Build the new cost and economic model

Your report suggested a move on this practice:

• whether the cost of the way the business is organised is known, function by function, before and after it changes.

This move guide sets the new model's people and cost beside the baseline, function by function. It names the owner of each change, and shows how the cost profile of the business shifts. Then it checks the totals a year later.

1. When it applies

Use this move guide if your report placed this practice in the lowest two stages.

If it already sits at the middle stage or higher, skip this move guide.

It needs the baseline from baselining each function and the structure from drawing the organisation.

2. What to do

Five steps, in two to three weeks, then a check a year on.

1. Set the new model's people and cost beside the baseline. Do it for each sub-function, using the same sources as step 3.
2. Write the change in each, and name its owner. The owner is the person who will deliver it.
3. Show how the cost profile shifts. Central against local, fixed against variable, and overhead against revenue.
4. Draw the change two ways. People by function before and after, and a bridge from today's total cost to the new one.
5. Check the totals a year after the change. Use the same baseline.

Table A below holds the before and after on one page.

The free worksheet does the recording:

• /worksheets/operating-model/model-economics.

3. What to produce

One table, plus the worksheet above.

Table A. Before and after, by function

The new total must reconcile to the baseline, function by function.

4. A worked example

Illustrative. Written for this move guide. It describes no client.

A building services contractor has drawn its new structure. Its finance director now costs it against the step 3 baseline.

Before and after.

• Estimating and payroll move to the centre, so the regions lose those roles and the centre gains fewer. National contracts gain two roles.

The owners.

• Each change has an owner. The head of people owns the payroll move, and each regional manager owns their region's change.

The cost profile.

• Central cost rises as a share of the total. Overhead falls as a share of revenue, and the board sees both before it decides.

On a retake, the practice could be answered at the middle stage.

What it looked like in our work

From our own work. Described in words.

A hotel management company's review set head-office cost by function under today's model beside the cost under the proposed one. The board saw both before it chose.

5. Effort and dependencies

What you need

• The baseline from step 3.
• The new structure from step 8, with each role's grade.

How long

• Two to three weeks, then a check a year on.

What gets in the way.

• A saving promised as one total. A single number cannot be checked, because nobody owns its parts. Split it by function before anyone announces it.

6. How will you know it worked?

The test is the check a year on. Retake the check after it. This should be true when you answer:

The worked example is illustrative.

Think we've used your work without proper credit? Tell us and we'll fix it.