Cost Control Objective

All costs occur for a reason. Some are locked in for long periods, while others vary with production levels. It is important to understand how all costs behave, and how costs are driven by various factors. Performance is measured by how well costs are kept in line with the factors that drive them. The goal is to be the lowest-cost producer in your market.

Modeling Examples Case Studies

United Airlines has been buffeted by a number of factors in the past decade. This case study reviews the events that have affected United’s performance and shows three ways to model the airline, from simple to complex.

General Operations Case Studies

These case studies generally relate expenses to revenue.

Kmart bankruptcy and department store operations

This case study compares Walmart, Target Corporation, and Kmart cost control performance for both cost of sales and sales, general, and administrative expense. It shows how Kmart’s bankruptcy was inevitable without drastic changes in their cost control ability. It also revels an interesting difference between industry giant Walmart and contender Target.

Specialty department store operations

Pier 1 Imports is compared with Cost Plus World Markets in this case study. The comparison shows each company could improve its performance relative to the other.

Grocery store operations

This comparison of Kroger, Albertsons, and Safeway shows there are performance differences even in this extremely competitive market. While Safeway compares favorable, recent performance raises concerns.

Hospital operations

This case study compares cost control performance of two for-profit hospital management companies by relating expenses to revenues. A not-for-profit company is also examined.

Oracle and PeopleSoft, et al

This case study examines the cost control performance of PeopleSoft and Oracle. It also looks at SAP, and puts it all in perspective by including Microsoft.

Modeling Specific Cost Accounts Case Studies

These case studies relate specific cost accounts to operational measures that drive them.

Store pre-opening costs

This case study examines store pre-opening expense at Cost Plus World Markets. It illustrates the difference between average and marginal rates, and the importance of using the correct measure when evaluating performance.

Employee cost

Salary and benefit cost is related to the number of employees for a healthcare provider as well as two financial services firms. The difference between average and marginal values is examined.

Compliance Case Studies

WorldCom

WorldCom went from completing the largest merger to becoming the largest bankruptcy in a matter of years. Were there any signs of the pending collapse? In fact, there were some early indications that something unusual might be going on. This case study illustrates how proper analysis plays a key role in ensuring that fraud is uncovered and compliance requirements are met.

Cost Control