Often to understand and figure out answers to questions like :
1. What is the true costs of the services we are providing to our clients?
2. How much should we charge clients for the cost of our services?
3. What are low and high priority activities in terms of funding

I usually tend to prefer using the ABC model, as the this type of model helps us allocate costs in an effective manner. This model is based on the principle that activities incur costs through the consumption of resources.

This type of modeling uses a two step process to allocate costs:

Step 1: You have to pull actual costs (what was spent) per the most reliable source, such as the General Ledger. Once you have identified the actual costs, then you have to determine how to allocate all of these costs (resources) to the activities that are performed by the department (or what-ever domain you are building the model towards). Labor costs are typically allocated by looking at the percentage of time people spend on various activities.

Step 2: Once you understand the costs by activities, then you need to allocate these costs to your cost objects (such as the different service lines you perform for customers). For example, the number of help desk tickets processed is an output driver to allocate costs from the help desk activity to help desk support costs.

If you want some perspective on how you orĀ  your company needs to enhance their Sales/Client Management Capabilities, please email me at This email address is being protected from spambots. You need JavaScript enabled to view it.


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