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Dickeson--Conducting Job Pathology

March 1998
Recall Dr. Quincy, the television series pathologist? He conducted postmortem examinations of bodies of crime victims. I caught a rerun the other day of that old Jack Klugman series, and it triggered some thoughts about costing and printing—if you can imagine that!

When I talk about "job costing" with a printer, the usual response is, "Yeah, we've got a terrific estimating system." We have a tendency to equate job costs with cost estimating and often overlook perhaps the major value of a job costing system.

We should play Quincy with our cost accounting system. Dr. Quincy didn't try to predict when a given person would die or from what cause. He reacted to what had already occurred.

For a good cost accounting system, we have three data sets available:

A. Transaction job dollar costs (transactors)

  1. Paper and ink

  2. Buyouts

  3. Hourly work center rates


B. Predictive production standards (predictors)

  1. Job usage pounds of paper and ink

  2. Job hours required in production centers


C. Actual job performance results (actuals)

  1. Material pounds consumed on the job

  2. Production center hours applied


We constantly use these three data sets in job cost application to:

A. Estimate costs by multiplying transactors by predictors

B. Load and schedule our facilities using predictors

C. Purchase materials by using quantity predictors, or

D. Manage materials pick-lists derived from predictors.

We give only passing attention to multiplying actuals by transactors, to produce the reactionary perceivers. By neglect of actual job cost experience analysis, we are missing statistical guidance for the long-term success of the company.

Production standards as predictors are iffy at best. Production standards attempt to apply actuarial tables to job specifications in order to project what will happen. We try to apply actuarial experience tables to tell us which jobs will live and which will die.

No doctor can look at any person and predict life-span. So why do we constantly try to use actuaries to predict the life-span of a job? Chaos theory, where small variations in inputs cause major variations in output, frustrates application of specific job predictors. Scheduling, purchasing and materials management use their own variations of production standards based on their view of experience.

Cost estimating lives in a world of virtual reality, forcing decisions based on predictions from tables that are not intended for such usage. Actuaries can only look at groups like white male smokers, construction workers, homemakers, etc., and provide averages and ranges of life expectancy. All we can do with our predictors is provide averages and ranges of job performance expectancy.

Internal Benchmarking
Dr. Quincy was a reactionary. He analyzed what happened, not what was to be. Let's react to job costs and examine the job bodies after the production crimes have been committed. When we multiply transaction costs by actual results, we are doing this. No predictors, just actuals converted to the common denominator of dollars.

With this usage we're prepared to do internal benchmarking. Our benchmarks are the results of all the other jobs we've done in the past. It's our own set of actuarial experience tables. Compare the actual results of job A with actual experience of all other jobs in the last year, quarter, month or whatever.

Compare job A actual results with all other jobs with similar sets of characteristics. Group the actuarial experience of jobs by customer account. Compare account group X with account group Y. Constantly ask, "Why did we make money on this one and lose on that one?" Where and what are the job differentiators? Think. Discuss. We're mining the database of experience for the gold that's in it.

Not to worry about precise accuracy of transaction costs. Get them reasonably close and then freeze 'em, lock 'em into place. We want the jobs and customers to be relative to each other and to the past, so we hold those costs as constants while actual performance supplies the variables. Use a standard cost for paper and ink. Always multiply actual performance by the same transaction values to make the jobs and the accounts directly comparable. Now we can do internal benchmarking.

Is job pathology an academic exercise? No way. We're into the art of marketing analysis. We're looking at our own experience with work and customers. We have a steering wheel to drive our marketing machine. We have to find and fulfill needs at a profit. If we don't make a profit, we don't survive.

In order to survive, we must identify and optimize our "core competence" with the objectivity of solid data. What is it we do best and worst? Why is this? Equipment? Experience? Location?

Some jobs are dogs—trash jobs—while some are pussycats. Do we try to turn dogs into pussycats? We don't; we identify and foster our "core competence" knowing which is pussycat work. We gradually eliminate the trash jobs.

Without transaction costs applied to actual performance we don't have a compass to point the path to our core competence. We have nothing but a packet of anecdotes—stories we tell from our selective memories.

If we want to enter a new market and fulfill new or different needs, we must first define those needs and all of the nuances and peculiarities. Then we must ask what it takes to develop market competence. Next follows necessary research, development and testing. All the while we watch the actual job cost results to learn the truth of our entrepreneurial effort. We must find the path to a new job competence.

Isn't this the secret of highly profitable printing companies listed in the PIA ratio studies? Profit leaders find, develop and optimize core competencies using the statistical methods of actual job cost analysis.

Next time someone asks about your job cost system, don't just respond with a comment about your job cost estimating practices. Discuss the usages of your job cost analyses, benchmarks and resulting direction of your marketing efforts.

—Roger V. Dickeson

About the Author
Roger Dickeson is a printing productivity consultant based in The Woodlands, TX. He can be reached via e-mail at rogervd@bigfoot.com or rogervd@pdq.net; or via fax at (281) 362-7572.
 

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