Lessons Learned on Costing Practices
The following lessons learned were identified by several departments who were early implementers of the Guide to Costing. They have been grouped into themes, many of which mirror and reinforce the guidance provided in the Guide to Costing.
1. Getting started
- All costing practitioners should first read the Guide to Costing to be familiar with the seven steps.
- Management must be aware of the continuous human and financial resources that are necessary to develop and maintain a costing capacity.
- Consultation is necessary to understand who the end users are, their expectations and how they will use the information.
- Seek costing information and best practices across the organization.
- A department's cost model(s) should use same the terminology as its financial system.
- Have a sound understanding of what information you require and when you require it.
- Ensure that there are dedicated employees involved in the development of any costing model to enable continuous support and maintenance
- Be pro-active: gain knowledge and document all critical steps and the time at which they need to occur
- Time & effort might first have to be invested in changing the coding structure so that it will support the department's costing needs
- Involve as many end users as possible during the design stage, including those from the budgeting and Treasury Board submissions areas
- The saying that "there is no such thing as a stupid question" applies to any costing exercise
- Analyze current cost information needs against the backdrop of future ones
2. Defining the purpose
- A clearly defined purpose will inform the level of costing detail - do not make it more complex than necessary
- Get senior management sign-off of the purpose before proceeding
- Resist the impulse to cost everything recognizing that the level of effort in developing costing information should be commensurate with the cost and relevance of undertaking a costing exercise; one-off reports can be cumbersome and expensive to produce
- Determine the necessary level of complexity
- Resist the impulse to cost everything to too detailed a level
- The departmental Deputy Chief Financial Officer organization should have the lead for all costing exercises
- Having a centralized "centre of expertise" with single-window contacts in key areas will promote costing and consistency of application across the organization
- It is imperative that communications be clear and timely so that individual accountabilities are realized
- Determine and document the chain of the approval process
- The sign-off checklists corresponding to each of the seven steps should be adapted to each department's needs
- Document every step, including the rationale
- Documentation, data sources and contacts for consultation on internal services should be kept up-to-date; at a minimum, it should be reviewed at least every two years
- Keep all documentation of assumptions, methodologies, data sources, allocations and cost drivers in a centralized location
5. Communications and outreach
- Develop a Communications Plan
- Better marketing of the product will encourage buy in from managers. Specifically, regular follow up with managers/end-users is important so that they fully understand both the costing exercise as well as how to use the subsequent reports for their operations
- Consult with your audience and work with them as you develop learning tools
- Consult with end users regarding each step of the Guide to Costing Tool Kit
- Don't reinvent the wheel - share good practices and experiences across the organization and externally – adopt the good ideas and avoid the pitfalls
- Be specific with requests and provide templates
6. Systems and procedures
- Get your Information Technology (IT) people on side early
- Consult with IT to determine future system upgrades
- Users of department specific costing templates must be able to override default driver formulas with drivers that demonstrate stronger causal relationships
- The templates provided at each step in Appendix B of the Guide to Costing are for illustrative purposes only- departments should design their own to meet their information needs
- Leverage technology to allow maximum reporting flexibility
- The amount of specialized resources required to maintain a custom built application (IT component) is sometimes underestimated
- Anticipate technical challenges and limitations in the selected costing software. Develop a means to address the issues identified
- Consider using a business intelligence product to build information cubes
- Reports from information cubes allow more time to analyze data and require less time to compile the reports
- Determine the limitations and 'rules' of whatever software is chosen prior to development
- Be prepared for the unexpected- allow time to work through system glitches
7. Cost allocation
- Determine the realistic cost pools that may differ from the expense classification in financial reports. (i.e. a student's salary, which although reported as Operations & Maintenance (O&M), may be best factored into the Full Time Employees (FTE) count and/or pooled with salary dollars for cost allocation purposes).
- Be ready to explain the reasons behind different allocation rates, for instance the internal service costs allocated to a regional office might be higher/lower than what was allocated to an Headquarters (HQ)
- Document and be prepared to explain the reasons behind different allocation rates. For instance, the Internal Services (IS) allocated to a regional office might be higher/lower than what was allocated to HQ
- Give yourself enough time to analyze the data and to go back for clarification
- Develop a template to standardize costing
8. Ongoing considerations
- Confirm that management is using costing information for the purpose intended
- Consult, inform, and obtain senior management sign-off during each of the seven steps in the Guide to Costing Appendix B
- Plans must be in place to avoid loss of corporate costing knowledge through staff turn over. Departments must be able to attract and retain qualified costing practitioners. Costing practitioners require time to learn the department, the software tools, the costing documentation and the Guide to Costing.
- The underlying rationale for assumptions, processes and formulas should be reviewed at least every two years, ideally annually
9. Program Activity Architecture (PAA) Considerations
- Align your information system to your PAA
- Year to year comparison is made difficult if changes in the organization and shifting priorities force a realignment of activities
- It is critical to ensure that systems used to track expenditures align with performance reporting tools – chart of accounts, for example, should mirror PAA to the lowest sub-sub-activity (SSA) level
- Effort is required to maintain coding structures (e.g. financial codes, activity time reporting) and keep them aligned to the PAA structure
- Take advantage of the well-established, pre-existing training and outreach efforts that, consistent with government-wide priorities in this area, exist in all departments and agencies
- Consult with your audience and work with them as you develop learning tools:
- Build audience involvement by making your subject immediate, personal, and local – seeing is believing
- Learning tools should refer to your audience's experience
- Personalize the subject when it's appropriate.
- Take advantage of emerging technologies and techniques. For example, use 'role play' narratives and case studies in self-directed e-learning.
- Develop a training program and schedule
- Ensuring that managers/users are trained on data gathering software and tools will minimize disruptions and improve the quality of data for comparison purposes
- Develop a training plan for implementation of the Guide to Costing
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