Cost Drivers

• Cost Drivers

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COCOMO Intermediate COCOMOs

1 Intermediate COCOMO computes software development effort as

function of program size and a set of "cost drivers" that include subjective

assessment of product, hardware, personnel and project attributes. This

extension considers a set of four "cost drivers",each with a number of

subsidiary attributes:-


COCOMO Detailed COCOMO

1 In detailed COCOMO, the effort is calculated as function of program size and a set of cost drivers given

according to each phase of software life cycle.


Customer loyalty - The service quality model

1 This calculation is hindered by the difficulty in allocating costs to

individual relationships and the ambiguity regarding relationship cost

drivers.


Speech analytics - Business value

1 Used in combination with other workforce optimization suite

components like quality monitoring and agent scorecards, Speech

analytics can pinpoint cost drivers, trends, and opportunities, identify

strengths and weaknesses with processes and products, and help understand how the marketplace

perceives offerings.https://store.theartofservice.com/the-cost-drivers-toolkit.html

Strategic information system - Porter’s competitive advantage

1 Cost position is determined by the cumulative cost of performing all value activities._To sustain cost

advantage, Porter gives a number of cost drivers which must be

understood in detail because the sustainability of cost advantage in an activity depends on the cost drivers

of that activity



1 Some of the cost drivers which must be analyzed, understood, and controlled are:



1 Care must be taken in the evaluation and perception of cost drivers

because there are pitfalls if the thinking is incremental and indirect activities are ignored. Even though

the manufacturing activities, for example, are obvious candidates for

analyses, they should not have exclusive focus. Linkages must be

exploited and cross-subsidies avoided.



1 * Identify the cost drivers of each value activity and see how they interact.



1 * Develop a strategy to lower relative cost position through controlling cost

drivers or reconfiguring the value chain.


Strategic information system - Differentiation advantage

1 The cost of differentiation can be turned to advantage if the less costly

sources are exploited and the cost drivers are controlled


COCOMO

1 COCOMO consists of a hierarchy of three increasingly detailed and accurate forms. The first level, Basic COCOMO is good for quick,

early, rough order of magnitude estimates of software costs, but its accuracy is limited due to its lack of factors to account for difference

in project attributes (Cost Drivers). Intermediate COCOMO takes these Cost

Drivers into account and Detailed COCOMO additionally accounts for the influence of

individual project phases.


COCOMO - Intermediate COCOMOs

1 Intermediate COCOMO computes software development effort as

function of program size and a set of cost drivers that include subjective assessment of product, hardware,

personnel and project attributes. This extension considers a set of four cost

drivers,each with a number of subsidiary attributes:-


Risk Management Information Systems - Average RMIS costs and RMIS market drivers

1 TPAs commonly include one or two RMIS access IDs within their claims management pricing to encourage

both the client's broker and the client to use their claim look-up product.

Normally, beyond the first two access IDs, the pricing follows the same per-

user range of the insurance companies. The cost drivers of RMIS

include:https://store.theartofservice.com/the-cost-drivers-toolkit.html

IT cost transparency

1 Costs, budgets, performance metrics and changes to data points are

tracked over time to identify trends and the impact of changes to

underlying cost drivers in order to help managers address the key

drivers in escalating IT costs and improve planning.


IT cost transparency - Capabilities

1 * Custom reporting and analysis of unit cost drivers, including CIO dashboards


Activity-based costing

1 'CIMA (Chartered Institute of Management Accountants)' defines ABC

as an approach to the costing and monitoring of activities which involves

tracing resource consumption and costing final outputs. Resources are

assigned to activities, and activities to cost objects based on consumption

estimates. The latter utilize cost drivers to attach activity costs to outputs.


