Another question which we frequently deal with is around development of product cost models.
This is a fairly complex process as it requires a multi-skilled team to collaborate, including experts in finance, engineering & IT – so it can be challenging.
In terms of the approach, below development steps are used for creation of Fully Allocated Cost Models.
Following are the key steps we suggest:
- Gather all the required data
- Develop a dictionary for data capture covering
- Product (Marketing) and GL (Finance) alignment
- Define types of activities in your company (eg. departments, labour etc.)
- Define your Product Portfolios and/or Network Platforms Dictionary for allocations
- Develop allocations methodology covering several levels:
- Platforms usage (based on engineering trafic usage stats)
- Platform type (eg. depreciation based on line-by-line data checks of all cost items)
- Staff based on timesheet or survey approach
- Number of services by product (SIO) approach
- Revenue and costs weighted average approach
- Model development and allocations
- Where possible allocate costs direct to products (eg. Residential Internet)
- Where not possible allocate to product family (eg. Data products family)
- Where not possible allocate to platform (eg. Fibre, ADSL….)
- Verification: Aim is to get as much into direct cost. So allocations will be done from that point only for cost where direct product attribution is not possible. Target for the final model, indirectly allocated costs will comprise <30% of total costs.
For step 1 – Gather all the Data, here are some key pieces of information you will require:
|Documents / Information||Stakeholders|
|· Details of your key platforms (architectures, design diagrams etc.)||Engineering, IT|
|· Utilisation details of assets in terms of:||Engineering, IT|
|· Breakdown of traffic on network by voice, data, internet, mobile voice, mobile data etc..||Engineering, IT|
|· Breakdown of calls by local, international, mobile etc..||Engineering, IT|
|· Breakdown of SMS as above||Engineering, IT|
|· Internet & other data traffic usage on platform components eg. upstream submarine cables||Engineering, IT|
|· Other network platform data as required once we understand the network design||Engineering, IT|
|· Product performance data such as faults, calls, installations||Engineering, Operations|
|· Numbers of services by product (or BW or minutes of calls etc…) for unit cost modelling||Products team|
|· Full GLs for the business including summary as well as source GL data||Finance|
|· COGS Data||Finance|
|· Key categories of costs where detailed breakdown is required:|
|· Depreciation breakdown||Finance|
|· Electricity breakdown||Finance|
|· Motor vehicles||Finance|
|· Network support contracts||Finance|
|· IT systems costs||Finance|
|· Staff costs and HR Org charts details,||Finance, HR|
|· Property costs, water, insurance, rates etc.||Finance|
|· Financial costs, loans, interest, bad debts, impairments||Finance|
|· Marketing spend breakdown or budgets||Finance|
|· Other costs||Finance|
|· Products hierarchy (key product groups/families and individual reportable products)||Products team|
|· Product services (numbers of services sold, minutes of use, BW of use etc… depending on suitable measure for each type of product||Products team|
|· Access to staff, managers and other experts who may be able to assist with sourcing of required information||COO, CEO, CFO|
If you would like more info we have published a presentation pack which was delivered at PITA Telecom Conference and it covers some key steps in more detail.
Finally we also have a Telecom Cost Modelling, Pricing, Forecasting and Business Cases Training Course which may be of value.