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Conference 7.286::digital

Title:	The Digital way of working

Moderator:	QUARK::LIONELON

Created:	Fri Feb 14 1986
Last Modified:	Fri Jun 06 1997
Last Successful Update:	Fri Jun 06 1997
Number of topics:	5321
Total number of notes:	139771

1402.0. "Expense SPIKE!!!!!!" by MAMTS3::MWANNEMACHER (let us pray to Him) Fri Mar 15 1991 15:27

    write
    At lunchtime today I did some minor calculations based on the history
    of Digital with regards to profit per employee.  The results were quite
    interesting as well as quite disturbing.  In FY 90 we made $600.00 per
    employee (net income).  In FY 89 we made $8533.00.  per employee and in 
    FY 88 we made $10748.00 per employee (when I get some time I will fill 
    in the rest of the years).  In the past 2 years sales have increrased
    albeit marginally.  From FY 89 to FY 90 headcount decreased by 1700. 
    From FY 88 to FY 89 headcount increased by 4225.  In a preliminary look
    at the figures I've come up with, there had to have been one heck of a
    spike in expenses somewhere for FY 90 (I know, no kidding).  Have we
    (Digital) done a study of the different expenditures from FY 89 to FY
    90 to see what the nature of the difference is?  The reason I ask is
    that we seem to be looking everywhere for ways to cut costs, but there
    doesn't seem to be one area identified where costs skyrocketed.  I
    would think that this would be a way to find a substantial problem with
    the way we do business.  We have to go through those areas where
    expenses skyrocketed with a fine tooth comb to see exactly where the
    problems are and then take corrective action.  I have an idea of what
    might be found but I will reserve my input for later.  I know this
    sounds too simple, but sometimes the answers are so simple that they
    are overlooked.  More stats later.
    
