Cost analysis

March 2019 Didier.Certain@dcc-marketing.com 1
OPPORTUNITY RECOGNITION
March 22, 2019
Cost analysis (fin1)
A few beacons in the turbulent world of entrepreneurial finance
1

What is business?
Business is an activity in which we want both
maximization of profit for enterprises
maximization of satisfaction for clients

Business modeling
My Business Model must be clear
– Who are my customers
– Who are my users
– Who are my providers
– What is my product or my service
– Who pays what, and to whom, and how
– What is the perceived benefit for users / customer
– What is surrounding (competitors, legal, …)
Is my Business Model clear?

Business modeling
Prerequisite: My Business Model Canvas is clear
My

My
Project
My Business model
My

My Business model
My
Project
Flow chart
description

My Business model
My
Project
Customer
A
Customer
B
€
Product / Service defined by 4 P
and defined by the value
provided to customers and users
P as Product
P as Placement
P as Promotion
P as Price policy
My marketing mix

Social org.
Pension funds
My
Project
Customer
A
Customer
B
€
Regulatory
agencies,
legacy
Surrounding:
education,
cultures,ethics
Tax
services
€
Provider 2
P
/
S
€ €
Users
€
€
Human
Ressources
Provider 1
My Business model

Provider 2
Social org.
Pension funds
My
Project
Customer
A
Customer
B
Compe-
titors
€
€
Regulatory
agencies,
legacy
Tax
services
€
Provider 1
P
/
S
€ €
Users
€
€
Surrounding:
education,
cultures,ethics
Human
Ressources
My Business model

Writing my Business Plan
1. Executive summary
2. Business model of enterprise
3. The product or the service
4. The market
1. Surrounding
2. Demand
3. Competitors
4. Positionning of Product x Market
5. Strategy of development
1. Road map of product / service
2. Marketing plan
3. Pricing and financial plan
6. Overall project planning
7. Previsional Profit and Loss
8. Previsional needs of funding
9. Conclusion

There are 2 useful documents in order to explain
my Project to people dealing with finance
• Balance Sheet
• Income Statement (aka ‘Profit and Loss’ Statement)
also said ‘P & L’
A few beacons in the turbulent world of
entrepreneurial finance

The Balance Sheet: a snapshot of the company's
assets and liabilities at the end of a period.
The Income Statement: sum up of all the
revenues and expenses of this period (also called
Profit and Loss Statement or P&L Statement).
❶
❷

The Balance Sheet: a snapshot of the company's
assets and liabilities at the end of the period.
Assets
31 dec 2018
Equity
+ Liabilities
31 dec 2018
Total of Assets = Total of Equity and Liabilities
Accounting equation
❶

Balance Sheet
Assets
Investments
• Non current assets
• Machines, etc.
• Current assets
• Stocks, etc.
• Marketable securities
• Cash
Equity
+ Liabilities
Resources use to finance
assets
• Equity (capital
+ cumulated earnings)
• Debts (borrowings of any kind)
• Short terms debts (< 1 year)
• Medium and long debts

Balance Sheet: an example.
Accounting
equation
Assets = Equity + Liabilities
Assets
Liabilities

Don’t worry about Balance Sheet
It’s just an accounting equation Assets = Equity + Liabilities
which is very useful for Accountants, Bankers and Financials
The key point is that
We need Equity and Liabilities in order to finance Assets
(Ressources) (Uses)
Let’s focus now on the P&L Statement . . .

The Profit and Loss Statement: sum up of all the
revenues and expenses of the period
2014
2017 2018
(snapshot)
(sum up)
❷

The Profit and Loss Statement
shows all
• Additions to wealth: i.e. Revenues, incomes, …
• Deductions to wealth: i.e. Expenses, charges, …
on a predetermined period of time
(typically 1 year, but it could be 1 week, 1 month, …)
e.g. for tax administration: 1 year
e.g. for budgeting My Project: 1 week, 1 month, …
The
real life

