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FullCost: Why Planning before Actuals systems
WHY IMPLEMENT PLANNING BEFORE ACTUALS SYSTEMS
Must you get your historic data in good shape before you begin a business and budget planning process based on product/service costs?
The simple answer is no. It's better to put in place a business and budget planning process before you implement product/service accounting and invoicing systems.
There are many reasons why the Planning process should come before Actuals systems:
- Planning is prerequisite: You need a plan before tracking data has analytic value (to compare actuals to a plan).
- Tracking is not prerequisite: You don't need historic data to develop a plan; historic data will fine-tune management judgment, but a plan isn't a simple projection of the past.
- Quicker win: Implementing a planning process is relatively inexpensive and quick, with huge benefits. Implementing tracking systems is very expensive (costly production software, time to implement it, and behavioral changes like time-cards), and has fewer benefits.
- Save money sooner: Planning takes costs out before they happen. Tracking identifies costs savings opportunities after the money has already been spent.
- Have to do much of it anyway: You'll have to do much of the planning process anyway in the course of implementing tracking systems, including decisions like lines of business, catalog and rate structure, business model which associates costs with products/services, project codes, and definitions of unbillable time.
- Motivation versus resistance: Until people understand that they're funded based on the deliverables they sell (which they learn in the planning process), they won't be interested in utilizing the tracking data and they'll resist the administrative burden (eg, time-cards).
- Need rates to invoice: Even if you charge back (fee-for-service), you don't need to get your tracking systems perfect. Invoices can be based on the plan until tracking systems evolve to improve their quality. But accurate rates are needed before invoices have validity.
More on the difference between Planning tools and Actuals systems....
Where to build your product/service cost model....