Performance Improvement
Where margin is leaking, the cause is usually visible in the numbers well before anyone in operations notices. The difficulty is that management reporting is built to report rather than to diagnose, so the loss hides inside an aggregate. Separating it out is mostly analysis rather than insight, and the answer is often uncomfortable rather than complicated.
1
Analyse
Where margin actually goes
2
Segment
Profitability by unit
3
Price
Test the pricing
4
Cash
Working capital cycle
5
Rank
By what it is worth
How We Work
01
Cost Structure Analysis
We separate cost by behaviour rather than by ledger account. Which costs move with volume, which are genuinely fixed, and which have quietly become fixed despite being budgeted as variable.
- Cost separated into fixed, variable and stepped
- Cost drivers identified per category
- Trend analysis against volume over several periods
- Costs growing faster than the revenue they support
02
Segment Profitability
Aggregate profitability conceals the loss makers. Once overheads are allocated on a defensible basis, most organisations discover a division, contract or product line that has been subsidised for years.
- Profitability by division, contract or product line
- Overhead allocation on a defensible, agreed basis
- Loss making segments identified and quantified
- True contribution after allocation rather than gross margin
03
Pricing Review
Pricing is usually the fastest lever and the least examined. Prices set years ago and adjusted by inflation drift away from cost, and discounting authority is frequently undocumented and unmeasured.
- Price versus cost tested by product or service
- Discounting practice quantified and its cost measured
- Price sensitivity assessed where evidence exists
- Pricing authority and approval reviewed
04
Working Capital
Profit and cash diverge, and the gap sits in working capital. Debtor days, creditor terms and stock turn each convert directly into cash, frequently faster than any margin improvement.
- Debtor days and collection effectiveness
- Creditor terms against actual payment behaviour
- Stock turn and obsolescence exposure
- Cash conversion cycle quantified end to end
05
Ranked Recommendations
A shortlist ranked by value and effort, with quick wins separated from structural change. A list of thirty recommendations gets filed; a list of five with rands attached gets actioned.
- Recommendations quantified in rand terms
- Ranked by value against implementation effort
- Quick wins separated from structural change
- Owner and timeframe proposed per item
What You Receive
- Cost structure analysis separated by behaviour
- Segment profitability with overhead allocated on an agreed basis
- Pricing and discounting analysis with the cost quantified
- Working capital and cash conversion cycle analysis
- Recommendations quantified in rand terms and ranked
- Proposed owner and timeframe per recommendation
Indicative Timeline
A focused review takes three to five weeks. Data availability governs it: where segment costing has never been done, building the allocation basis takes longer than the analysis itself.
- Data gathering and cost analysis: one to two weeks
- Segment profitability and allocation: one to two weeks
- Pricing and working capital review: one week
- Recommendations and presentation: one week
Where Margin Usually Leaks
Across engagements the same few causes account for most of it.
Unallocated Overhead
Segments that look profitable on gross margin and lose money once overhead is properly allocated.
Price Drift
Prices set historically and adjusted by inflation while the underlying cost moved differently.
Uncontrolled Discounting
Discretion exercised at the front line without anyone measuring what it costs in aggregate.
Debtor Days
Cash tied up in receivables because collection is nobody specific responsibility.
Stock
Slow moving and obsolete inventory carried at full value and financed indefinitely.
Scope Creep
Contract work delivered beyond what was priced, with nobody tracking the variance.
Frequently Asked Questions
Will you tell us things we do not already know?
Sometimes not, and where management already suspects the answer the value is in the quantification. Knowing a contract is marginal is different from knowing it lost a specific amount last year, because only the second supports a decision.
How do you allocate overheads fairly?
On a basis agreed with you and applied consistently, because there is no objectively correct method. What matters is that it is defensible and stable, so segment comparisons over time mean something.
What if the answer is that we should exit a segment?
Then we say so, with the numbers behind it. Exit decisions have consequences beyond the financial ones and the decision is yours, but the analysis should not soften an uncomfortable finding.
Is pricing really where the money is?
Frequently yes, because it flows straight to the bottom line. A small price improvement usually outperforms a large cost reduction, and it is examined far less often because it feels riskier.
How quickly would we see results?
Working capital changes show within a quarter. Pricing changes show immediately but need care. Structural cost change takes longer and needs the operational work that follows, which is a Consulting engagement rather than this one.
Do you implement the recommendations?
This engagement diagnoses and quantifies. Implementation is delivery work and sits with our Consulting practice, which is a deliberate separation because the skills and the engagement shape differ.
Related Services
This sits inside our Business Advisory practice. Related work: Consulting where the recommendations need implementing, and Management Accounts and Budgeting for the reporting that should surface this monthly.
