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20 CHAPTER 3 Full Cost Determination Process This chapter describes and demonstrates the full cost deter- The full cost calculation requires an in-depth understanding mination process developed during this project. The remain- of agency organization, activities, and financial and other infor- der of the introduction summarizes the overall process and mation that goes beyond the maintenance program. As a result, identifies the five steps involved. Sections 3.1 through 3.5 it is critical that input be sought from agency experts in the present the details of the benchmark approach for each step areas of the agency finance and information systems as well as and illustrate their application using a simplified discussion the maintenance program itself. Such a team approach will example. The example includes a small number of mainte- ensure full cost coverage, ease the computational task, and nance activities in order that the complete full cost calcula- enhance the credibility of the calculation. tion can be clearly presented within the confines of this The following sections describe each step of the calculation report format. The benchmark approach is designed for in more detail and present an illustrative example. ease of use--that is, to satisfy the practical requirement-- and should be feasible/attainable in most, if not all, state DOTs. Section 3.6 includes a discussion of options and 3.1 Step 1: Gather and Classify exceptions that draws upon the details of the documented Maintenance Program Activities full cost calculations for six agencies that are included as and Expenditures Appendix A of the attachment. Objective Figure 3.1 illustrates the full cost determination process. The sequence is deliberate and starts out in Step 1 by iden- The objective of Step 1 is to collect information on all tifying the cost elements that are directly related to the per- maintenance program activities and expenditures and to clas- formance of a particular line activity (i.e., LEMO). Next, it sify them as either line or support. recognizes that certain maintenance activities and expendi- tures support one or more line activities, and identifies a Sources of Information and share of these expenditures that must be allocated to each Key Considerations line activity (Step 2). Furthermore, it recognizes that the maintenance program as a whole is supported by a variety The source of maintenance activity expenditure information of enterprise support programs and expenditures, and it varies by agency and depends on the information systems in identifies a share of these expenditures that must be allo- place and agency reporting procedures and infrastructure. cated to the maintenance program (Steps 3 and 4). Finally, The most common sources of expenditure data include main- it combines the results of Steps 1 through 4 to determine the tenance and/or financial management systems as well as annual full cost of each line activity (Step 5). The full cost of any maintenance program reports that often summarize program particular line activity can be considered to be composed of accomplishments and expenditures in a number of ways (e.g., three discrete categories of cost: by activity, activity group, geographic areas, highway functional class). In most cases, maintenance activity expenditures are Line activity expenditures (LEMO); broken down into the four LEMO components of labor, equip- An allocation of maintenance program support expendi- ment, material, and other for each activity. tures; and In order to ensure the validity of the full cost calculation, An allocation of enterprise support program expenditures. there are a number of key considerations: