FASTER DECISIONS. BETTER DECISIONS. 

1. Activity Based Costing within a collaborative estimating frameworkAssociation of Cost Engineers17th February 2004Grahame Jones, UK Manager, PRICE Systems Tel. 01256 760012 grahame.jones@pricesystems.com FASTER DECISIONS. BETTER DECISIONS.

2. Top level Flow Diagram Request for services Delivery of output Pre - request Request Production Post Delivery Post Delivery activities assessment of service activities - activities - activities activities External Internal Customer information feedback Management information feedback

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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

9. Collaboration Matrix

10. Products, Services or Customers ActivityDriver ResourceDriver Cost Objects Resources Activities How it was spent The work that is done. Activities consume Resources. What was spent Anything that you spend money on in performing an activity What was produced The reason for performing activity Activity Drivers are used to trace the consumption of Activities by your Product/Services. Resource Drivers are used to trace the Resources to Activities. Cost Framework

11. £/€ £/€ £/€ . . . Resource Expenses Resource Expenses Resource Expenses 1 2 N Resource Cost Drivers Activity 1 Activity 2 Activity 3 . . . Activity X Activity Cost Drivers Cost Objects: Products, Services, and Customers Direct Materials Direct Labor Communicating Complex Relationships

12. Time Department Resources Activities Customers Products / Services Multi-Dimensional Views • Views • Productivity • Capacity • Time to Market • Quality • Revenue • Cost • Profitability

13. Proposed Planning Framework Planner Analyst • Project estimator • Collaboration center • What-if/scenario modeler • Customized report generator • Resource capacity analyzer • Model builder • CER editor • External CER integrator

14. Analyst - the construction zone Framework Planner Analyst • 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 • Familiar, activity based terminology

15. Framework Planner Analyst 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

16. An analogy Think of the framework as a video games console and the cost models as video game cartridges. • Commercial Cost Models • ProjectCost Model • In-house Cost Model Cost Model X

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

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

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

20. Example – An IT project cost

21. 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.

22. Collaborative Estimating Frameworkwhere 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?