Question

You are a Vice President of Busy Company, which is considering whether to add a second plant in a different state that will make a slightly different variation of their highest-selling product.

- What are types of costs that decision makers at Busy Company may fail to consider when looking at a potential expansion?

- What other expenses might be commonly forgotten when considering the costs of an expansion decision (for example, trash removal, water)?

- Would these expenses make a material difference in the decision?

- What processes might be put in place to assure that these seemingly small expenses are considered when planning an expansion project?

Answer 1

- Well there are many considerations while expanding the business further. Many a times big visible Costs related to the expansions are accountable however many seemingly small costs are overlooked. For instance while starting a new plant there are some licenses , permits are to be taken . But somehow they get missed from the costs estimations. So broadly pa a these Similarlyincan mebe businesscategoried in Fisex vs variable costs,direct vs indirect costs,sunk Costs .

- Certain expenses which are important but can be missed from calculation may include increased insurance coverage the company may need with expansion. This can as well be skipped from estimation. Shrinkage or wastage could be other costs which does not come to mind naturally as while starting we don't think about wastage. Then day to day petty expenses as in for employees take care, their registration, power and electricity expenses, water charges can also be skipped from mind.

-Well depending on the kind of plant , is it more capital intensive or manual work is there , these charges can be really big overall and also as a percentage of the overall expenses.

- Before actually setting up another plant a few things can be employed to ascertain the type and estimate cost associated like surgery should be rolled out I'm the existing company, a team or department can be formed, some professional service can be employed from outside, brain storming sessions can be kept. These methods can bring out really beneficial results.