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Eric Hiller recently published the first article in a series for Industry Week. This week, the article  focuses on how an executive (and other people who are not cost experts) can understand what the cost management team is communicating.

We have all been in a meeting where miscommunication happens. One of the biggest challenges when dealing with analytics in business is that the more powerful the analytics, the harder it is to explain to other people not involved directly in the analyzing. Exactly how the analytics works and why the results should be trusted by our colleagues and leadership is a challenge. The same is true with product (or service) cost management—specifically, when using what are commonly called “should-cost models”, (models for estimating the cost of a product or service).

A big part of the communication problem is that there is not just one type of cost model. Cost management is a broad field with a variety of methodologies to address the almost infinite world of situations for which one wants to know the cost of manufacture or service delivery. Even if an executive has some understanding of one particular cost-modeling technique, it can often be confusing when the analytics team uses different technique.

Questions answered in this article include:

• At what level of the BoM (bill and material) or WBS (work breakdown structure) is the object or service being costed?
• Does the cost model focus on the object or service, or does it focus on the process?
• What analytical approach is used in the cost model? 

Read the full article, 5 Questions for Better Cost Management Discussions, on the Industry Week website.