| | Excerpt from WWW.FullCost.COM, © 2020 N. Dean Meyer and Associates Inc.
Software
COST ENGINE
- Differentiates capital and expense
- Assigns costs accurately to each product/service, both direct costs and their fair share of indirect costs
- Handles all types of indirect costs:
- Unbillable time for necessary sustenance activities like training and client relations
- Indirect vendor costs
- Costs transferred among groups when one manager supports another
- Organizationwide overhead
Proprietary algorithm amortizes fixed costs such that you won't get hurt no matter where actual business falls within the planned range (from your keep-the-lights-on base-case to various growth scenarios). This is one capability that distinguishes a planning tool from a simple cost-amortization model.
- Indirect costs are assigned to appropriate products/services:
- To a subset of products under a manager
- To all the products/services produced by a group (at any level of your organization)
- To a set of similar groups (lines of business) throughout your organization
- To your entire organization (overhead)
Proprietary algorithm resolves circularity (manager A serves B, who supports A and C, while C supports A and B) with a minimum in distortion (orders of magnitude better than putting everything in "overhead" and spreading it onto the end products). This is one capability that distinguishes a second-generation cost model.
- Forecasts headcount and compensation cost based on the business plan
- Headcount is an output of the forecast
Proprietary algorithm forecasts a mix of managers, supervisors (count driven by size of staff), employees of various types (fulltime, part-time, hourly, overtime, on-call), and contractors
- Each type of staff has unique billable-time ratios, costs (with projected raises and cost-of-living increases), and benefits (including bonuses if any)
- Assigns overflow work which staff can't handle to contractors and/or outsourced to "job shops"
- Recognizes situations where it's cheaper to hire an employee and let him/her sit partially idle than to let the work overflow to expensive contractors
Proprietary algorithm assigns a blended cost per billable hour to all forecasted products/services equitably, to avoid clients attempting to dictate how to staff their projects. This is one capability that distinguishes a planning tool from a simple cost-amortization model.
- Recognizes teamwork, and combines the costs of an internal "prime contractor" with other groups within your organization on the project team serving as internal sub-contractors, to determine the total cost of a product/service
- Recognizes consortia, where a number of business units share a single product/service
- Automatically divides costs among consortium members based on cost drivers
- Supports international currencies, with automatic translation into a common currency for consolidation and reporting
- Includes translation from one foreign currency to another foreign currency for cross-group charges (indirect support services)
- Optional corporate module supports cross-charges among departments within a corporation
- Proprietary algorithm resolves circularity with the minimum distortion, similar to internal support relationships
- Can be implemented for just one department, and later evolve into a corporatewide application
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