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Case Study - Exploring Product Line Profitability through a Financial Model
Our client, a passenger rail carrier facing the specter of gradually diminishing public funding, needed to imbue in its middle managers a gut-level understanding of product line profitability. A product line in this case is a particular route or service. This desired sixth sense for what's profitable to offer and what's not would potentially lead to a wealth of improved decision making -- just as the critical need for it was evolving.

We suggested building a financial model that could be used interactively as a training tool, built the model, then ran a series of training sessions. During these sessions, and following a broad review of financial concepts such as ABC costing and identification of cost drivers, teams of managers competed to see which team could make an unprofitable route or service profitable. One of the interesting features of the model was that it highlighted the interaction between decision variables -- if a team decided to cut back on train length (number of cars) for example, they learned that they might also be able to decrease the locomotive horsepower required.

Value Added
The model was used in training sessions throughout the organization, and was very popular with program participants. Participants later attributed greater decision making confidence and a stronger sense of direction in part to their ability to have first tested their ideas and challenged their assumptions through their interaction with the model.
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