
A M

Message FROM me:

Thanks for your very interesting message A.

What you have found is typical of the situation in many companies and probably all over the world.

The problem is the lazy accountant who cannot and does not understand where he is and what his company is doing. So it's good to hear that you want to break the mould.

As for reading, I think the best advice is for you to read and consider the differences between traditional cost accounting that you seem to be describing and the more modern alternatives such as activity based costing, time driven activity based costing and even things like the balanced scorecard and so on. I think you already know about these things but if you think carefully about how you can apply them in your own situation you will benefit a great deal.

Again I think you already appreciate that you NEED to understand all products and processes at your place of work before you can solve the problems you have outlined to me. Your biggest ally, by the way, is probably not in your accountant's office but in the factory. Your engineers, production management, stock controllers ... they are most likely the people who are of most benefit to you: learn what they know and it will be a good start for you.

As for saving costs, I would take a different approach: you MIGHT convince someone to thin down the paint, to find alternative suppliers, cheaper labour and so on but think this way. By generating a proper, more rational and scientific cost accounting system, you will demonstrate and reveal the reality of the situation your company is in. If you can then convince your management that what you have prepared really is valuable then they would be stupid to ignore your findings. Your new costs per unit and so on, your departmental cost schedules and all of the other value adding material you will be providing will be an eye opener for them that they cannot resist!

I have worked with people who think that cost accounting is nonsense: that is until I show them that I understand what they do and what they need; I then show them my product cost model and what it can do for them. Then they wake up! Very satisfying!

I hope you find that useful and would love to hear more about your products and services and where in the world you are!

Best wishes

Duncan Williamson