Revenue Management for Service Organizations

Chapter 5

Cost and Capacity Management

I’ve never seen a cost walking around, have you?

—Anonymous

Introduction

Given the close relationship between revenue and cost, you will waste the effort that you devote to revenue management if you do not pay close attention to managing cost. Most often, what drives revenue also drives cost; an increase in revenue causes an increase in cost. But how much cost? There are many ways of measuring cost, and its size depends on the way you measure it—whether as full cost, variable cost, direct cost, or activity-based cost, to mention a few—and variations on each of these. However elusive cost may seem, we know it when it hits. As mentioned in Chapter 4, we cannot manage costs, only activities. You carry out ...