Page 168 - DMGT522_SERVICES MANAGEMENT

Unit 7: Delivering Services on the Web

7.4 Cost Drivers Notes

There are basically three types of cost drivers:
Volume: The cost driver is based on units of work (e.g., number of orders). The cost of the activity
increases as more units are processed.

Time: The cost driver is based on the length of time taken to complete the activity. The cost of the
activity increases based on the length of time required to complete the activity. It does not
matter how many products are produced (e.g., when retooling machines, the cost driver is the
length of time required to complete the retooling of machines).
Charge: The cost for the entire activity is charged directly to the cost object (e.g. all costs associated
with the retooling of machines for a product is charged directly to the end-product).
In general, a charge-type cost driver is used very rarely. The most common drivers are volume
and time. The driver used depends on the nature of the activity. The cost of the activity may
increase based on the number of units handled or based on the length of time required to
complete the activity. It could also be a combination of these two driver types. For example, the
time required to test a product may vary based on the product under test and the number of units
to be tested. The costs of testing increase as more products are tested. As well, the testing time
will vary based on the complexity of the products (e.g., a complex software program takes
longer to test a simple software program). Say it takes four hours to test a simple program and
ten hours to test a complex program, and all other costs are the same with respect to testing the
two types of programs. The cost of testing two simple programs (i.e., 2 programs * 4 hours/
program = 8 hours) is less the cost of testing one complex program (i.e., 1 program * 10 hours/
program = 10 hours).

7.4.1 Measure the Cost Drivers

Once the cost drivers have been identified for the various activities, they must be quantified. For
the same period that the costs were captured, the count for the activity driver must be determined.
For example, if the driver for the Purchasing process is Purchase Orders, determine the number
of Purchase Orders processed during the period for which costs have been captured.

Look to existing systems for cost driver measurements. For example, if the purchasing function
uses a computer system, it should be fairly easy to determine the number of purchase orders
processed in a given period.

7.5 Internet Service Design

It lives within ecosystems and strives for successful experiences. It’s pretty hard to pin down, but
it’s increasingly important. So why does service design matter to businesses and brands now
more than ever? Here are four reasons:
1. Digitally-enabled services are becoming ubiquitous: We’ve all heard of the Internet of
Things, or Ubiquitous Computing right? Both terms refer to the explosion of connectivity
in our everyday devices. Everything we own is getting networked, from your TV to your
car to your bathroom scale. All that connectivity is cool, but it’s just the hardware — those
digital features manifest as services, which require user interfaces and design.
2. Services and products need to exist in ecosystems, and designed and thought in terms of a
holistic brand experience: Cool, so we just design those services like we’ve always done
for sites and apps, right? The tricky thing about products and services these days compared
to the websites we built in 2000 is that they need to exist not as isolated experiences, but as

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