Maestro Technologies - Intelligent management software for the construction industry.

Managing your profit centre with maestro*

A profit centre is an internal division in a company for which management wants accurate information on profitability, separate from other divisions in the company. Profit centre management makes it possible to obtain separate results for the different divisions of a company, viewing each as an autonomous entity within the group. The profit centre can be a department in the company, a division, a group of employees involved in a common function or a combination of several of these elements. It results from a functional breakdown of the company and its existence is not a legal distinction.

Each profit centre enjoys relative autonomy, its own budgets, costs and sales figures. It is evaluated on its results, generating either profits or losses. These results are separate from the results of the company as a whole.

The profit centre should not be confused with the cost centre, which does not receive income. Cost centres therefore cannot be evaluated by profitability, only by expenses.

Approach

Under these conditions, operating expenses are no longer charged to the company, but posted to each of the profit centres. When company expenses are classified, it becomes necessary to accurately indicate the profit centre to which each expense, internal or external, should be allocated.

This type of approach also requires the implementation of interdepartmental internal billing operations (or between profit centres), to generate internal revenue from services provided to other divisions in the company. The profit centre will often have external revenue from company customers.

Internal allocations are usually billed based on a predetermined billing unit, such as on an hourly basis.

Internal revenue calculation methods

Calculating internal allocations is generally easy if the profit centre only charges for internal services. By knowing all of the costs allocated to the profit centre, and by determining the number of units (hour, day, week) that the profit centre can allocate, it is easy to evaluate a representative rate for expenses to be covered. All that remains is to issue invoices to the other profit centres, based on the number of units used.

The formula is a bit more complex if products are involved or account for the services provided. In such cases, the cost for using these products (their purchase, maintenance and repair costs) must be added to the cost of services provided. For cases involving products of a diverse nature, you must also establish separate rates.

A concrete example

In the construction industry, an interesting profit centre example is tool management. This involves all of the tools owned by the company and that are used on job sites. This can include saws, drills, generators, ladders and others. One of the current methods is to calculate the total purchase cost (or depreciation for the largest items) and to distribute them to projects costs in the form of general expenses, prorated based on the value of each of the projects. This method is relatively simple, but very inaccurate because it does not take the actual usage of tools on each project into account. Furthermore, it cannot be used to control the movement of tools and usually results in a slackening of the management of tools. Finally, it is impossible to determine what the tools actually cost and their usage over their life cycle.

The maestro* solution

To meet this requirement, Maestro recently developed a new advanced tool management module to monitor the location of tools, but also their usage costs on each of the job sites on which they were used. By managing by profit centre, it becomes possible to assess the cost of these tools globally and accurately, including their management costs, on each of the projects. This also makes individuals accountable, both users of the tools who know that the tools in their possession are strictly monitored, and profit centre managers, who must provide reports on the profitability of their departments.

This module also has the same powerful maestro* components that are already well established in other modules, including dynamic vector-based analysis, list generator, advanced searches, etc. Since it is based on the inventory module, it also has all of the functions of the Purchasing and Procurement module.

Conclusion

The next time you think about the structure of your company, consider the benefits of profit centre management, and if you notice a requirement in terms of managing your tools, have a look at the new advanced tool management module from maestro*. You will certainly find something that meets your requirements.