Rahn, Richard D.; Jensen, Paul C. (1990, ASQC) Bell Communication Systems Division, Westminster, CO
This paper presents a case study in the application of performance measurement techniques and statistical methods to cost forecasting using normal accounting data and a user-developed computer system. Time-consuming data gathering, analysis and reporting have been streamlined using modern computer tools. We have also incorporated a graphic presentation approach to the analysis of project costs in order to:
The techniques discussed below were developed primarily for a job-shop or contract environment, with many individual budgets and projects. Some form of cost or business forecasting is common to other processes, however, and these approaches should be generally applicable.We should justify, if possible, our grandiose title. By "Total" we mean a system that includes all of the various cost elements of the business unit. By "Cost" we mean the forecasting of actual costs vs. a preestablished budget; we do not necessarily mean the lowest cost. By "Control,, we mean the ability to focus timely attention on cost problems and to take action to resolve them. "Total Cost Control" is therefore a control system for forecasting actual costs, anticipating negative variances from budget, and ranking problem areas. In a job-shop environment, meeting a budget usually also means that the project will achieve a planned level of profitability.
In order to control costs, problems have to be addressed at their source. Accounting information, however, is often a financial composite of many different tasks and processes. Thus while we may be able to identify a cost variance at the total budget level, the root cause of the problem may not be apparent. The cost forecast provides an important early warning, but further analysis and action will usually also need to be taken on a more detailed level.