In order to continue offering a particular product or service, it must be profitable enough. Among other things, this is the first condition for the survival of a business. However, it is not always easy for the management and accounting team to accurately assess this profitability. This is why the use of an adapted tool and the deployment of analysis center methods are necessary. Among others, there is the unit of work.
A quick reminder about the work unit
The work unit is a measurement tool used to evaluate the activity of a particular structure. This could be a production shop or a management company, for example. Since this type of equipment plays a crucial role in determining the profitability of a service offered by the company, the issue of choice is important. In this regard, there are several types of work units today, all of which provide an indicator of the expenses borne by the structure. In the world of accounting, this tool makes it possible to allocate expenses according to a certain number of general criteria, namely the number of employees within the company, the hours to be spent on a project and many others. In addition, it is also important to deploy this tool as part of the planning and financial management within an organization.
What influences the choice of a work unit for a company?
The choice of a work unit is an art. In this sense, a wrong choice can be costly for the company. In the same way, a bad distribution is the first cause of the abandonment of the most profitable productions to the profit of the services which do not bring back anything. However, in order to avoid possible mistakes in the choice of the company, there are a number of details or criteria that you should consider. Among these, the work unit of a structure must be chosen according to the machine hour, also called the operating hour. To be more explicit, the latter refers to the depreciation of the equipment, as well as the costs of essential maintenance, without forgetting of course the cost of labor. For companies that specialize in offering services in a particular sector, there is what is called the “MOD hour” direct labor. This refers to personnel costs, including temporary workers, which may dominate other costs. For companies operating in the transport sector, these costs are based on the number of kilometers travelled. Of course, all these parameters must be taken into account in order to choose the right work unit without making a mistake.
Implementing work units with continuous improvement
The implementation of the work unit within a facility has an undeniable advantage on the billing of a facility. This tool can also lead to the reorganization of the distribution of tasks until the industrialization of these tasks. In fact, customers always expect their service provider to provide action plans to ensure the optimization and performance of their IS. To meet this expectation, companies must act accordingly. Moreover, this tool allows you to know precisely the “return on investment” of your activities being well valued and controlled. Therefore, companies that are not yet experts in the use of this tool are recommended to call upon the services and support of an agency that is an expert in the field.
What about expense ratios?
The UO is one of the best tools to evaluate the profitability of a company’s activity. At the same time, it allows the company to make the services it offers profitable. However, the work unit is not always suitable for all structures. Due to the rapid development of the tertiary sector, this unit of measurement is no longer very important in the economy. For this reason, a variant has been developed. One of these is the “cost rate”. In fact, the price rate is a tool that is mainly used in financial management and task planning within a company, regardless of the type of activity. It is also considered as a prorated application of an allocation base. The base in question can be the cost of goods sold. Generally seen as the base for all remote operations, it is calculated based on the proportion of the company’s workforce to the total workforce. In some cases, it takes the form of breakdown keys.