Spanish Version

#340 - Capacity Cost Management: Tapping the Hidden Profits in  

           Your Organization        

Course Description:  Effective capacity cost management is critical to the on-going success of an organization. Businesses must not only have the capability to provide products or services in the right quantity, at the right place, at the right time, but also at the right cost.    Managers must understand the current and future demand for their products or services and assess their ability to meet that demand in the most cost-effective manner. Misguided capacity investments can severely setback an organization financially and deplete its cash position.  

Capacity management encompasses a broad range of functions that includes the planning, deployment, and utilization of resources to increase shareholder value.   Unfortunately, many capacity decisions are not linked to costs or its effects on the long-run competitive position of the organization. 

This seminar provides a unique, multidisciplinary approach to tie capacity management decision making to the financial performance of a business.  It walks participants through the capacity cost management process and provides them with the ability to tie capacity decisions to financial results.   It will address those critical skills necessary to optimize organizational resources and improve the bottom line.  As a result, participants will be better able to increase asset utilization, anticipate excess capacity situations, manage their existing capacity more effectively, and improve their cash position and financial results. 

Both non-financial managers (operations, productions and marketing) and financial managers will benefit because all have some involvement in the control of an organization’s resources.

Pre-requisites:  This course is taught at an advanced level.  No advance preparation is required.  However, the participant should have taken the seminars Understanding Financial Information, Basic Cost Concepts, Standard Costs and Variance Analysis, or equivalent courses, which explain the fundamentals of financial information, cost terminology, and costing principles.  Participants should also be familiar with the calculation of payback and net present value.

Pre-work:  Not required. 

Who should attend: Managers and supervisors in manufacturing or service industries, entrepreneurs, business owners, planners, industrial engineers, controllers, accounting managers and supervisors, CPAs, CMAs, financial analysts, and cost analysts.

Course Objectives:  Upon completion of this seminar, the participant should be able to:

• Explain the different ways to define capacity in an organization

• Identify the factors to consider in defining capacity for their organization

• Explain the how capacity decisions and capacity utilization affect profitability levels

• Describe the baseline measures of capacity

• Identify the key factors in assessing capacity utilization

• Analyze capacity deployment and identify areas of opportunity

• Explain the difference between contribution margin, throughput accounting, and full costing

• Explain how to consider capacity costs in capital investment analysis.

• How to apply Monte Carlo simulations to analyze capacity decisions.

Course Content:

• What is capacity cost management?

o       What is capacity?

o       Factors you should consider in defining capacity.

o       How does service differ from manufacturing in its analysis of capacity issues

o       What is capacity cost management?

o       Factors that can affect capacity

o       How is capacity defined for your organization?

• Using the Right Type of Costs for Capacity Decisions

          o   The costs of capacity

• Cost classification and identification

• Fixed, variable, and semi-variable costs.

• Committed and managed costs.

 

• Measuring Capacity

• What capacity measures should you use?

• Theoretical

• Practical

• Normal

• Budgeted

• Actual

• Defining capacity measures.

• Factors to consider in selecting capacity measure.

• How the capacity measure affects your reported costs.

• Strategic Planning and Capacity Decisions

 

• How does capacity planning link to the overall planning process?

• What is the difference between a capacity strategy and a capacity decision?

• Strategies for capacity planning

• Types of capital investments and timeframe of analysis

• Developing alternatives to meet demand

• Managing Capacity costs

 

• Using alternative capacity models to improve asset utilization.

• Rough-cut capacity planning

• Capacity requirements planning and MRP

• Bottlenecks, non-bottlenecks, and capacity-constrained resources

• Managing short-term bottlenecks and capacity costs using Theory of Constraints.

• Using a time-based capacity model (CAM-I Capacity Model).

• What is rated capacity?

• How to use this information to identify areas of improvement

• Using a value-based capacity model (VBCM).

• Defining the value-added core for the customer.

• Tying value-added activities to capacity decisions.

• Using the capacity multiplier to direct attention towards actions that can improve performance.

• Evaluating the Financial Impact of Capacity Decisions

 

• What are contribution margin, full costing, and throughput accounting?

• How to apply these concepts to evaluate capacity decisions.

• Applying contribution margin and breakeven analysis to capacity decisions

• Steps in evaluating a capital investment and its capacity implications

• What costs should be included.

• Steps in evaluating the return on investment of a project.

• Review of financial techniques for calculating the return on investment on a capacity decision including payback, discounted payback, and net present value

• The use of Monte Carlo simulations to evaluate a capacity decision.

Instructional method used: Group-live

Recommended CPE: 14 credit hours

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