capacity, capacity cost, capacity management, cost drivers, executional cost driver, strategic cost management, structural cost driver, utilization
In the March/April Cost Management, Dr. CJ McNair-Connolly, an internationally-recognized expert in cost management, and Charles Thomas explore the role played by escalating marginal costs of disruption as capacity utilization moves beyond specified limits. The example of an airline is used to identify and explore both the more easily measured and less easily measured costs of capacity overutilization, as well as the limiting features of capacity utilization.
The goal of the article is to overturn the notion suggested by Shank and Govindarajan that more is always better when it comes to executional cost drivers such as capacity utilization. In fact, overutilization can rob an organization of its flexibility to respond to normal problems of daily business, moving them into crises that can negatively affect the organization’s ability to meet and exceed customer expectations.
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