Time-based costing: Part 2—scope and application

The first of this two-part series of articles used numerical examples and general explanation to illustrate the principles of time-based costing. This second article of the series discusses the scope and application of the method. The Importance of classifying money flows into constant and variable flows is discussed, along with the uses of such information. The effect of a bottleneck on the flow rate of money is reviewed, and the importance of performing a time-based costing analysis of a single company within the context of the whole value-providing chain of companies is emphasized. The flow rate of money is identified as an overarching metric for a firm, business unit, or profit center that can and should be reviewed by senior management. Finally, the article emphasizes that time-based costing be applied by an integrated team comprising members from operational and financial functions.