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Activity Based Costing within a collaborative estimating framework

Association of Cost Engineers 17th February 2004

Grahame Jones, UK Manager, PRICE Systems Tel. 01256 760012

[email protected]

FASTER DECISIONS. BETTER DECISIONS.

mailto:[email protected]






WWW.PRICESYSTEMS.COM

Top level Flow Diagram

Pre-request activities

Request assessment activities

Production of service activities

Post Delivery activities - External

Request for services Delivery of output

Post Delivery activities- Internal

Management information feedback

Customer information feedback


Pre-request activities

• Pre-request activities are of a strategic nature dealing with the organisation of the department to ensure that when a request for services is received that appropriate resources are available in terms of staff, information, tools and funds.

• At this stage the activities are speculative in nature as the precise details of the services to be delivered are not defined.


Request Assessment

• Request Assessment activities firm up on the details of the activities in the previous stage. These activities refine our understanding of the customers’ requirement and start to clarify the approach to be adopted.

• During this Request Assessment a Manager takes control of the task and is delegated the resources to enable the task to be progressed in a timely manner and efficiently.


Production of Service

• Production of Service leads to and includes production of the required Cost Estimate.

• The appropriate tools, skills and resources are utilised to ensure that the Cost Estimate is realistic and also acquires commitment from all functions.


Post Delivery Activities (External)• Post Delivery Activities cover

external customer feedback. • Ensures that the organisation

captures any follow-on work which results from the immediate task

• Obtain a critique of the service provided so that improvements can be made in future work.


Post Delivery Activities (Internal)

• Post Delivery Activities (Internal) are the final part of the process and cover closing out the work.

• The aim is to provide feedback of task management information. The time from beginning to end may be many months or years and it is important to capture experiences which would assist in future work.


Collaboration Definitions• R = Responsible

– Many people– Work, reports or data required

• A = Accountable– One person– "The buck stops here!"

• C = Consulted– Two way communication– Positive input, ideas or thoughts

• I = Informed– One way communication– Supplied with output


Collaboration Matrix

Person or Function

Activity or Decision

Chief Executive

Directors Head of Divisions / Resources

Commercial Depart.

Estimating Depart.

Finance Depart.

Sub-contractors

Customer

Pre-request activities I R A # A # RRequest assessment activities I R R A RProduction of service activities C C C R A R CPost delivery activities - External I R R APost delivery activities - Internal I R A # A # R R I

# = at appropriate levels


Cost Framework

What was spent

Anything that you spend money on in performing an activity

How it was spent

The work that is done. Activities consume Resources.

What was produced

The reason for performing activity

Products, Services or Customers

ResourcesActivitiesCost

Objects Activity Driver Resource Driver

Activity Drivers are used to trace the consumption of Activities by your Product/Services.

Resource Drivers are used to trace the Resources to Activities.


Communicating Complex Relationships

. . .Resource Expenses

1

£/€Resource Expenses

2

£/€Resource Expenses

N

£/€

Activity

1

Activity

2

Activity

3

Activity

X

. . .

Cost Objects:Products, Services, and

Customers

Direct Materials Direct Labor

Resource Cost Drivers

Activity Cost Drivers


Products / Services

Act

iviti

es

Customers

Resou

rces

Time

Department

Multi-Dimensional Views

Views

Productivity

Capacity

Time to Market

Quality

Revenue

Cost

Profitability


Analyst Planner

• Model builder• CER editor• External CER integrator

• Project estimator• Collaboration center• What-if/scenario modeler• Customized report generator• Resource capacity analyzer

Proposed Planning Framework


Framework

Analyst Planner

• Familiar, activity based terminology

Analyst - the construction zone• Build custom cost models

• Parametric• Bottom-up/grass root

• Incorporate commercial cost models

• Customize commercial models to specific industries

• Wizards and pre-defined cost variables ease the process of building and maintaining cost models


Framework

Analyst Planner

Planner - the estimation zone

• Use custom and commercial cost models in an integrated environment• Parametric• Bottom-up/grass root

• Use built-in costing features• Cost escalation• Risk analysis• Resource capacity analysis• What-if analysis• Calibration• Audit trail maintenance


An analogy

Think of the framework as a video games console and the cost models as video game cartridges.

Cost Model X

Commercial Cost ModelsProject Cost ModelIn-house Cost Model


A Framework ImplementationCost Objects

View - Product Breakdown Structure

- Work Breakdown Structure

- Organisation Breakdown Structure

Outputs

Inputs


Framework – ABC Multiple Views





Framework – ABC Multiple Views





Example – An IT project cost


Collaborative Estimating Frameworkwhere is the value?

Cost Engineers working together in a culture of collaboration.

Cost Engineers using a standard estimating framework with bespoke cost estimating relationships

Cost experts contributing their expertise for their part of the system estimate.

Cost outputs shared with relevant disciplines across an organisation.

Cost engineers, finance, senior management saving time through collaboration.


Collaborative Estimating Framework where is the value?

Cost models from different sources can take advantage of working in the same workspace, rolling up costs, highlighting inter-dependencies, using the same tools, risk, economics, reporting…

Any Questions?

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