Activity-based Costing

Activity Based CostingTypically critics have argued that Activity-based Costing is too costly and sophisticated to apply and the cost involved in implementing and maintaining Activity-based Costing systems exceeds the benefits gained. Activity-based Costing is beneficial and provides a lot of useful management information, once completely integrated and utilised. Experience however indicates, that in recent years many (larger) enterprises steer away from utilizing ABC, because of its overpowering complexity and related difficulties and tremendous cost to fully implement it, leaving behind questions about its cost/benefit.

On the other hand, specialised Activity-based Costing models really need to be thought of in the following cases:

  1. Multi-dimensional analyses of overheads are needed;
  2. When iterative performance management systems are expected;
  3. Activity-based Costing model is necessary to be versatile as frequent changes are expected.

ABC does play an obvious and crucial role in organisations with multilevel overheads doing performance-based management. It is not the method to continually charge out services in-between organisational units, but as a tool of internally optimising service level associated activities.

The improvement in IT has substantially brought down the information processing cost. As the information processing cost has reduced, the cost of inadequate information resulting in poor decision making has drastically increased.

IT has a clear role to play in adaption of ABC. It makes ABC models simpler, flexible and more cost-effective. One of many critical success factors in effective implementation of ABC is the choice of the right software.
SAP suite of products has both the offerings – SAP ERP has a sub-module for ABC in SAP Controlling (SAP CO-ABC). SAP Business Objects, Profitability and Cost Management (SAP PCM) is specialized software for Activity-based Costing from SAP suite of products.

66 Responses to Activity-based Costing

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    • Helge Habenicht says:

      Will try to do that:, It is more targeted towards public sector reform and thus should aim in this direction. If I am trying to look for relevant links my own ones come up on top, any suggests are thus most welcome…
      Since I am working with the subject since many few years, it is probably easier to ask me some pertinent questions about what activity-based-costing means in the context of public sector reform or how to use it to generate performance-based-management models.

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