Realistic Rates
how to calculate the true cost of your products and services

Speech Abstract

Every organization needs to calculate its rates, but many publish grossly inaccurate rates or don't calculate their rates at all.

Rates are used to estimate new projects, for any portfolio management process that limits expectations to available resources, as a basis for benchmarking (outsourcing comparisons), and of course for chargebacks. Accurate rates are essential to ensure that projects are fully funded, to match clients' expectations to available resources, to ensure that external comparisons are fair, and to recover all costs.

First-generation costing models use a simplistic "cascade" approach that puts costs into pools (such as activities), and then assigns these pools to the organization's external products and services. While plausible, this can introduce distortions which may exceed 100 percent!

New second-generation costing models represent the rich web of internal "sales" to peers, applying costs down, up, and sideways to amortize indirect costs to just the right external products and services.

The starting point is a product/service portfolio that's meaningful to clients and at the right level of granularity. Then, the challenge is to attach all your costs — both direct and indirect — to just the right products/services. Amortizing indirect costs is the hard part.

This session explains how to define a meaningful product/service portfolio, and what costs should and should not go into the rates for those products/services. Then, it overviews the Full-cost Maturity Model which defines five levels of organizational capability in the calculation of budgets and rates.

100-word version....

50-word version....

Outline

• Why feelings that you cost too much damage an organization

• The antidote: transparently linking all costs to your internal products/services

• How to define your products and services to create perceived value

• What "full cost" includes

• The difference between first- and second-generation costing models

• The Full-cost Maturity Model, five levels of organizational maturity in the calculation of budgets and rates