Profit Improvement Programs
Profit Improvement Programs (PIP) are projects which are established to either increase revenue or reduce costs. The project needs to improve profitability by a significant amount, to be listed as a project on this list. What is a significant amount? That depends upon the size of the enterprise. The project benefit needs to be worth the effort required to implement it.
An example of a revenue enhancement project is to add a cost per transaction for copying a document. This would also apply when an existing charge is increased. The price reduction of a purchased product or service would be an example of a cost reduction program. Another example of a cost reduction program would be the implementation of a better way to do things as a result of improvements in the methods and procedures being used.
When establishing a PIP you need to know the present cost of the practice and have a carefully prepared estimate of the new costs or revenues as well as the annualized amount of the savings.The PIP list should be prepared with the project having the largest profit potential at the top of the list. Subsequent projects should be in the order of their contribution to profitability. The operational concept is to implement the projects from the top down.
You will note that we have built the foundation for establishing and quantifying the various PIP programs in our previous vocational education discussions. Our existing costs are known because we have established work measurement standards. The estimate is just that. It is your best guess of what the new way will cost to accomplish. It does not matter if it is completely accurate as long as the result is an improvement. At that point, the originally intended purpose will have been achieved.
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