Do You Know Your Costs of Operations?
Inputs + Work = Output
If there is one part of a business that can silently kill, it is operations. Whether service or product based, if you do not know your operations process, you will not know your real costs of providing the products/services your business offers.
What logically follows is not not knowing if the business is making or loosing money.
If you haven’t mapped your operations process lately, I would suggest that it be made a priority.
Here is a simple exercise that may be helpful. Take some inputs:
- One unopened package containing a loaf of bread – any kind will do
- One unopened jar of peanut butter – I prefer smooth
- One unopened jar of jam – strawberry is good
- One knife
- One tablespoon
- One towel
- One plate
- One cutting board
- One peanut butter and jam sandwich
- No end slices of bread
- Sandwich to be served on a plate
- Sandwich cut diagonally
- Crust on sandwich okay – I like the crust attached
- Use one tablespoon of peanut butter and one tablespoon of jam
Write down each step of the process to make the sandwich, without actually doing it.
Now test your instructions and see how far you get before you have to stop the assembly process. Did you remember to take the lid off the jam, or remove the seal on the peanut butter?
This exercise is meant to be fun, and demonstrate how much we take for granted. It is what we take for granted that can turn into unbilled hours, and unbilled hours are profit killers. When I was with the General Electric Company, I learned the value of knowing the operations process and to be mindful of taking steps for granted.
The obvious benefit to a business by knowing their operations is profitability, another is the ability to jsutify your pricing. If you can not be competitive with operations that are in place, the business will not likely survive for long.
You can base pricing on what the market is demanding, but if the product/service can not be delivered profitability, why do it? Do you really understand your business operations?
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