David Hughes, KCP

david19341@gmail.com

Accepted Value Costing

An evolutionary approach to Lean-Agile costing and decision making.

1
Copyright © 2018 by D. Hughes & Co.
Accepted Value Costing

§ Lean-Agile extension of two-stage activity-based costing

üABC cost pools
üProportional allocation

§ Field tested
üTwo years
üTwo large organizations

2
Copyright © 2018 by D. Hughes & Co.
Accepted Value Costing

§ Empirical analysis of risk vs. reward

§ Inspect and adapt cost plans on relatively short cycles
§ Enable smaller batch sizes by reducing transaction costs and risks

Not project-based costing!

Not based on timesheets!

3
Copyright © 2018 by D. Hughes & Co.
Knowledge Work Cost Lens

§ Direct Labor Costs

§ Direct Material Costs

§ Indirect Labor Costs

§ Indirect Material Costs
§ Unallocated Value Chain Costs

Don’t boil the ocean.

4
Copyright © 2018 by D. Hughes & Co.
The Need

§ Delivered value relative to cost.

§ Traditional cost management a poor decision-making aid.
§ Is the cost management solution for Lean-Agile knowledge work in my
hands already but I just can’t see it?

5
Copyright © 2018 by D. Hughes & Co.
Traditional Cost Management Systems

§ Coherent
§ Focused on controlling costs at the most detailed level possible
§ Therefore controls performance behavior, as intended

6
Copyright © 2018 by D. Hughes & Co.
 AVC Approach
Tools and Techniques, Results

7
Copyright © 2018 by D. Hughes & Co.
Proportional Cost Allocation

Dollar Rupee Yuan

10% 10% 10%
10 cents 10 paises A jiao
Story Points ~ Currency
Team X-Ray Team Yankee Team Zulu
1,2,4,8,16 1,3,5,8,13,21 1,2,4,8
Two week sprint Two week sprint Four week sprint
Feature 14 pts / 140 pts Feature 30 pts / 300 pts Feature 9 pts / 90 pts

8
Copyright © 2018 by D. Hughes & Co.
Proportional Cost Allocation

Dollar Rupee Yuan

10% 10% 10%
10 cents 10 paises A jiao
~ Currency
Team X-Ray Team Yankee Team Zulu
1,2,4,8,16 1,3,5,8,13,21 Throughput capacity
Two week sprint Two week sprint Continuous flow
Feature 14 pts / 140 pts Feature 30 pts / 300 pts 9 work items / 90

9
Copyright © 2018 by D. Hughes & Co.
Practical Decision Making

10
Copyright © 2018 by D. Hughes & Co.
Tools and Techniques

§ Lean-Agile Method
ü Kanban
– Service class m odel and/or feature decom position

– Throughput m etrics, capacity allocation, service level agreem ents

ü Scrum
– Portfolio hierarchy: initiative > feature > story

– Story point m odels

§ Agile Lifecycle Management (ALM) System Data

ü Flat file export
ü Proportional cost allocation

§ Decision Making
ü Value vs. cost quadrant model
ü Ordered histogram

11
Copyright © 2018 by D. Hughes & Co.
Feature, Class of Service Feedback Loop

§ Rank Value
§ Proportionately Allocate Accepted Work Item Costs
§ Decide

Stop Continue / Accept

Cost

Reconsider Increase / Accept

Value

12
Copyright © 2018 by D. Hughes & Co.
 Release Proportional Cost Allocation By Feature
160,000

140,000

120,000

100,000

80,000

60,000

40,000

20,000

0
89 18 9 95 16 70 17 69 100 8 54 72 3 36 94 71

Cost Feature Value Decision Result

139,762 89 Low Stop Strategically important decision; value proved two releases later.
82,034 18 High Continue/Accept
24,306 9 High Increase/Accept
24,306 95 Medium Increase/Accept
18,230 16 Medium Increase/Accept
18,230 70 Medium Increase/Accept
15,191 17 Medium Increase/Accept
15,191 69 Medium Increase/Accept
15,191 100 Low Reconsider
12,153 8 Medium Increase/Accept
12,153 54 Medium Increase/Accept
12,153 72 Medium Increase/Accept
6,077 3 Medium Increase/Accept
6,077 36 Medium Increase/Accept
6,077 94 High Increase/Accept
3,038 71 High Increase/Accept
13
Copyright © 2018 by D. Hughes & Co.
 AVC
How To Do It

14
Copyright © 2018 by D. Hughes & Co.
 Direct Indirect Indirect
Material Direct Labor Labor Labor
Resource Unallocated
Resource Resource A Resource Z

%
%
Stage 1 Cost %
%
Drivers

Activity Activity
Cost Cost
Pool 1 Pool 2

Stage 2 Cost
Drivers

Deliverable, Product or Service

15
Copyright © 2018 by D. Hughes & Co.
 Scrum Kanban
Team A Team B

%
%
%
%

Feature Service
1 Class 2

Deliverable, Product or Service

16
Copyright © 2018 by D. Hughes & Co.
 Kanban Kanban Scrum Kanban Kanban
Team P Team Q Team A Team B Team Z

Service
Feature Feature Feature Service Class
16 8 1 Class 2
32

Deliverable, Product or Service

17
Copyright © 2018 by D. Hughes & Co.
$300 $150 $140 $160 $85
Kanban Kanban Scrum Kanban Scrum
Team P Team Q Team A Team B Team Z

Service
Feature Feature Feature Service Class
16 8 1 Class 2
32

Initiative / Epic Initiative / Epic

Initiative / Epic
$835

18
Copyright © 2018 by D. Hughes & Co.
$300
Kanban
Team P

20% 50%
30%
Feature Feature Feature
16 8 1

Initiative / Epic

Initiative / Epic
$835

19
Copyright © 2018 by D. Hughes & Co.
 David Hughes, KCP
david19341@gmail.com

Accepted Value Costing

Thanks!

20
Copyright © 2018 by D. Hughes & Co.