The next step is to look at the costs you can’t predict. These variable costs will fluctuate over time. Start with the largest line items. Try to understand why the costs themselves are fluctuating. Get a handle on why the costs are higher than expected. What trends or factors are underlying these results? Are they results you have no control over, such as the price of a commodity like oil, or are they things you might be able to control.
Look for any trends in the cost data. Are the costs constantly getting larger? Do the costs fluctuate with certain times of the year or certain events? Its important to understand any potential correlations. Other macro events may also be responsible for swings in costs. For example, employee turnover, holidays, or weather phenomenon are all routinely occurring events that throw off an organizations cost structure.
When reviewing the variable costs that you have been unable to accurately predict, attempt to identify a baseline for these figures. Throw out your old set of assumptions and establish the new baseline as a cost estimate going forward. As part of this effort, index your costs against an industry average. Understand why your costs may be different than the industry average. Perhaps your size means that you can’t purchase supplies at the same discount as larger players. Perhaps you’re operating in a physical environment where you burn through resources more quickly than the industry at large.