If Project Charter is the document that should be signed and approved by the senior management , how they can make a decision without Cost and benefit information?. Rather than focus on where this information is kept, what is more important is that management have the information they need to make a decision.
If they need this information earlier then give it to them earlier. And we just divide the project span by sprint length then multiply it by the price for each sprint? Fixed-Price- Fixed-Scope projects are a lot more difficult i. And yes, I would love to know more about the estimation of the complete cost of an Agile Project.
Your points are valid. The approach demands that everyone have multiple skill sets AND be willing to do whatever it takes to deliver the software.
If the customer demands that scope be rigidly controlled, estimates get much tougher. Perhaps, some small extra information on the diagram you used. That is a diagram from RUP Rational Unified Process and, although it might represent a good overview of some of the people active in a project, cannot be taken as a standard for all agile processes. The first stage traces expenses from the department or organizational level budget to activities that are assigned to resources labor, space, materials, and suppliers.
In the second stage, activity costs are traced through the activity cost drivers to the cost objects, i. This stage is concerned with explaining the causes of work and what things cost. Managers that focus on process drivers and cost drivers have a more detailed understanding of activity costs and associated activity dependencies.
ABC provides a hierarchical structure of detail. The challenge for managers is to ensure an optimal amount of detail that achieves balance and accuracy. Next we discuss cost driver optimization. Choosing too many cost drivers? Managers must strive to strike a balance between accuracy benefits and costs of data management. At this point the concepts of ABC have been introduced and discussed as a process object for organizations to utilize.
The next section expands on the project management context as it relates to ABC. The project manager is responsible for the scope, schedule, and budget triple constraints at the project level.
A project is characterized as a progressively elaborated temporary endeavor undertaken to create a unique product, service, or result PMBOK, , p 5. Projects generally exist as a sub-set of the organization. Project managers or organizations parcel projects into phases for better management control. Phases are typical identified within a life cycle. The phases of the project life cycle are depicted in Figure Project Life cycle.
The project life cycle is not intended to represent the project management process. The project life cycle typically defines 1 what technical work to do in each phase; 2 when the deliverables are to be generated in each phase; 3 who is involved in each phase; 4 how to control and approve each phase PMBOK, , p In this process, project deliverables and objectives are subdivided into smaller more manageable components.
A WBS is a deliverable-oriented hierarchical decomposition of the work. This is the activity analysis concept mentioned previously in section 2. Work is planned to the lowest-level WBS component called a work package. Work packages can be scheduled, monitored, and controlled.
All transactions have the same logic, tracking inputs and outputs for each department and each product. All data is validated and provides complete traceability. Products were either not being measured or being measured twice. We recalibrated their scales, began validating their information, and checked the validity of results in the costing system. There is now a much higher level of accuracy in their data. Wherever our team identified waste, we assigned specific values to that waste in the process, and the system calculated the loss automatically.
Plant management could quickly identify areas of potential savings. Our valuation reports can be used for audits as well. The two approaches merely use different mathematics to do so.
Note especially, however, that ABC sometimes brings improvements in reported margins and profitability. These outcomes follow when ABC reveals unnecessary or inflated costs, or when ABC shows where to adjust pricing models, workflow process, or the product mix. This article further defines, describes, and illustrates Activity Based costing using example calculations to contrast ABC with traditional cost accounting. Examples appear in context with related terms from the fields of budgeting, cost accounting, and financial accounting.
Visit the Master Analyst Shop. T he desire to improve costing accuracy moves business people to adopt ABC, mainly to get closer to the true cost and true profitability of individual products and services. They move to Activity Based costing for the same reasons to understand better the true costs and return on investment from projects, programs, or other initiatives.
ABC pursues these objectives primarily by making direct costs out of many of the expenses that traditional cost accounting treats as indirect costs. Examples below show how ABC does this. Here, managers turn to ABC to support decisions about pricing , adding or deleting items from the product portfolio, choosing between outsourcing and in-house production, and evaluating process improvement initiatives.
The percentage of organizations currently using Activity Based costing varies significantly from industry to industry. T he different approaches and outcomes from ABC and traditional costing are most accessible for illustration in the context of a product manufacturing example.
However, the principles appearing here extend readily to a wide range of other business settings. For example, consider a firm that manufactures automobile parts through a sequence of machine operations on metal stock.
In such settings, traditional cost accounting views "product production costs" as either direct costs or indirect costs or overhead. Traditionally, direct costs for such firms are costs they can assign to specific product units.
In product manufacturing, these might include direct materials and direct labor costs:. T raditionally, indirect costs for such firms are manufacturing overhead expenses they cannot assign directly to specific product units.
Instead, they allocate these costs to specific production runs, batches, or periods. These might include indirect costs such as the following:. For this example, consider a firm that manufactures and sells two product models, Model A and Model B. Some aspects of A and B compare as Table 1 shows:. Management must estimate the profitability of each product to decide which products to produce and sell and how to price them. These estimates, in turn, require an understanding of the full cost per unit of each product.
While the direct costs per unit are easy to find, the indirect costs are less noticeable. As a result, the firm will have to uncover indirect product costs through a costing methodology—either traditional cost allocation or Activity Based costing. Direct costs are the same under both traditional costing and ABC.
For direct costs, accountants measure a product unit cost for each direct cost category. The two costing methods differ, however, in the way they assign values to so-called indirect costs for products. Consequently, the two costing approaches sometimes give entirely different pictures of the profitability of individual products. C ost accountants can apply traditional costing methods to find total production costs for Products A and B in Table 1 above.
In one accounting period, the firm produces and sells. To find product gross profits and profit margins, however, accountants will use traditional costing methods to estimate total production costs per unit, and with that, gross profit margin per unit. For this example, product manufacturing direct costs consist of direct labor costs and direct materials cost.
The firm's accounting system carries general ledger T-accounts for each product's direct labor costs. For one accounting period, these costs are:.
The accounting system also carries accounts for each product's direct materials costs. The ledger shows these direct materials costs for the period:. The Manufacturing organization provides product unit counts. For the current period:.
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