The Profit and Loss Statement
on a predetermined period of time

P&L shows all
It’s hard to forecast Revenues & Incomes
(especially for start-ups).
It’s easier to forecast Expenses & Charges
so let’s begin with that.
Profit and Loss Statement (P&L)
Accounting equation
Earnings = (Revenues & Incomes) – (Expenses & Charges)

Expenses and charges
are shared in 3 types
• Expenses related to operating cycle (OPEX)
whatever is consumed as part of production process
(for product or service)
• Expenses related to non current assets (CAPEX)
whatever has a lifetime longer than the period of an
operating cycle (for product or service)
e.g. investment in building, machine, R&D, patent, etc.
• Charges related to financial cycle (interests, taxes)
Profit and Loss Statement (PnL)

Revenues and incomes
are shared in 3 types
• Revenues related to operating cycle
whatever is earned as part of production process
(for product or service)
• Incomes related to non current assets
whatever has a lifetime longer than the period of an
operating cycle (for product or service)
e.g. selling of building, machine, patent, etc.
• Incomes related to financial cycle (bank interest)
Profit and Loss Statement (P&L)

Expenses Revenues
OPEX (operational expenses)
Including
Salaries (wages and related
costs)
Turnover A
Turnover B
CAPEX (capital expenses) Non current incomes
Financial charges
(interests, taxes, …)
Financial incomes
(interests, …)
Total Expenses
Net income =
Total Revenues
Revenues – Expenses
(earning > 0 or loss < 0)
PnL

Fixed cost and variable cost
• Fixed cost
e.g. Subscription to telecom operator
e.g. Buy out for a software license or small hardware
• Variable cost
e.g. Cost depending on the volume of transmitted data
e.g. Cost of license depending on number of users
• Thresolded cost
e.g. Variable cost depending on a threshold
e.g. Free if under 1 Gbyte and XX € if above 1 Gbyte

TCO: Total Cost of Owning
• TCO = Initial fixed cost
+ Number of periods X Recurrent cost
e.g. TCO of a computer during 3 years
• Initial purchase cost = 1 000 €
• Annual maintenance cost = 100 €
• TCO (3 years) = 1 000 € + 3 x 100 € = 1 300 €
• Initial purchase cost = 0 €
• Monthly rent = 35 €
• TCO (3 years) = 0 € + 36 x 35 € = 1 260 €

Prepare a presentation of your cost analysis
(5 slides max, 7 minutes max)
REQUIREMENTS
• Must have: your name, your project name
• Should have: Business Model Canvas
• Should have: CAPEX (charge quantification)
• Should have: OPEX (charge quantification)
• Could have: spreadsheet on 3 first years

1) For My Project, try to list my expenses and charges
shared in several types (CAPEX, OPEX, etc.)
2) For My Project,
try to estimate roughly (in k€) my charges
during the first three years
3) For My Project,
present my forecast charges on some slides
(spreadsheet could be useful)
4) Questions / Answers about my forecast charges

28
Thank you for your attention…

Prediction or forecast?
"Prediction is very difficult, especially if it's about the future."
Niels Bohr, Nobel Prize in Physics (1922)
“Forecasting is the art of saying what will happen . . .
. . .and then explaining why it didn't happen exactly.”
Anonymous engineer

Rules of thumb
• A forecast within 20% is better
that no prediction at all
• Define a cone of uncertainty
The more distant, the less confident
• Think about Plan A (optimistic)
and Plan B (pessimistic)

HR figures are given for France
(these are rough figures in order to give an rough idea)

P&L

This training material is part of the FogGuru project that has received funding from the European Union’s
Horizon 2020 research and innovation programme under the Marie Skłodowska-Curie grant agreement
No 765452. The information and views set out in this material are those of the author(s) and do not
necessarily reflect the official opinion of the European Union. Neither the European Union institutions and
bodies nor any person acting on their behalf may be held responsible for the use which may be made of
the information contained therein.

Cost analysis

Recommended

Recommended

More Related Content

Similar to Cost analysis

Similar to Cost analysis (20)

More from FogGuru MSCA Project

More from FogGuru MSCA Project (20)

Recently uploaded

Recently uploaded (20)

Cost analysis