When we look at cost curves, often we notice they have a U shape which is the result of two opposite effects on the same driver. For example, the quality cost curve and the logistic cost curve.

Quality Cost Curve

If we put the quality level on the x-axis, from 100% defect to 100% perfect, say 1 to 10 in terms of quality level, the cost of achieving the different quality levels increases as we approach perfection. Something like this:

To begin with, this is a rather technical post and not an easy read. So you should only go through it if you came across the problem and have a need to solve it. OK, let’s get to it.

Say you have a total margin of 40% and last year that was 30%. You want to show to which elements the +10% change is attributable to by breaking down the variance into effects. The challenge here is the complexity coming from having changes in absolute and margin %, changes in product mix and changes in revenue all baked into the margin % variance.

The business finance conversation often revolves around accounting. Results are presented primarily in financial terms and standardized by accounting rules. Operational results (as opposed to legal) are primarily derived through accounting bookings with some further detailing or inclusion/exclusion of defined elements. And operational result measurement is intended to give the management a fact-based view on how the business is performing.

Now, let's take a step back and go through why accounting rules exist.

Say you want to achieve a certain output, like controlling your weight, for example. Then you would like to know what kind of actions and inputs are needed to get there. The output can be either a target, like losing 10 kg, could be controlling variability, like keeping your weight variation within certain boundaries, or maybe trying to understand where your weight will be given future changes in your environment. To make things easy, let's assume you want to lose 10 kg.

A company goes through some good times and some bad times. And sometimes it even has to march through the Death Valley (expression from Andy Grove). 

Cost cutting is something which usually comes up during the bad times and is seen as a necessary evil the company has to go through. It's a fuzzy term for a lot of different things generally perceived as a negative thing. So let's get to the bottom of it.

The launch of a successful product is an event. In the long run, it is a company's ability to generate successful products and its way of doing things that will define its success and ultimately, survival.

A company has assets such as a customer base or a brand, but also an asset called "the way we do things around here".