Accurate costs are built on documented processes, not technology.
The precision of any cost model depends on how well the underlying operational processes are mapped. This question reveals whether your process knowledge lives in people's heads or in validated, capacity-linked time equations.
“How does your organization map and document the operational processes behind its costs?”
How should an organization design and document processes for accurate cost modelling?
Accurate cost modelling rests on process design, not on software. TDABC translates each operational process into a time equation: a base time plus added time for each driver, where an order line, a setup, or a special request each adds measured time. The model needs only two inputs: a capacity cost rate per resource and a time equation per process. Maturity moves from process knowledge held in people's heads, to compliance maps with no time data, to mapped processes with identified time drivers, to validated equations linked to capacity and refreshed as the process changes.
Your cost model is only as good as the process behind it.
Traditional activity-based costing collapsed under its own weight. It relied on periodic employee surveys to estimate how people split their time, and those surveys were expensive, subjective, and out of date the moment they were finished. Time-driven ABC replaced them with something more durable: a direct estimate of how long each process step takes, built from an actual map of the work.
That map is the foundation. When the operational process is undocumented, cost is assigned with broad proxies and no one can explain why a product or customer costs what it does. When the process is mapped and its time drivers identified, cost follows the real work, activity by activity, and the model can be interrogated and defended.
The payoff is that a single time equation can absorb enormous variation. Instead of a separate activity for every variant of an order, one equation captures the base time plus the added time for each complicating factor: an extra line, a rush, a fragile item, a manual approval. Accuracy comes from the quality of the process map, not from the sophistication of the tool.
From knowledge in heads to a validated time equation.
As process design matures, the same operational process gains definition: undocumented, then mapped for compliance, then mapped with time drivers, then expressed as a validated equation linked to capacity.
How well is the work mapped?
Question 11 assesses how your organization documents the operational processes its cost model depends on. Each level reflects how far process knowledge has moved from people's heads into a validated model.
“We don’t formally map the operational processes behind our costs.”
Process knowledge lives in the heads of experienced staff. Costs are assigned with broad proxies such as headcount, floor space, or a single overhead rate, so no one can trace why a specific product or customer carries the cost it does. When a key person leaves, the understanding leaves with them.
- Cost drivers are proxies such as headcount or floor space, not the actual work
- No one can explain the cost of a specific product, order, or customer
- Process knowledge is undocumented and walks out the door with staff
- Costs cannot be defended when a customer or salesperson challenges them
“We have process documentation, but it was built for compliance or quality, not for costing.”
Flowcharts, SOPs, and quality-system maps exist, often to satisfy ISO or audit requirements. They describe the sequence of steps but carry no time data and were never designed to feed a cost model. They are a useful starting point that has not yet been connected to cost.
- Maps describe sequence but carry no time or cost data
- Documentation serves compliance or quality, not decision-making
- The gap between the process map and the cost model is unbridged
- Time estimates, where they exist, are averages rather than driver-based
“We map our key processes and have identified the time drivers for each.”
The main cost-relevant processes are mapped and their time drivers identified, so a first set of time equations exists. Cost begins to follow the real work: an order with more lines, a rush job, or a special request carries more time and therefore more cost. Coverage may not be complete and validation may be informal, but the model is now driver-based.
- Coverage may be limited to the largest or easiest processes
- Time estimates may not yet be validated against observed data
- Equations may not be refreshed when the process changes
- The link to capacity cost rates may still be loose
“We maintain validated time equations linked to capacity data, refreshed as processes change.”
Process design is a discipline. Time equations cover the cost-relevant processes, are validated against observed times, and are linked to capacity cost rates so that both halves of the TDABC model stay consistent. Equations are refreshed when the process changes, and the model is trusted enough to drive pricing, portfolio, and operational decisions.
- Validation and refresh demand ongoing discipline and ownership
- Process changes must trigger equation updates, not drift
- Driver data has to be captured reliably at the point of work
- The two TDABC parameters must be kept in step with each other
Practical steps, level by level.
Quick Wins
- Pick your single highest-cost or highest-volume process and walk it end to end with the people who do it
- Draw the actual sequence of steps, not the idealized one, and note where time is really spent
- Capture a rough time for each step, even if it is an estimate, to create the first baseline
- Identify the two or three factors that make some runs of the process take longer than others
Structural Improvements
- Turn your best process map into a time equation: a base time plus added time for each driver
- Extend the approach to your other cost-relevant processes, prioritizing by cost and volume
- Set capacity cost rates on practical capacity so the equations translate time into cost
- Sense-check each equation against a handful of real cases before you rely on it
World-Class Practices
- Validate every equation against observed times on a regular sample, and correct the drivers
- Establish a rule that any process change triggers a review of the affected equation
- Link the equations to capacity data so idle capacity and process cost stay consistent
- Feed the validated model into pricing, quoting, and portfolio decisions as the single source
Where the process map usually starts.
The starting point for process design differs by sector, but the destination is the same: validated time equations linked to capacity.
| Industry | Starting Point | Key Insight |
|---|---|---|
| Manufacturing | Routings exist | Standard routings and times are already in the ERP; the work is linking them to capacity cost rates and treating idle capacity separately, not mapping from scratch. |
| Professional & Financial Services | Rarely documented | Knowledge work is seldom mapped, so this is the largest effort and the largest payoff; time equations replace timesheet guesswork with driver-based estimates. |
| Healthcare | Pathways exist | Clinical pathways give a strong process backbone; TDABC maps minutes and resources onto each step to cost the full patient journey. |
Is your cost model built on a real process map?
Take the free Profitability Health Check to assess your process-design maturity and see how much of your cost model rests on documented, defensible work.