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The task of the project implementation team was to make planned cost estimates as accurate as possible. The importance of it lies in the cost variance being a performance indicator.

Project description

The plant’s management sought to reduce order lead-time. One of the determining factors was a flexible process of harmonizing customer requirements. However, it required reducing response time to customer requests and alterations in placed orders along with the most accurate forecasting of production cost.

The plant’s products are highly complex making it a specific feature of the enterprise. Each new product comprises only 27% of components similar to those already manufactured. Therefore, it is impossible to calculate planned cost based on already produced samples. The main requirement of the enterprise’s leaders regarding the information system of economic and financial management was control of planned and actual cost in real time. The purpose of such an approach is to prevent variance between actual and planned cost.

For well-informed managerial decisions, it is critical to have an online access to information on the status and amount of WIP (work-in-progress) as well as value of each part and assembly unit. All of it requires up-to-date information on the direct cost of production.

For effective profit control, managers need to handle all profit components: revenue and direct costs.

Moreover, the profit components must be calculated quickly (it being a market demand) and accurately. When changing the order’s parameters, the company's managers should be able to quickly recalculate profits. In addition, it is necessary to keep a record of profit changes for future calculating the cost of other similar products.

Thus, the important characteristics of the developed solution are the accuracy, traceability and immediacy of calculations for the enterprise’s profit management.

Key project factors

• Less than 1% variance between planned and actual cost of production.

Results

The project implementation team introduced the following modules: Financial Planning & Budgeting, Treasury, Calculation of Planned & Actual Cost.

Following the project results, the IT-Enterprise system provides operational direct cost control in real time. Due to this, it was possible to limit the variance between the actual and planned cost of production to an amount not exceeding 1%.

The achieved result allowed:

• reducing response time to customer requests;
• improving costing accuracy;
• reducing the time needed for prompt recalculation when altering orders;
• reducing calculation time and improving calculation accuracy by keeping record of previous calculations.