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<blockquote data-quote="Marlow Wilson" data-source="post: 23683" data-attributes="member: 47">Re: planning for the futureRight on as usual Tim.&nbsp; What you are describing is &#039;incremental analysis&#039; in management accounting speak.&nbsp; In short, looking at how expenses and revenues will change under different courses of action, but importantly takes into consideration the opportunity cost of not doing something.&nbsp; This can apply to decisions to take jobs below your regular rates, eliminating unprofitable segments, or keeping or replacing equipment.Eliminating unprofitable segments is particularly relevant.&nbsp; People don&#039;t take into consideration the fact that overhead that was allocated to your unprofitable segment will have to be allocated across all other segments if eliminated, unless the extra capacity allows you to increase other segments (Ie there must be no/limited excess capacity).For example, live sound is currently a money loser for me (by a bit).&nbsp; This is mostly because I refuse to do low end work, and am not consistently busy with more reasonable work.&nbsp; I could kill the segment and focus on corporate/private event A/V and DJ work, but the live segment is not hindering the other segments and cutting it would only increase the overhead burden of the remaining segments, decreasing total net income.&nbsp; In addition to these quantitative factors, eliminating the live segment would make me less than a full service company, reducing our perceived capabilities (another opportunity cost of marketability).</blockquote>

[QUOTE="Marlow Wilson, post: 23683, member: 47"] Re: planning for the future Right on as usual Tim. What you are describing is 'incremental analysis' in management accounting speak. In short, looking at how expenses and revenues will change under different courses of action, but importantly takes into consideration the opportunity cost of [I]not[/I] doing something. This can apply to decisions to take jobs below your regular rates, eliminating unprofitable segments, or keeping or replacing equipment. Eliminating unprofitable segments is particularly relevant. People don't take into consideration the fact that overhead that was allocated to your unprofitable segment will have to be allocated across all other segments if eliminated, unless the extra capacity allows you to increase other segments (Ie there must be no/limited excess capacity). For example, live sound is currently a money loser for me (by a bit). This is mostly because I refuse to do low end work, and am not consistently busy with more reasonable work. I could kill the segment and focus on corporate/private event A/V and DJ work, but the live segment is not hindering the other segments and cutting it would only increase the overhead burden of the remaining segments, decreasing total net income. In addition to these quantitative factors, eliminating the live segment would make me less than a full service company, reducing our perceived capabilities (another opportunity cost of marketability). [/QUOTE]

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