Square Root Costing, or SRC, is a powerful approach innovated to address the lack of practical alternatives for companies committed to understanding their costs. Companies typically treat costs as either fixed or variable. However, a significant and growing portion of costs fall into a third category—Complexity Costs. These are costs that are driven by variety, such as SGA, working capital, and manufacturing overhead.
Fifty years ago, this cost category was a relatively small proportion of overall costs—today it is significant. SRC recognizes that, all else equal, complexity costs tend to follow a square root of volume relationship, meaning that the cost is proportional to the square root of the volume. This insight, embedded in our service, means that companies now have the means to quickly diagnose where they are a creating, or destroying, value.
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SRC is the means to rapidly understand your business at the Operating Profit or Economic Profit level, whether by product, by customer, by region or some other category. Our clients have used it in an array of strategic purposes, such as:
Armed with the knowledge from WP&C's Square Root Costing, companies can build better strategies around business problems such as product mix, innovation, and international expansion—enabling them to better compete in our complex world. Read more in our latest issue of Vantage Point.
“WP&C is helping us transform our business. Their insights are phenomenal!”
“Wilson Perumal & Company's approach treats complexity as the enemy. Declaring war is the most direct route to an efficient, profitable enterprise. We declared war on the complexity in our portfolio, resulting in streamlined customer offerings and a more nimble business.”
“This was a quick and painless way to understand our true product profitability, and it challenges how we think about our business. I am extremely pleased with the results.”
“WP&C’s insights into our portfolio, cost structure and growth drivers have changed the way we think about our business. The brand management playbooks they developed for the business will be critical to how we make decisions going forward.”
“I have been more than pleased with what you have been able to accomplish in this time. Beyond my expectations...Spectacular!”
“Fantastic piece of work! You’ve really shed a lot of light on our business. Inmarsat will benefit enormously from your contribution and we will be using your structured thinking to guide us through the decision-making to come.”
“If you take all six times [past projects] where we looked at this, over the past ten years, and rolled them all up together, and multiplied by ten, it would still not be as good as this work.”
“Army personnel credit the collaboration between Joint Munitions Command, CAAA's higher headquarters, and consulting firm Wilson Perumal & Company for identifying areas to improve the munitions distribution process.”
