Understanding Facility Costs
Discusses the relationship between revenue, cost and profit. Illustrates the importance of reducing both big and small waste streams at a facility.
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Learning Objectives
• Describe the relationship between a company’s profits, revenue, and costs • Describe how reducing costs increases profits • Describe why workers should care about reducing costs
Specs
| Course Level | Intermediate |
| Languages | English |
| Compatibility | Audio, Video |
| Based on: | Industry Standards and Best Practices |
Key Questions
What contributes to a facility’s costs?
Cost refers to ay expenses a company has, including paying workers, buying materials and equipment, or marketing. Waste can also significantly contributes to a company’s operating costs.
What is revenue?
Revenue is the money that comes into the company by providing services or selling products. Revenue is the opposite of cost, which is the money that goes out of a company.
What is profit?
Profit is the company’s total revenue minus its total costs. A company can have revenues of $10 million, but if their costs are $9 million, their profit will only be $1 million.
Why does a company’s costs matter to its workers?
The more a company can reduce costs, the higher its profits will be. The more successful a company is, the more job security and opportunity the company’s employees will have.
How can individual employees help to reduce costs?
Since workers use a facility’s equipment more than anyone, they are more likely to spot unnecessary costs. Workers should be on the lookout for ways to lower energy costs, reduce consumption of essential resources, and minimize waste.
Sample Video Transcript
Let’s look at the business terms, “revenue” and “profit”, and how they relate to each other. Revenue is the money that comes into a company. Revenue is the opposite of cost, which is the money that goes out of a company. Profit is the company’s total revenue minus its total costs. Companies can have large revenues without having large profits. For example, a company can have $50 million in revenue in one year, but if it has $49 million in cost, it only has $1 million in profit for that year. Another company might also have $50 million in revenue, but could have $60 million in costs. To anyone who doesn’t fully understand the company’s costs, the company might appear very successful because of the high revenue. This company would have a negative profit, otherwise known as a “loss”. In the modern, highly competitive business world, there are many companies with large revenues, but low profits. For these companies, every cost that can be reduced makes a difference.
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