Revenue and cost management systems have become indispensable in managing demand and improving companies’ profits across industries. Nonetheless, industry- and organization-specific aspects may create practical analysis and management challenges. Several selected factors are described concerning international operations, localized administration, and customer behavior. Unpredictability is the major source of such challenges: cost management (CM) experiences it in budget forecasting and unproductive practices; revenue management (RM) struggles with demand prediction.
First, operational risks like currency conversion may affect business processes. Abrupt drops or rises in foreign currency may occur halfway through the transaction and influence foreign companies’ costs of goods and services (Hansen et al., 2021). Additionally, fluctuating foreign currency may effectively reverse sales or expenditures dynamics in reports (Hansen et al., 2021). While there are ways to prevent losses, like hedging, this phenomenon may result in inefficient managerial processes and further losses if not spotted. Some challenges of cost management may appear regardless of location. For instance, non-linear cost behavior, which is dictated by changing underlying variables like consumption rates or raw materials cost (Hansen et al., 2021). Identifying the reasons behind the change or predicting its effect on operational costs may be problematic, occasionally leading to unsuccessful budget estimation.
Companies use RM techniques to manage their functional level demand and maximize expected profits. RM has its origins in aviation companies, where variable and fixed costs are almost impossible to control operationally (Klein et al., 2020). Hence, the companies that manage fluctuating demand may struggle with predicting behavior to create compelling offers. Beyond air transport, other industries have to consider demand and revenue streams carefully. Some examples are hospitality, car rental, entertainment, shipping, and travel tours industries (Klein et al., 2020). One of the overarching RM challenges is capacity: how many spots a company may sell to balance overbooking and underselling (Klein et al., 2020). This problem may be further complicated by the irregular length of the service period (Klein et al., 2020). For instance, hotels may struggle with predictions since guests can cancel, extend, or book at the last minute. Similarly, car rental services may experience varying demand within the same city, depending on holidays. While flexible rates or capacity can help, unpredictable customer behavior may still result in losses.
References
Hansen, D. R., Mowen, M. M., & Heitger, D. L. (2021). Cost management. Cengage Learning.
Klein, R., Koch, S., Steinhardt, C., & Strauss, A. K. (2020). A review of revenue management: Recent generalizations and advances in industry applications. European Journal of Operational Research, 284(2), 397–412.