I have had the true pleasure of working with George over the last few months on a project related to organizational design in the pharmaceutical industry. George was able to brilliantly translate the findings from interviews into a systems dynamic model of our “as is” state and...
“How much did that cost?” is far more complicated to answer today than it ever has been.
When making business decisions, it can be complicated to determine the actual direct and indirect cost of a particular activity. Reality is complicated and it is easy to overlook “invisible” costs until it is too late and the company is committed to a particular course of action – inefficiencies detected only in hindsight.
However, the scientific method is very effective at cost analysis; because it takes propagation effects, secondary, and tertiary effects and vets them thoroughly. Simulation and modeling can help you understand the complex behavior of capital expenditure, operating expenditure, the actuarial cost (cost of risk) and opportunity costs between multiple options.
There has never been an accountant on earth that has ever put opportunity cost on a ledger. But opportunity cost is a real cost from the perspective of a senior business leader.
Through modeling, you can answer how capital expenditures impact the economic behaviors of assets you will need in the future, and how your behavior will impact your performance in the future given a set of possible futures.
Cost analysis is the primary consideration of roughly a third of the models we build for our clients, but it is still a major factor in almost every model we build.