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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
grahame.jones@pricesystems.com
FASTER DECISIONS. BETTER DECISIONS.
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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
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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.
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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.
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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.
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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.
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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.
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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
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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
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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.
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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
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Products / Services
Act
iviti
es
Customers
Resou
rces
Time
Department
Multi-Dimensional Views
Views
Productivity
Capacity
Time to Market
Quality
Revenue
Cost
Profitability
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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
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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
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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
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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
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A Framework ImplementationCost Objects
View - Product Breakdown Structure
- Work Breakdown Structure
- Organisation Breakdown Structure
Outputs
Inputs
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Framework – ABC Multiple Views
View - Product Breakdown Structure
- Work Breakdown Structure
- Organisation Breakdown Structure
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Framework – ABC Multiple Views
View - Product Breakdown Structure
- Work Breakdown Structure
- Organisation Breakdown Structure
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Example – An IT project cost
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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.
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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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