    
    Mike

T.R	Title	User	Personal Name	Date	Lines
1402.1		MAMTS3::MWANNEMACHER	let us pray to Him	`Fri Mar 15 1991 15:31`	6
	By the way. FY 90 is the worst we've done per employee (according to my calculations) since 1958 (we made <$200.00> per employee). After FY 90 the third worst year was 1965 in which we made $890.00 per employee. This is what makes me think that the answer might not be that elusive. Mike
1402.2	Extraordinary Charge in FY90	SMAUG::GARROD	An Englishman's mind works best when it is almost too late	`Fri Mar 15 1991 17:41`	6
	Re .0 Did you take into account thar reorganization cost we took in 1990. I believe this was for giving a load of people paid vacations. Dave
1402.3	Oh Noooo! You've done it now!	MR4DEC::KHARPER		`Sat Mar 16 1991 14:50`	6
	Re:0 I sure hope management doesn't see your note. They will figure we need to hire more employees. Management formula: Net Income Goal divided by $600 per employee = number of employees needed.
1402.4	margin is the key to success	SAHQ::CARNELLD	DTN 385-2901 David Carnell @ALF	`Sat Mar 16 1991 17:11`	3
	Did expense go way UP or did gross margin on sales revenue go way DOWN?
1402.5	I wish I had saved all my annual reports for the last ...	YUPPIE::COLE	Profitability is never having to say you're sorry!	`Mon Mar 18 1991 08:16`	10
	... ten years or so, and I could speak with more assurance, but I think our GROSS MARGIN is not falling as fast as our NET margin. Gross margin is related to total product and services revenues, vs. the cost of selling. That was a little over 47% in Q2, and I think it has hovered in the 50% neighborhood for years. When you add R & D and SGA expenses, net margin went to 4.1%!!! Think there's clue there, somewhere????
1402.6	Look at the margins...	DNEAST::DUPUIS_STEVE	ABC, it's easy as 1-2-3	`Mon Mar 18 1991 08:21`	14
	I assume that you based your calculations without adjustment for inflation. Using 1957 as the baseline, you can see that the $600 NI per employee looks even worse. re .4: I suspect that you'll find that gross margins on hardware sales are down (Revenues less Manufacturing Costs). This is probably due in a large proportion to the shift in our product sales towards the commodity market (U**X machines and operating systems) and away from the proprietary market. I don't know what the gross margins on services are (this is the higher growth area of our revenues lately).
1402.7	Overhead, Waste, Misuse of Resources	MAGOS::BELDIN	Pull us together, not apart	`Mon Mar 18 1991 08:58`	9
	The basic problem has been officially analyzed as uncontrolled growth in the Sales and General Administrative expenses. That is the point of the talk about closeness to the revenue stream. We should be designing, building, selling products or servicing customers for pay. We should not be spending more than needed on overhead functions internally, checking and rechecking each others' work, correcting errors we should have prevented, reinventing wheels, or using the company's resources to build empires that provide no bottom-line results.
1402.8	Now for the real DELTA	CUSPID::MCCABE	If Murphy's Law can go wrong ..	`Mon Mar 18 1991 10:36`	44
	I stuffed the numbers into a simple toy to see what the percentage change of these little metrics is. The following might add grist to the mill. -Kevin Percentage Change of Key Fiscal Metrics 1959-1989 Year Equp Serv Rev Exp Earn R&D Emp Rev/E Earn/E 1959 716.8 716.8 598.9 25.0 553.5 1960 67.5 67.5 77.0 11.6 56.0 7.4 -28.5 1961 103.7 103.7 96.2 174.4 105.9 100.0 1.8 37.2 1962 144.2 144.2 145.6 135.3 60.3 79.9 35.7 30.8 1963 53.1 53.1 54.5 43.5 93.8 13.1 35.4 26.9 1964 10.2 10.2 14.6 -23.2 52.2 27.1 -13.3 -39.6 1965 37.3 37.3 41.7 -12.3 25.3 44.8 -5.2 -39.4 1966 52.0 52.0 46.6 150.1 14.3 23.3 23.3 102.9 1967 70.8 70.8 65.0 132.8 54.1 66.7 2.5 39.7 1968 47.4 47.4 46.9 51.0 59.3 44.4 2.1 4.5 1969 53.3 53.2 55.6 36.1 47.7 67.7 -8.6 -18.9 1970 54.1 54.1 54.1 54.4 41.1 33.0 15.8 16.0 1971 8.4 8.4 12.6 -26.4 25.6 6.9 1.5 -31.1 1972 27.7 27.7 26.4 44.3 20.8 25.8 1.5 14.7 1973 41.5 41.5 40.5 53.6 23.8 66.7 -15.1 -7.8 1974 35.9 58.9 56.0 88.9 46.8 35.4 17.4 39.6 1975 20.1 64.6 26.5 29.2 3.6 32.5 8.0 17.2 -4.0 1976 35.4 48.7 37.9 35.9 59.6 20.4 35.3 2.0 18.0 1977 44.5 41.1 43.8 43.3 47.8 36.5 42.8 0.7 3.5 1978 33.1 46.1 35.7 36.2 31.1 45.2 6.3 27.7 23.3 1979 22.5 36.9 25.6 25.6 25.5 19.5 13.3 10.8 10.7 1980 28.8 39.4 31.3 30.3 40.1 34.8 25.6 4.5 11.6 1981 34.0 38.3 35.1 34.8 37.4 34.8 13.5 19.0 21.0 1982 17.2 33.6 21.3 21.3 21.5 39.3 6.5 13.9 14.1 1983 2.6 29.2 10.1 15.1 -32.0 35.0 8.8 1.2 -37.5 1984 33.6 24.8 30.7 31.8 15.9 33.5 17.3 11.5 -1.1 1985 18.4 22.7 19.7 18.7 35.9 13.7 4.0 15.2 30.7 1986 9.4 22.1 13.5 11.8 38.2 13.5 6.4 6.7 29.9 1987 26.0 19.3 23.7 18.3 84.2 24.1 16.7 6.0 57.9 1988 20.6 25.5 22.2 23.2 14.8 29.3 9.9 11.2 4.4 1989 8.6 15.7 11.0 14.7 -17.8 16.7 3.5 7.3 -20.6
1402.9	I found I didn't need ten old reports, just last years, ...	YUPPIE::COLE	Profitability is never having to say you're sorry!	`Mon Mar 18 1991 10:41`	12
	... as the previous 11 years were summarized. I correct myself in that our Gross Margins have RISEN from 39% for FY84 to 47.5% for FY90, with FY87-89 being in the 51% range. Net margin in FY84 was 7%, peaking at 17.1% in FY87, then down to .1% by FY90(including the $550M hit). Mind you, no interest income included here, this is what we WORKED for! I guess I'm a little lost as the "Selling" part of S&GA. How is that different from the "cost of product sales, services, and other revenues" used to figure gross margin?
1402.10		NOTIME::SACKS	Gerald Sacks ZKO2-3/N30 DTN:381-2085	`Mon Mar 18 1991 13:28`	1
	One major expense last year was DECworld (the trade show, not the publication).
1402.11	from Accounting 101	GULF::TOPPINGG		`Tue Mar 19 1991 14:08`	7
	re .9 "cost of Sales" refers to the cost of goods sold (mostly manufacturing); "Selling expense" (part of SG&A) is the cost of the Sales organization. These terms are VERY frequently misused at DEC.
1402.12	Thanks, George, that is intersting information, ...	YUPPIE::COLE	Profitability is never having to say you're sorry!	`Tue Mar 19 1991 14:41`	8
	... but the term in the accounting reports says "cost of product SALES". To most laymen, that would include sales labor. It would seem to me that the accounting view of the DIRECT selling labor, ie, those people that CERT orders, should be separate from those in "Sales" that don't. I would like to see a G/L breakdown of those two catagories! BTW, George, you visiting ALF, or are you waiting to use SBS like the rest of us? :>) :>)
1402.13	SALES = "things that are sold"	ODIXIE::GEORGE		`Mon Mar 25 1991 09:04`	8
	RE: .12 >> the accounting reports says "cost of product SALES". Think of it as the "cost of product SOLD"; the value that product is carried on the books as inventory. The cost of actually selling it is not part of the inventory cost because the selling cost is not known at the time of inventorying product.