San Francisco Bay Consulting Essay example
1. Evaluate SFB’s current approach of treating Computer Services as a modified profit-center.
Please refer to the Appendix below that I have created for details on how monthly rental rates and usage charges are developed by Computer Services and then charged to Consulting Groups.
San Francisco Bay Consulting practical application of economic theory to business problems SF bays practice was divided into two groups – Business Consulting and Litigation Support (both relied heavily on quantitative economic analysis)
Computer services: the firm evaluated it as a modified profit center, which they called a “breakeven” center. Budget included all expenses that CS expected to …show more content…
3) Monthly rental rates are passed on to the consulting groups and usage charges aer passed on to the individual projects at cost, rather than with a set profit margin since CS doesn’t deal directly with customers.
* only breakeven is being transferred any money they get from other departments should equal costs * they have a revenue stream – internal billings * Basically a cost centre – they have no real profit they are trying to meet * No incetives to become effiiecient
Consulting groups – revenues clients, direct costs, overhead, costs based on computer services evaluated based on bottom line profit * evaluation bonus pool 50% of profits, realization rates (billings/costs), quality evaluation, business development, work quantity * What should a good transfer price accomplish - best overall profits for the entire company, something both parties agree on which will happen if they think its fair * * transfer price should lead managers to make the best decisions for the company over all -> they will do te things they can do to maximize profts for the entire company. AKA goal congruency to align their actions *
2. Recommend to management