Cost Management Case2

3330 Words Dec 19th, 2014 14 Pages

by Riccardo Silvi
Preliminary draft

A) Overview and Strategic Financial Analysis
Mr. Paolo Frangor was standing in front of the big window of his office. From there, he could see the wide square and the part of the building where the products -- machines for agriculture (rotary tillers, spading machines, harrows, …) -- were produced. He was satisfied with this new location.
The bigger dimension, indeed, could help his employees do a better job and moreover could support the growth. “Growth was necessary to recover a slowly decreasing profitability”, he thought. He was used to repeat to his father that bigger dimensions were necessary to offer to the market a wide range of
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By this perspective he could have bargained for a lower price with his suppliers, or performed internally some phases of the manufacturing process. An increase in the internal value added, in short, could be a way to recover the company’s profitability. Mr. Paolo Frangor thoughts were following one after the other. Doing some phases internally meant new investments and this perspective widened the considerations to the opportunity-cost of resource allocation. In other words, in which areas was it best to invest money? Then, it was necessary to understand where the value was created. This meant focusing on the entire value chain of the business. Resource allocation was not indifferent to this topic. At the same time it was necessary to move beyond simple cost analysis. Since Mr. Frangor participated in a workshop on strategic cost management, he knew that any consideration on cost decision making required a more complex approach. First of all, cost decision making meant to comprehend cost drivers. The reflections on his case helped him put order to the concepts he had learned during the workshop. In the following days, he read the memos and the material he had received at the workshop. Furthermore, he went to the library and he got the articles and the books suggested in the material received. With the support of the speaker,
Mr. Frangor defined a detailed project. They even set up a project team. The starting point of the project was the firm’s value chain
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