Published on Australian Maritime Safety Authority (https://www.amsa.gov.au)


Appendix 2: Methodology of costing

Principles applied

There are five principles that support the development of our costing model:

  1. Linked to strategic business planning: costing is not just a ‘bean counting’ exercise. It should be linked to the strategic direction and planning of AMSA and inform executive at a strategic and tactical level.
  2. Holistic approach: a modelling exercise should include all revenue and operating expenditure, including overheads, other indirect costs, and capital expenditure (capital allowances and/or depreciation). Further, it should focus not just on cost recovery activities, but all activities of AMSA. This will result in a model that can fulfil multiple demands for costing information.
  3. Comprehensive and consistent: a simple approach that applies consistency in the application of modelling rules across all business areas and activities, creating a robust model understood by stakeholders. It should be developed over short timeframes, with a relatively small input of resources.
  4. Flexibility: it is important to recognise that demands for service delivery change over time, driven by various internal and external circumstances. A costing exercise must be dynamic in nature to evolve with changes to AMSA’s business requirements and circumstances.
  5. Institutionalised as a ‘normal’ function: modelling should be a living database that requires regular updating on a periodic basis. This is successful when the model receives official endorsement with AMSA wide involvement (operational area’s ‘buy-in’). Costing will then become a routine task and a ‘foundation stone’ for improving and reporting on financial performance.

Methodology

The methodology for modelling AMSA’s costs is summarised in the illustration below. It adheres to activity-based costing principles, which enables more analysis on the efficiency of activity outputs and/or business processes for cost recovery and other activities. It focuses on cost drivers, which allocates indirect costs to direct costs and then to an output.

Diagram showing the resources, business processes, activity outputs, unit costs and pricing for AMSA's costs modelling methodology

Not all business processes are specific or direct in the provision of activity outputs. Several tasks are support related activities that simply enable the delivery of AMSA’s core outputs to stakeholders. Nevertheless, these should form part of the activity cost.

Cost categories

As part the costing methodology, we assign each activity to one of the following four cost categories to ensure appropriate identification of overheads for allocation to an activity.

Below is an outline of the composition of an activity cost.

Diagram describing the composition of an activity cost as described under the 'Cost categories' section preceding the diagram