5 Core Capabilities of Cost Intelligence

The next evolution in Financial Analysis is upon us - Cost Intelligence furthers the ways of FP&A by drilling down into costs.

Have you ever been caught off guard by unexpected costs? Why does that happen? What tool do you use to observe and allocate costs in real-time? It’s curious that we have continuous monitoring tools for performance metrics but not for financial performance, considering money is the primary business metric.

Good news! The next evolution in cost management is here: Cost Intelligence. It extends the work of the Finance team by integrating cost management into their processes, allowing for a deeper drill-down into operational costs. This approach enhances the Finance experience by making cost and revenue metrics as critical as performance metrics.

When operational costs are deeply integrated into Finance, they become a powerful and easy KPI. Every event in your system can be measured in dollars, empowering you to better manage application and customer operations from the start.

To further understand this important paradigm shift, let’s outline the 5 core capabilities you will gain from Cost Intelligence.

5 Core Capabilities of Cost Intelligence

#1 - Collaborative Knowledge

Knowing the costs of all your customers and how they roll up into your vendors is the “single source of truth” for Cost Intelligence. Rather than finger-pointing when there is disagreement about what your systems actually cost, a single source of truth enables constructive dialogue and efficient Cost Intelligence processes. Imagine onboarding any vendor or customer and observing the breakdown of their costs, or making a code change and seeing its effect on cost. This is just the beginning—when we consider indirect costs, you can see how these costs flow to teams, locations, and more.

#2 - Anomaly Detection

Knowing real-time resource costs enables you to observe billing anti-patterns. Some cost spikes may be easy to detect visually when you have the bill in hand, but most are hidden in the vast volumes of data. The ability to automatically observe your costs, discover the needles in the haystack, and differentiate between recurring spikes and true outliers will help you manage operational costs. You will know the risk to your business caused by varying degrees of anomalies, and end-of-month billing surprises will be a thing of the past.

#3 - Cost Prediction

Analyzing your costs over long periods will uncover invisible trends and predict future costs. Invisible trends can result in high costs because they accrue over time. Identifying trends is almost impossible to do visually and typically requires machine learning algorithms. With trend detection and cost prediction, instead of receiving billing surprises, you and your team will impress others with a high level of control over your costs.

#4 - Budget Monitoring

Knowing how your costs are accruing, and by which customers, tells you how your operational costs are tracking to budget. Furthermore, if you want to assign costs and budgets to multiple cost centers, then knowing the breakdown of real costs will enable you to accurately allocate costs to business units, teams, products, and features.

#5 - Continuous Cost Control

Knowing real costs, anomalies, and trends is crucial feedback, but where do you begin to take action to optimize your system? A tool for Cost Intelligence needs to be built and designed to fit into the Finance team’s cycle and those who can actually effect change. When you can observe costs connected directly to customers, you will quickly be able to improve your systems and control costs.

Summary

By achieving these 5 core Cost Intelligence capabilities, you will be able to observe and manage operational costs effectively. A true Cost Intelligence culture requires cost information to be as accessible within Finance as metrics like Gross Margin—and to make that information accessible and collaborative to all relevant groups in the organization.