This video explains how the baseline you put together in the previous chapter becomes the starting point of the planning process.
- There are actually four steps involved…in building a robust plan for your business.…The first one is to define your target baseline.…That's your goal if you decided…not to change anything for the year to come.…The only changes would come from external factors…you can't control.…For example, any price increase in raw materials…that you wouldn't be able to negotiate back down…would have to be in your target baseline.…That's life happening and you having to deal with it.…The target baseline is important…because it tells you what context you…will be in next year and which will affect…what actions you have to take.…
Imagine, for example, that costs increase significantly.…That means for next year,…even if you were to change nothing…about how you manage your business,…you would still be generating less profits…compared to last year.…So, in order to meet your profit increase ambitions,…you would first have to find solutions…to compensate for the price increases.…Only then can you focus on improving your profitability.…
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- Identify the purpose of cost-accounting.
- Define product profitability.
- Determine your baseline.
- Gather revenue and cost information for your analysis.
- Connect targets with profitability.
- Build your target baseline.
- Analyze pricing.
- Calculate probable product profitability.