Activity Based Costing within a collaborative estimating framework Association of Cost Engineers 17 th February 2004 Grahame Jones, UK Manager, PRICE Systems Tel FASTER DECISIONS. BETTER DECISIONS. 

Top level Flow Diagram Pre-request activities Request assessment activities Production of service activities Post Delivery activities- External Request for servicesDelivery 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

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 ResourcesActivities Cost 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 Activities Customers Resources 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 Models  Project Cost Model  In-house Cost Model

A Framework Implementation Cost Objects View - Product Breakdown Structure - Work Breakdown Structure - Organisation Breakdown Structure Outputs Inputs

Framework – ABC Multiple Views View - Product Breakdown Structure - Work Breakdown Structure - Organisation Breakdown Structure

Framework – ABC Multiple Views View - Product Breakdown Structure - Work Breakdown Structure - Organisation Breakdown Structure

Example – An IT project cost

Collaborative Estimating Framework where 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?