Counting the Costs

Mark Piper - University of NewcastleSteve Robertson - Campus Consulting

Copyright Steve Robertson and Mark Piper , 2003. This work is the intellectual property of the author. Permission is granted for this material to be shared for non-commercial, educational purposes, provided that this copyright appears on the reproduced materials and notice is given that the copying is by permission of the author. To disseminate otherwise or to republish requires written permission from the author.

In the Beginning ......

• Good understanding of direct cost environment

• Focused on business unit budgets rather than activities and outputs

• Budget planning consequently not tied into Strategic Plan objectives

• Little or no understanding of full cost environment

• Intuitive understanding only of relative costs of

– Customers (Student Types)

– Distribution Channels (Campuses)

– Products (Degree Programs)

Our Goal

To improve decision making ability, through:

– Better understanding of cost drivers and pressure points

– Improved transparency of operations

– Ability to view costs across multiple operating dimensions

– More credible basis for allocating resources

– More credible basis for setting prices

– Better understanding of areas of cross-subsidisation

– Relationship with funding/revenue environment

Our Goal

Structure CostsSupport

AllocationActivities Products

Division X

Division Y

Unit A

Unit B

Process Z

Activity1

Expense

Expense

Expense

Expense

Expense

Expense

Expense

Expense

Outcomes

Activity2

Activity3

Activity4

Activity5

Expense A

B

Outcome2

Outcome3

ProductChannel

Customer

Data Sources

FinanceSystem

UnitStructure

Student Information

WorkloadModel

SpaceData

Costing Model

Outcomes

• Assists decision making processes by

– Improving transparency (and ‘accuracy’) of financial reports

– Highlighting areas of cross-subsidisation (and the degree to which it occurs)

– Enabling contribution reports to be produced e.g. by various strategic activities

– Enhancing the level of understanding of costs within the support areas

Before and After

Faculty Budget AnalysisTeaching Activity

0

10

20

30

40

50

60

Before ABM After ABM

$Mill

ion

s

Revenue Expenditure Contribution

[Before and] After

"Profit Cliff" GraphDegree Type B

-150%

-100%

-50%

0%

50%

100%

1 26 51 76 101 126 151

Perc

enta

ge o

f Net C

ontrib

utio

n

The Software

Benefits of Strategic Cost Management

• Improved strategic/business planning processes

• Understanding of “whole of business’

• Focus has switched from “business unit inputs” to “activity outputs”

• Accounting information now more “intelligent”, relevant and transparent

• Multi-dimensional view of business activities, costs, and revenues

• Project is not necessarily resource intensive

• Can be completed within a short time frame

Key Learnings

• Ensure the project has management support

• Perform the majority of the project internally

• Decide what you want the consultant to do

• Build a conceptual flow diagram

• Select a robust, scalable, and well supported software product

• Don’t overcomplicate the project

– Be pragmatic

– Push through bureaucratic blockages

– No loss of macro level accuracy