Thursday, April 24, 2008

LTV at LTC: The Large Activity Based Costing (ABC) Project

During and after the LTV project, there was yet a fourth value-based project at LTC. The Finance department brought in a large consulting company to design a database for activity-based costing to help LTC get a handle on their operational expenses. The goal was to build an ABC database where a manager could look at expenses, drill down into the specific line items, and then drill into the company and customer activity that was causing those expenses and so have a clear grasp of the actions needed to manage expenses.

The project started out by having the consultants come in and have roughly a year of large meetings on what should go into the system. This was done without considering implementation issues. At then end of the meetings a large and detailed specification was developed, which was then handed off to the LTC IT department. The LTC IT department estimated that implementation would cost several million dollars and the project was killed right then and there.

In many respects, the ABC project was the antithesis of the LTV project.

  1. Instead of identifying a group within the company to build the project, an outside consultant was brought in to run the project. This meant that the understanding that comes from doing a project like this left LTC with the consultants.
  2. There was a complete disconnect between the design and implementation teams. This meant that implementation issues were not considered during the design, and that the design could not be modified later to take implementation factors into consideration.
  3. Instead of a small group working to understand the business, ABC had large meetings to poll people on their issues. This meant that every possible issue was included in the project design. Because the design was simply thrown over a fence to implementation there wasn't any negotiation over project scope to achieve what was reasonable.

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