For those of you that are responsible for cost control or analyze costs, you may receive total costs or a list of dollars spent by category each month. If you are lucky, dollars are split between fixed or variable. Fixed costs are dollars spent regardless of whether production is happening or not.Variable costs occur during or as the result of production – as part of the production “recipe”. If you are a superintendent being asked to control costs, ask for a breakdown of costs that are variable. Variable costs help you understand what you can control and are valuable to share with your department.
The third set of costs are linked to events – what happened that could have been prevented or changed. These dollars occur in every department, not just operations and maintenance. Some of these dollars are on the general ledger and some are not, which complicates the calculation of these dollars. There is no official accounting category for these dollars, which is why many people don’t know about them or understand them. I teach people how to calculate these costs, then link them strategically to optimization efforts. Their power in change acceleration and organizational development should not be underestimated. What happens next to performance and culture can be truly amazing!