Activity-based costing - Alternatives

1 Identifying cost drivers in ABC is described as somewhat equivalent to

identifying bottlenecks in TOC


Activity-based costing - Methodology

1 The split of cost helps to identify cost drivers, if

achieved


Vendor rating - Benefits and Drawbacks

1 Supplier evaluation can help customers and suppliers identify and

remove hidden cost drivers in the supply chain


Relocation services - Addressing relocation programme cost drivers

1 Any strategic assessment of a corporate relocation policy’s cost drivers begins near the top with a self-recognition of how the company financially accounts

for all relocation costs (‘real’), and where those costs are allotted. Applied

tactically, a cost recognition function assembles all information on the cost of a transfer, in one place, for case-by-case

review and approval.


Relocation services - Addressing relocation programme cost drivers

1 The employer’s case-by-case recognition of relocation costs means understanding the total cost of any given global assignment

before it is originated. Then the finance and HR departments must track and report

actual costs to budgets. This represents the smallest category of relocation cost drivers,

but the way this ‘inexpensive’ work is carried out can reverberate, multiplying the size of the other, much larger, cost drivers.


Health care in the United States - Overall costs

1 In March 2010, Massachusetts released a report on the cost drivers which it called unique in the nation.[http://www.mass.gov/dhcfp/costtren

ds Health Care Cost Trends]


Strategic planning software

1 Examples include Stella and iThinkhttp://www.scientificsoftware-solutions.com/pages

.php?pageid=25 based upon Peter Senge's book, The Fifth Discipline, BCG Matrix for Brand Portfolio

Analysishttp://www.windows8downloads.com/win8-bcg-matrix-for-brand-portfolio-analysis-udwwqypf/ Net

Promoter Score software,http://www.netpromoter.com/solutions/solutions-overview/software/ Management Software Associates'

Competitive Strategy (which modeled strategic cost drivers such as learning curves, impact of scale, impact of complexity, economies of scope and value), Portfolio Analysis and New Product Modeling using viral models.


Private banking - Overview

1 For private banking services clients pay either based on the number of transactions, the annual portfolio performance or a flat-

fee, usually calculated as a yearly percentage of the total investment amount.

[http://www.myprivatebanking.com/article/advice-cut-your-costs-of-wealth-management-

part-2 Understanding Cost Drivers and Pricing Models in Wealth Management,

MyPrivateBanking Research, June 15, 2009]


Cost driver

1 Examples: In marketing, cost drivers are Number of advertisements,

Number of sales personnel etc. In Customer service, cost drivers are Number of service calls attended,

number of staff in service department, number of warranties handled, Hours spent on servicing

etc...


Cost driver

1 Cost drivers are the structural determinants of the cost of an

activity, reflecting any linkages or interrelationships that affect it (M.

Porter). Therefore we could assume that the cost drivers determine the cost behavior within the activities, reflecting the links that these have

with other activities and relationships that affect them.


Cost driver

1 Activity Based Costing is based on the belief that activities cause costs

and therefore a link should be established between activities and

product. The cost drivers thus are the link between the activities and the

cost.


Cost driver

1 Generally, the cost driver for short term indirect variable costs may be

the volume of output/activity; but for long term indirect variable costs, the

cost drivers will not be related to volume of output/activity.


Cost driver

1 Structural cost drivers that are derived from the business strategic

choices about its underlying economic structure such as scale and

scope of operations, complexity of products, use of technology, etc.,

and


Cost driver

1 Executional cost drivers that are derived from the execution of the

business activities such as capacity utilization, plant layout, work-force

involvement, etc.


Cost driver

1 To carry out a value chain analysis, ABC is a necessary tool. To carry out ABC, it is necessary that cost drivers

are established for different cost pools.


Cost to serve

1 The product and customer profiles are often illustrated using a Pareto

analysis curve which highlights those that contribute most to the

company's profit and those that erode it.Unlike Activity Based Costing (ABC), Cost to Serve is not resource-intensive and focuses on aggregate

analyses around a blend of cost drivers.


Weighted Micro Function Points - Calculation

1 :D = the cost drivers factor supplied by the user input


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Cost Drivers