Discuss the confidentiality issues surrounding open book cost management. Our definition conforms in general to other definitions of oba e. News article by davies and robson supply chain and logistics consultants this website uses cookies to ensure you get the best experience on our website. The move to open book costing advanced purchasing dynamics. Openbook pricing is often used to design to budget, but that does not mean make it. Dynamic and static pricing in openbook accounting diva. What does open book mean on a project managed by berghammer.
It is generally associated with incentivised targetcost contracts, management contracts and framework contracts, but can also be applied to the first stage of a twostage, fixedprice contract. Cost and relationship management is not a onesizefitsall proposition. Transparency means full, confidential disclosure of all the details and can include third party verification, if required. Typically, the mechanism for such an incentive is that the supplier gets a bonus or penalty calculated as a percentage of the difference between the real cost of the.
Avoiding the pitfalls of open book agreements davies. It is logical for a buyer to want to probe the cost drivers, including labour. Open book management to allow all to understand cost contractors tool risk allocation to those best placed to manage it set up behaviours and relationships to deliver the contract effectively. If an actor says something in a stage whisper, it is intended to be heard by the people watching the play, and the other actors on the stage pretend not to hear it. Historically, a suppliers pricing decisions may have been steeped in mystery and the detail of a price confidential. This procurement policy note assists in enabling open book contract management to be used in a fair way depending on the risk level and complexity of the contract. To understand the approach of an open book contract, it is important to understand the fundamental definitions of both cost and price.
Though open book accounting oba is a wellknown practice in supply chain management, the lack of guidelines to support managers to implement it effectively has been highlighted in the literature. Secondly, our belief is that open book costing is suitable for many but not all commodities. Open book approach berghammer construction corporation. It helps companies compete in todays mercurial marketplace by getting everybody on the payroll thinking and acting like a. The beauty of openbook management is that it really works.
Sometimes it takes a bit of work to get there, but a realistic number means a complete and fair number. The concept is now widely known, but ensuring suppliers will be receptive to making open book accounting a contractual reality is another matter. First, any new process has a rollout period and it takes a company as large as gm time to disseminate it to the entire supply base. Supplier contracts with profit sharing, openbook costing. Secondly, our belief is that open book costing is suitable for many but not. This starts during the preconstruction process when we provide quantity and unit cost back up for all building systems and. Openbook accounting openbook accounting is an extension of the principles of openbook management to include in an organisations accounts all those with an interest in the organisation, not merely its employees and its shareholders including those whose shareholding is managed indirectly, for example through a mutual fund.
Open book open book is a defined mechanism and process to reimburse actual costs to the contractor. It means transparency in the purchasing spend, plus knowing how. You should use open book on those contracts where the additional cost is justified by the perceived level of. An open book contract is an agreement between a buyer and seller that lays. Whats the use of open book accounting in supplier negotiation. Open book pricing is often used to design to budget, but that does not mean make it fit to budget. Openbook accounting is a particular type of supplychain assurance where suppliers share information about the costs and profits of a specific contract with their client. In essence, an open book contract structures the process of sharing the management of all costs, operations, and performance data that will occur with the project. The principles of openbook pricing water designbuild. Cost and pricing must be both realistic and fair to both parties.
In an openbook contract, the buyer and seller of workservices agree on 1 which costs are remunerable and 2 the margin that the supplier can add to these costs. Openbook costing simply grants the buyer access to the details of each cost component of the suppliers productservice, including materials, direct labor, overhead, etc. The concept of suppliers and customers having such a trusting relationship that they can work together collaboratively and seek ways to reduce the cost of items. Whats openbook pricing all about how does it really work. Why open book policies with suppliers need not be confrontational. The project is then invoiced to the customer based on the actual costs incurred plus the agreed margin. Designing and implementing open book accounting in buyer. Some of the most difficult negotiations with suppliers involve open book accounting. The answer comes down to two these fundamental definitions of cost and price. Openbook accounting is a method of procuring work under which contractors are reimbursed on the basis of transparent records of the costs they have incurred. This information includes, but is not limited to, internal cost levels andor structures.