Development Example

Every organization employs key staff to manage production of their product or service, sales and overhead. The first chart shows representative costs for these functions. Costs lead to profit, in this case 6% of revenue.

Key staff employed to Cost
Produce 33% of Revenue
Sell 15% of Revenue
Control 15% of Revenue
Profit 6% of Revenue

If key staff members achieve a 5% performance improvement, we will generate a much larger increase in profit. A 5% improvement in the effectiveness of key staff reduces cost.

  Cost Reduction
                Produce 33.0% 1.65%
                Sell 15.0% 0.75%
                Control 15.0% 0.75%
    2.475% reduction
Original Profit 6.0%
New Profit 6.0%  plus  6.3% = 8.475%  a 41% profit increase