Cost Analysis: What Is It and Why Is It Used?

Clean data and quality reports are traditionally the result of painstaking efforts to gather the required information and organize it meaningfully quickly enough to ensure relevance. Companies can do better.

To deliver valuable business insights and rich comparative reports, any kind of business analysis needs to follow an organized approach, beginning with gathering and sorting data. Cost analysis follows much of the same methodical process but maintains a narrow focus on the total costs for a company’s goods and services. That close tracking and examination of cost patterns enables organizations to identify what may be driving spending higher, determine if they are getting enough value for their money and understand if there are alternative materials, suppliers or processes worth exploring.

This systematic review categorizes expenditures by their direct and indirect effects on goods and services produced. Once you have this data, you can review costs, revenues and profit margins and compare and analyze spending by product, location and across different levels of the business. 

Understanding how your organization generates costs, spends money and where improvements may be found can make all the difference when margins are tight and competition is fierce.

For business leaders determined to make informed decisions, the first step is to ensure the information at hand reflects an accurate business position. Confidence in data inputs and understanding of informational outputs help finance leaders create more accurate budgets, plan better and control cost drivers. But manual processes for gathering data, calculating variances and analyzing comparisons consume a substantial amount of time and effort that companies can scarcely afford — not to mention often delivering incomplete or error-filled results.

Challenge: Unorganized, Inconsistent Data

Faced with the challenge of obtaining and aligning data from multiple sources, most companies try their best to piece it all together. But a constant need for ever-more accurate and timely information clashes with complex and manual cost accounting processes, where methods of allocations, analysis and comparisons typically involve manual and repetitive entries, multiple tabs and dozens of summary spreadsheets.

Without timely and automated coverage and analysis of each angle and level of the business, the risk of errors and omissions increases exponentially. Missed opportunities for expansion, course correction and savings can prove costly. Like an arrow launched from a bow slightly off course, imperfect and stale data used in cost budgets and forecasts can yield wildly off target results or worse — provide an advantage for competitors.

The answer: A solid foundation on which to analyze reports and accurate, timely information to form assumptions. Both are critical in cost analysis.

Automate Cost Analysis with Oracle NetSuite

Automating repetitive tasks like data collection and reporting ensures uniformity and consistent application of rules. Accounting databases primed with this normalized data can then retrieve critical information in an organized, timely manner. That supports better decisions and frees up time for value-added activities and analysis.

NetSuite, an accounting software suite dedicated to automation, instantly captures, categorizes, calculates and analyzes transactions with synced data, automated allocations and journal entries and live dashboards and KPIs. Saved searches and configurable reports simplify analysis, ensuring that current information is automatically displayed in an organized fashion by location, product line and customizable classifications.

Forget the struggle of sorting data, updating spreadsheets and racing against time. NetSuite provides the precise data capabilities companies need for comprehensive cost analysis and automates these procedures, ensuring better control over your decisions — and your business.