Showing posts from May, 2007

By The Book 2: The Way Of the Cost Accountant

Let's explore the problem in my previous post using Cost Accounting (CA). CA is the generally accepted management accounting method. It is used by companies all over the world, and it is the accounting method mandated by law in most countries (that I know of): CA makes the calculation like this: A developer has to work 8 hours to fix the defect. The developer makes €3,500 per 160 hour month. This would work out to €175 (8⋅3, 500 ÷ 160 = 175). However, CA allocates overhead costs from management, rent, electricity, and other things. These costs are shared by all workers. The overhead costs can be quite large. Let's be conservative and say they are €1,000 per developer and month. A developer’s total cost is now 4,500/month (3, 500 + 1, 000). Cost Accounting then gives us 8 ⋅ 4, 500 ÷ 160 = 225. That is, it would cost €225 to fix the defect. The cost is the same for teams A and B. Let's do a thought experiment. Have a look at the figure above. The teams spend working time in o

By The Book

I am actually getting somewhere with the book I am working on. Here is a small excerpt: Consider two project teams, A and B. Each team has one project manager, four developers and three testers. Each team member makes €3,500/month and works 160 hours/month. The project managers make €4,000/month. Both teams produce 80 Story Points worth of functionality in a week. In team A, the developers work very hard, but the testers have time to surf the Web now and then. In team B, it is the other way around. The testers are pressed to keep up, so the developers slow down a bit to avoid deluging them with more work than they can handle. On the same day, a defect is found in each project. Both defects will take eight hours for a developer to fix. What is the cost to team A? What is the cost to team B? Give it a try. I'll publish the solution in a couple of days. (Hint: the answer is slightly less obvious than it looks.)