Why not estimate new margins rather than compute indirect overhead
or operational savings?
In a big company, one new hire might affect a margin calculation at
the 5th decimal place - too hard a number to conceptualize.
In a small company, a new hire's impact on margins is easier to estimate.
I recommend you do not estimate new margins.
The problem estimating the effect on future
margins is that it is more of a guess than dollar amounts.
Dollar amounts can be used to build the budget and later measure success.
you are saving money through cost reductions, then estimating that number
also better. The combined savings of all the action plans
can then be calcuated. Only after looking at the dollar impact of all
the action plans can you estimate a new margin.
What if your action plan does not create new sales?
Often, support departments have a major role in implementing a new strategy,
but no direct link to creating new sales. In their Action Plans, calculate
the costs or savings in direct and indirect overhead and the effect on
taxes. To be consistent with other action
plans in these coarse computationsin the template,
the income tax impact is only computed for direct overhead. Here:
Value Added = (+ or -) incremental direct overhead
(+ or -) impact on Income Taxes (+ or -) indirect overhead