SAMPLE FLIPCHART, HANDOUT, OR OVERHEAD PRESENTATION
A CROSS FUNCTIONAL COST ANALYSIS OF
WEDNESDAY, MAY 18 - 9 A.M.
Arthur Andersen & Company
CROSS FUNCTIONAL COST ANALYSIS
; Looks at All Costs - Focuses on Indirect
; Cause and Effect Review
; Tied to Everyday Decision Making
; Cross Functional Cost Analysis
- Generators - Cost Drivers
- Activities - Cost Responses
- Measurement - Key Persons Discussions
- Evaluation - Cost Questions
OPPORTUNITIES FOR IMPROVING PROFITABILITY
KEY PERSON PARTICIPATION
; Individual Discussions (one-hour maximum - 45 minutes average)
- By Appointment - Your Work Place
- Percent Effort by Activity
- What Causes This Effort?
- What One Thing Would Make Your Work Easier?
; Some Additional Follow-up (as needed)
DEFINITION OF KEY TERMS
The key terms used in cross functional cost analysis are as follows:
OPPORTUNITY - A change in method of operation that management can implement
within eighteen months to improve the effectiveness or efficiency of a process.
FUNCTIONAL COST ANALYSIS - The technique that addresses the functions, processes,
and activities being carried out in the organization. Establishes a cost relationship to each
activity. Allows management to define which activities should be eliminated or reduced
and which require additional effort or resources to achieve optimum efficiency.
ACTIVITY COST GENERATOR - A transaction, event, or product that causes work
activities to occur. It is the lowest level of cost management. Examples include the cost
of a sales call, or the cost to prepare a sales order.
ACTIVITY - A procedure performed in the normal course of completing a function.
Examples include estimating sales volumes for the annual budget, special order handling,
and product line planning, processing invoices, interviewing customers, etc.
FUNCTION- The series of activities performed culminating in the processes of acquiring
and entering orders, acquiring and controlling merchandise, producing components and
INTERVIEW GROUP - A group of personnel who perform related activities, typically
reporting to one supervisor. The interview group is the basic data collection unit of
functional cost analysis and is a subset of a GROUP.
GROUP - A logically segregated business area, department, organizational unit, or area
of responsibility. Examples include a chemical division and a sales department.
ACTIVITY EFFORT WORKSHEET
These instructions will help you complete the “Activity Effort Worksheet” (AEW) . Please make copies of
the attached form if you feel you will need more than one page for your allocations. A completed example
is included for reference.
1. Complete the top of the AEW.
Title: (Your Title)
Phone #: (Area Code, Number, and Ext.)
Division/Dept.: (The Division or Department you report to)
Interview Group: (Your specific Area or Reporting Unit)
People in Group: (Number of people included on your AEW)
2. In the AEW columns, indicate the people and job titles who report directly to you.
A. If several people perform the same activities in the same proportions, include them in one
column along with their classifications. List their names and employee numbers at the bottom
of the AEW or on a separate page.
B. If only one person performs certain tasks, enter the person and his or her personnel number on
the worksheet in a separate column.
C. There is room for eight different personnel groupings per sheet (i.e., columns on the AEW). If
there are more than eight groupings in your interview group, add additional sheets.
3. Concentrate your thought process on only those functional areas you and your interview group
(See Activity Table of Contents). Skim the activity definitions for other activities you may perform
4. Also consider the jobs performed that are not associated with your primary functions. Determine the
percentages of time during the year that you or your people perform other activities. Place these
percentages in the “Other” Activity row (for each personnel group) so the columns add up to 100
percent. You may back into this number, or you may start with this number.
5. Select the activities (in all functions) performed by each person or personnel group from the attached list.
For activities performed at least 5 percent of the time, list the activity number and title in the spaces
provided on the worksheet. If necessary, add additional pages.
6. The activities defined in the functional areas include clerical and administrative effort. Therefore, an
activity has effort associated with it from management and clerical staff on the same worksheet line.
7. Indicate by person or grouping (columns) the percent of time expended annually performing these
activities. (See examples of a conversion of hours to percentages and a calculation for total base hours.)
Think in terms of annual average effort expended - not effort associated with a onetime event or a crisis.
8. Do not think of overtime as effort greater than 100 percent. If overtime is expended during the normal
cycle, it should be included in the total hours worked during the year. (See example.)
9. Use whole percentages - no fractions or decimals.
10. Keep all percentages equal to or greater than 5 percent.
11. If you perform work in any of these functions that is not included in the list of activities, please write in
your own brief description. Indicate the amount of time expended (only when the effort amounts to 5
percent or more annually).
12. Be sure that each column adds up to 100 percent!
13. Review the worksheet for reasonableness. Does it seem reasonable that those activities listed account
for the effort you indicated?
14. Photocopy your completed Activity Effort Worksheet in case you are selected for an interview.
BASE HOUR EXAMPLE AND PERCENTAGE CALCULATION
Using a 40-hour work week as a base, the number of hours in a typical year is 2,080 (40 hours x
weeks = 2,080 hours). This common base of 2,080 hours include holidays and vacations but excludes
overtime. For this project, using 2,080 base hours is appropriate, unless you work significant amounts
If you work significant amounts of overtime, use this example to determine your base hours:
Worked During the Year Example Your Calculation
Total Base Hours
(40 hours x 52 weeks) 2,080
Less: Vacation (10 days)
8 x 10 days - 80
Holidays (8 days)
8 x 8 days - 64
Plus: Overtime hours
worked during the year + 350
Your base hours 2,286
It might be helpful to focus on how often you perform a particular activity in a day, week, month, or year.
Effort percentages for common combinations based on 2,080 hours appear below. If you worked significant
amounts of overtime, you can compute similar amounts using your calculated base hours from above.
; Regular/recurring activities (e.g., monthly closing process):
1 hour per week = 3% (1 hour x 52 weeks/2,080 = 2.5%)
1 day per week = 20% (8 hours x 52 weeks/2,080 = 20%)
1 day per month = 5% (8 hours x 12 months/2,080 = 4.6%)
; Annual activities (e.g., prepare exhibits for annual budget):
1 week per year = 2% (1 week x 40 hours/2,080 = 2%)
1 month per year = 8% (173 hours/2,080 = 8.3%)