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Can You Track Profits By Department?

“The Dairy Business” Case Study Part II: Developing Profits Centers

cow for blog 2Introduction: We did training and consulting work with a dairy company some time back who originally brought us in to help develop their management team. An essential part of this development process was a strategic plan. During the strategic planning stage, the company came up with several major goals and objectives.

In Part Two of this Two-Part Case Study, we will address the second major goal.
Goals & Objective #2: “The Dairy Company” will develop profit centers for each department of the organization.

For the next several months, a management team studied the feasibility of segmenting revenue and expenses within departments to determine efficiencies. It certainly was a tall order because there were so many variables to considered. The goal was to measure the expenses and revenues accurately if any, for each department so the manager could be correctly evaluated. Not all departments generated revenue, but each department was responsible for their expenses, which in turn helped the overall profitability of “The Dairy Company.”

One of the major expenses for “The Dairy Company” was electricity. The committee determined to divide the electricity bill each month between departments. This decision met with opposition from managers who felt they had no control over the electrical usage from another department. If one department was inefficient, it would reflect on all departments. Good point. The company answered that objective by running meters in each department to measure the usage. In that way, each department was responsible for their electrical expense.

electric cowAs an extra incentive to save electricity, we recommended keeping a simple bar chart in the break room which they did. There were no titles on the chart, just the bars by month along with a dollar figure for that month. After a few days, the manager explained the dollar figure represented the monthly electrical bill.

The results proved our theory. Department member took ownership and began suggesting ways to reduce that large electrical bill, just as they would at their own home.

Within a short time, the costs began decreasing as everyone began pulling together to reduce the costs and see the bar chart shrink. In fact, electricity bills throughout the company decreased dramatically, reducing overall expenses, which was part of their goals and objectives.

Depending on your type of business, electricity costs might not be your key issue. Regardless, two important lessons can be learned from “The Dairy Company”:

1. Measured performance resulted in improvement.
2. Information in graph form, initiated action.

If your organization is uncertain as to how to track profit centers, reduce expenses and incentivize departments, sometimes it takes out-of-the-box thinking. Call me at 254.776.6306 or email bmazzare@assessmentsolutions.com. With 40 years of experience working with multiple industries, for-profit and non-profit organizations, locally, nationally and internationally, we can help you think through an action plan tailored made for your organization.

For more information visit our website at www.assessmentsolutions.com.

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