How can you use cost accounting to identify areas where your FM team can save money?

1 Define your cost objects and drivers

The first step in cost accounting is to define your cost objects and drivers. Cost objects are the products or services that you want to measure the costs of, such as projects, processes, departments, or customers. Cost drivers are the factors that influence or cause the costs of the cost objects, such as hours, units, transactions, or activities. You need to identify and classify your cost objects and drivers according to their relevance, accuracy, and availability of data.

2 Choose your cost accounting method

The next step is to choose your cost accounting method. There are different methods of cost accounting, such as job costing, process costing, activity-based costing, or standard costing. Each method has its own advantages and disadvantages, depending on the nature and complexity of your cost objects and drivers. You need to select the method that best suits your FM team's goals, needs, and resources.

3 Allocate your costs to your cost objects

The third step is to allocate your costs to your cost objects. This means assigning the costs of the resources that you use to produce or deliver your cost objects, such as direct costs and indirect costs. Direct costs are the costs that can be easily traced and measured to a specific cost object, such as materials or labor. Indirect costs are the costs that cannot be easily traced or measured to a specific cost object, such as rent or utilities. You need to allocate your costs to your cost objects using appropriate bases, such as direct labor hours, machine hours, or activity levels.

4 Analyze your cost data and reports

The final step is to analyze your cost data and reports. This means interpreting and evaluating the information that you have collected and calculated from your cost accounting method. You need to compare your actual costs with your budgeted or standard costs, identify any variances or deviations, and determine the causes and effects of the variances. You also need to assess the efficiency and profitability of your cost objects, and identify any opportunities for improvement or optimization.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?