(An Effective, Simple and Easy to Implement Tool for Profit Improvement and Cost Reduction Using the Profit and Loss Statement)
Improving profits is one of the main objectives of any business, yet most managers do not truly understand how to move beyond the basics of cost-reduction and profit improvement.
Typically the company’s response to the need to reduce cost is to reduce the workforce. In most situations this is a mistake or merely a short-term solution. The best approach is to give employees a chance to participate in developing cost reduction strategies so that profit improvement is perpetual Profit.
I never found a concept that specifically told me how to take a business, organization, department or team through an easy to use process to achieve cost-reduction or profit improvement using the line items in the profit and loss statement. The Profit Maps demonstrates how large corporations, a small business or a single department can improve its profits and reduce costs using the proven approach that is based on team innovation and management.
The Profit Improvement Paradox
In most business conversations only moments pass before some reference is made to improving profits. This is predictable because the main focus of business is to make profits. What is not so predictable is most managers’ limited ability to formulate effective plans for profit improvement. This is what I call as the profit improvement paradox.
The Reasons for the Profit Improvement Paradox to Exist
o Management Distraction in other aspects of business and not focusing on profitability and cost-reduction
o Lack of Management Training to become more aware of profit improvement scenarios.
o Management Turnover
o Lack of a Constant Process for Profit Improvement as many businesses simply do not have a consistent, systematic process for reducing costs and improving profits on a continuous basis.
Many books that have been written about cost management focus on activity based practices. Most widely known is activity based costing, activity based budgeting and activity based management. These excellent concepts and frameworks offer a great deal of information about cost measurement. Once you have read them however you may find yourself by asking but how do we reduce cost after having measured them carefully? And where can I find a list of cost reduction ideas organized by line items? The answers to these questions are the basis of the Profit Maps Model. Without it continuous improvement in profitability are unlikely.
The Profit Maps Model
The Profit Maps Model acts as an engine for continuous improvement, produces immediate results, and becomes a core competency for the business.
The Profit Maps Model consists of the following five steps
1. Picking your team
2. Preparing your team and your business
3. Brainstorming all the questions
4. Taking action and documenting the results
5. Reviewing and following up
Each step in the process plays a vital role. Systematically applied, they generate a synergistic approach the delivers constant, continuous focus and improvement.
Step 1 – Choosing and Managing the Profit Impact Team
The use of teams specifically to improve profit and loss is uncommon, despite management’s widespread acquaintance with teams and what they can accomplish. The Profit Maps approach shows managers how to select the right team members, organize meetings and set concrete goals for optimum results in profit and loss management. When applied in proper sequence with the other steps in the Profit Maps Model, the Profit Impact Team becomes the engine that drives profit building forward and perpetuates it.