--- title: Managing Bottlenecks in Business to increase profitability description: Bottlenecks offer large opportunity for companies. This post discusses how to appropriately manage bottlenecks in business to increase profitability. image: https://download.riverlogic.com/hubfs/Blog_Images/bigdata.jpg --- ### Get in Touch [![logo](https://download.riverlogic.com/hs-fs/hubfs/logo.png?width=3153&height=398&name=logo.png "logo")](http://riverlogic.com) [![logo-hover](https://download.riverlogic.com/hs-fs/hubfs/logo-hover.png?width=3153&height=398&name=logo-hover.png "logo-hover")](http://riverlogic.com) - [Solutions](http://www.riverlogic.com/solutions) - [Capacity Planning](https://download.riverlogic.com/solutions/capacity-planning) - [Commodity Trading & Logistics](https://download.riverlogic.com/solutions/commodity-trading-and-logistics-optimization) - [Product Mix & Customer Profitability](https://download.riverlogic.com/solutions/product-mix-customer-profitability) - [Production Planning](https://download.riverlogic.com/solutions/production-planning-and-scheduling) - [Sales & Operations Planning](https://download.riverlogic.com/solutions/sales-and-operations-planning) - 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[Our Leadership](https://download.riverlogic.com/leadership) - [Careers](https://download.riverlogic.com/careers-current) - Get in Touch Get in Touch [![Get in Touch](https://hubspot-no-cache-na2-prod.s3.amazonaws.com/cta/default/484375/8a2efec4-88ad-40a3-bc49-91f4a5e57e38.png)](https://hubspot-cta-redirect-na2-prod.s3.amazonaws.com/cta/redirect/484375/8a2efec4-88ad-40a3-bc49-91f4a5e57e38) Share This [mailto:?subject=Managing%20Bottlenecks%20in%20Business%20to%20increase%20profitability&body=https%3A%2F%2Fdownload.riverlogic.com%2Fblog%2Fmanaging-bottlenecks-in-business-to-increase-profitability](mailto:?subject=Managing%20Bottlenecks%20in%20Business%20to%20increase%20profitability&body=https%3A%2F%2Fdownload.riverlogic.com%2Fblog%2Fmanaging-bottlenecks-in-business-to-increase-profitability) # Managing Bottlenecks in Business to increase profitability The key to increasing profitability is to identify which processes in your operations are or may become bottlenecks in the flow of work. **Bottlenecks in business are the points where potential changes can have the most dramatic impact on the bottom line.** While non-bottlenecks are important to consider from a cost accumulation standpoint, the majority of a manager’s focus should remain on the bottlenecks. ### A Simple Example **Consider the example of a clinic providing screening and diagnostics for detection of breast cancer.** In this simplified healthcare model, the following assumptions were identified: #### Activity-based contribution An analysis of the activity-based contribution yields the following results: **Activity Based Contribution** ![ActivityBasedContribution.png](https://download.riverlogic.com/hs-fs/hubfs/Blog_Images/ActivityBasedContribution.png?width=465&height=407&name=ActivityBasedContribution.png "ActivityBasedContribution.png") Using activity-based accounting rules, the average margin per visit for screenings and diagnostics is $54.68 and $72.42, respectively (noted in blue type). This leads management to the conclusion that to maximize profitability, the clinic should try to provide more diagnostic services and fewer screenings. #### Opportunity-based contribution However, analysis of the same data from an opportunity-based contribution yields a different result:   **Economic Opportunity-Based Value** Opportunity of Increasing Screenings One Visit   ![EconomicOpportunityBasedValue.png](https://download.riverlogic.com/hs-fs/hubfs/Blog_Images/EconomicOpportunityBasedValue.png?width=575&height=253&name=EconomicOpportunityBasedValue.png "EconomicOpportunityBasedValue.png") **By taking into account the patient's per hour constraint, the clinic can improve profitability by $6.40 for each additional screening.** If the clinic had increased the number of diagnostics in the manner implied by the activity-based cost analysis, it would have decreased profitability as a result of the ripple effect of constraints. ### Closing Remarks This example, while simplistic, demonstrates the impact of bottlenecks and contrasts the difference between activity-based costs and opportunity- or economic-based decision-making. By relieving the bottleneck on the minimum number of diagnostics, profits improved. **The analysis of bottlenecks consistently provides opportunities with the greatest potential for increasing profitability. **This example does not mean that your ABC information should be discarded, but rather that properly managing a business requires both opportunity value analysis and activity-based costing. *River Logic's [Enterprise Optimizer®](https://download.riverlogic.com/technology/enterprise-optimizer)offers both opportunity value analysis and activity-based costing. It's “opportunity values” help to decide what to do in order to maximize profits. EO’s activity-based costing helps with pricing products and services to ensure each product is profitable. 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