cost-driver-analysislisted

# Cost Driver Analysis ## When to use Use this skill when total cost has moved materially and the team needs to distinguish between what was driven by volume (more units), rate (higher price per unit), and mix (a shift toward higher-cost products or channels). Without this decomposition, cost reduction actions are often aimed at the wrong lever. ## What it does Produces a three-factor decomposition of cost change: volume effect, rate effect, and mix effect, with a plain-English explanation of which factor is dominant and what that implies for cost reduction strategy. ## Method This skill applies a Price-Volume-Mix (PVM) variance analysis, which is standard practice in management consulting cost diagnostics. **Step 1: Define the cost elements** - Identify the cost pool being analyzed (e.g., total COGS, a specific sub-category, or a single line item such as packaging materials). - Confirm the unit of measurement for volume (units produced, transactions, headcount, etc.). - Confirm the rate basis (cost per unit, cost per transaction, cost per FTE, etc.). **Step 2: Calculate volume effect** - Volume effect = (current period volume - prior period volume) x prior period rate - This isolates how much of the cost change is explained purely by doing more or less of the same activity at the same cost per unit. **Step 3: Calculate rate effect** - Rate effect = (current period rate - prior period rate) x prior period volume - This isolates how much of the cost change comes from