Cost Management – Part 3 (Structure)

As I jump back into the cost management posts, I have learned one major thing through this so far.  I have learned that you have options when determining how to setup you cost structure and tracking techniques.  You could track costs in a very simple way by using averages to determine overhead costs or you could find ways to tie overhead costs directly to departments.  It all depends on what you are trying to accomplish in your cost accounting.

In the past at Faith Promise we had some standard overhead costs, but many times those were built directly into the budgets of departments.  We have moved away from this to a system that tracks the type of purchase and the department it was purchased for.  I am not completely sure we are setup up in an optimal way, but I keep considering better ways to track costs.  The bottom line is that you can setup your cost structure in various ways, but you should consider the following things as you review your structure:

1. What do I want to learn from the costs we incur?
2. What information would better help the decision making process?
3. Do I want to have some flexibility in our cost structure to allow for some adaptability?
4. What requirements do we have to meet when presenting cost data?

What other things should be considered when setting up or revising your cost tracking system?