Understanding Cost Pools and Resource Groups in TDABC

One of the foundational concepts in Time-Driven Activity-Based Costing is the organization of costs into resource groups, also known as cost pools. Understanding how to structure these groups correctly is critical to building an accurate and actionable TDABC model.

What is a Resource Group?

A resource group in TDABC represents a collection of resources that perform similar work at a similar cost rate. Typically, a resource group corresponds to a department or functional area within the organization. For example, an order processing department, a warehouse picking team, or a customer service call center would each form a resource group.

Calculating the Cost Rate

For each resource group, you need to determine two things: the total cost of supplying the resources and the practical capacity of those resources measured in time. The cost rate is simply the total cost divided by the practical capacity.

Total costs include salaries and benefits, equipment and technology, facilities and occupancy costs, supervision and management, and other departmental expenses. Practical capacity is typically calculated as 80-85% of theoretical capacity, accounting for breaks, training, meetings, and other non-productive time.

Building Time Equations

Once you have the cost rate for each resource group, you build time equations that estimate how long each activity takes. Time equations can incorporate multiple variables to handle different scenarios without creating separate activities for each variation.

For example, a customer order processing time equation might look like: Process time = 3 min + 2 min per line item + 5 min if new customer + 10 min if international + 3 min if special packaging. This single equation replaces what would have been dozens of separate activities in traditional ABC.

Practical Tips

Start with 5-10 resource groups for your first model. You can always add granularity later. Focus on the departments that represent the largest cost pools first. Use direct observation and process mapping rather than employee surveys to estimate times. And remember: it is better to be approximately right than precisely wrong.