留学生作业写作需求：Activity-Based Costing:An Emerg

Activity-Based Costing An Emerging Foundation for Performance Management
Peter B.B. Turney, PhD
President and Chief Executive Office留学生dissertation网Cost Technology, Inc.
Activity-based costing has been around since the mid-nineteen eighties. Given its longevity, it’sworthwhile to answer:
! How has ABC evolved over its life cycle?
! What lessons have been learned from the evolution of ABC?
! What can ABC do today that it could not do 20 years ago?
This article answers these questions by examining the evolution of ABC in the context of aproduct life cycle. It summarizes the history of ABC according to the phases of its life cycle,highlights its expanding functionality over time, and details the lessons learned from two decadesof use. It concludes with a description of the current state of ABC as a key input and value adderto performance management systems.It took just a short time for ABC to be recognized as an innovative and potentially valuablecosting methodology; yet it took another 20 years to reach its full potential. ABC emerged inresponse to competitive pressures that exposed inaccuracies in cost accounting. Early uses helpedcompanies view the distortions inherent in cost accounting systems leading to changes in strategy,processes, operations and improved competitive position.Buoyed by early successes, ABC emerged as a powerful profit analysis tool. These successes
stemmed from ABC’s ability to reveal the hidden sources of profitability and embedded cost, andto serve as a catalyst for decisions to improve profitability. Over time ABC adapted to new areassuch as cost-to-serve activities, customer profitability, channel profitability, and the use of ABCoutputs to perform capacity planning and drive predictive modeling. By the late nineties ABC
was used extensively in diverse industry and government sectors.Today, ABC is the emerging foundation of performance management. If you lift up the hood of aperformance management system, you will http://www.ukthesis.org/Thesis_Writing/find ABC powering performance measures forscorecards, providing rates for customer profitability analytics, helping devise human resourceplans, modeling sustainability, and supporting budget development and planning.Like most technologies, the value of today’s ABC is the result of many years of development andlearning. In assessing its value for your organization, it is important to understand how it hasevolved and how this evolution has created opportunities to create value. Whether you areconsidering ABC for the first time, or a returning early adopter, it is time to take a fresh look.SAS and all other SAS Institute Inc. product or service names are registered trademarks or trademarks of SAS Institute Inc. in theUSA and other countries. ® indicates USA registration. Copyright © 2008, SAS Institute Inc. All rights reserved.
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THE ABC HYPE CYCLE
The hype cycle is a graphic representation of the maturity, adoption and business application of atechnology. It reflects differences in human attitudes to the technology as knowledge increasesand risk decreases over its development and deployment cycle1. Early in the cycle there is littlepractical knowledge about the technology. Thus, an organization’s cost/benefit analysis is oftendominated by unknown risk factors making an adoption decision difficult. As knowledgeaccumulates over the cycle risks reduction occurs facilitating more informed judgments regardingadoption.
The hype cycle typically covers the period of time between market introduction and a 30 to 50%adoption by the mainstream business community. The ABC hype cycle has six phases ofevolution: (1) technology trigger, (2) peak of inflated expectations, (3) trough of disillusionment,(4) slope of enlightenment, (5) the plateau of productivity, and (6) the post-plateau phase (Figure
1). The first five phases represent the history of ABC, while the sixth phase is the current state.
Visibility
Maturity
Technology
Trigger
Peak of Inflated
Expectations
Trough of
Disillusionment
Slope of
Enlightenment
Plateau of
Productivity
Profit
Improvement
Activity-Based
Management
Resource and
Capacity Planning
Performance
Management
Cost
Allocation
New
Application
Post-Plateau
Figure 1: The ABC hype cycle.
What results from this exercise is that the evolution of ABC is not unique. In fact, it isremarkably similar to the life cycle of other technologies, including the achievement of twomilestones typically reached by only mature and successful technologies. First, the performanceof ABC has increased over time reflecting ongoing research and development, cumulativelearning from application of the method, and enhancements in systems technology. Second, the1 Understanding Gartner’s Hype Cycle, Strategic Analysis Report, Gartner Research, Gartner Inc., 2003.5635 SW Hewett Blvd., Portland, Oregon 97221 - 3 -  484-244-7016 Fax: 503-292-2382  response to ABC has progressed from user enthusiasm, through disillusionment, toeventual acceptance of the technology’s relevance to business success.Technology Trigger (1984-1987) Innovations in Cost Accounting
Discontinuous innovation is generally the result of a trigger - an external impetus that stimulatesinnovation. The trigger for ABC was the increasing Japanese competition experienced by
western companies, particularly those in the electronics and automotive verticals. Believed to be
the result of low-wage labor and undervalued currencies, they were de facto innovative
management practices, such as just-in-time material flow systems, continuous improvement, and
statistical process control.#p#分页标题#e#
The impact of this change on western companies was dramatic. Some retreated and complained
of unfair competition, and others adopted the management practices used at leading Japanese
companies such as Toyota. A few western companies developed innovative practices of their
own, including innovative costing methods.
New approaches to costing emerged in several manufacturing companies. These companies
recognized that the cost accounting systems used at that time had unintended negative strategic
and operational consequences. Tektronix, for example, allocated manufacturing overhead to
products based on direct labor, which encouraged engineers to design products that required less
labor to manufacture. This design directive increased the complexity of products and the number
of unique parts in each product. It also increased the cost of purchasing, receiving, and stocking
thousands of different parts, thereby reducing profitability and ultimately Tektronix’s
competitiveness. Only when the cost of procurement was allocated to products based on the
number of unique part numbers used in the product was this bias corrected and engineers
encouraged to use common parts wherever possible.
Tektronix’ new cost accounting method helped engineers see the impact of their decisions. While
lacking the accuracy and diagnostic capability of ABC systems, the elimination of the behavioral
distortion inherent in the cost accounting system helped Tektronix compete2. Tektronix’s
success, along with that of others, was an important step to developing first generation ABC
methods.
Peak of Inflated Expectations (1987-1991) First Generation
The peak of inflated expectations is a bubble of enthusiasm for a new technology. For ABC, the
journey to the top of the bubble was accompanied by extensive publicity and the emergence of
first generation methods and tools.
Beginning in 1987, a flood of articles on ABC appeared in the Harvard Business Review, Journal
of Cost Management and other publications. Invitations to attend conferences by the Institute for
International Research and other organizations filled mail boxes. These publications and
presentations explained how to implement ABC, what it meant, and what impact it would have on
businesses that adopted it.
2 Peter B.B. Turney, Common Cents: The Activity-Based Costing and Activity-Based Management
Performance Breakthrough (New York: McGraw-Hill), 2005, pp. 27-29.
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As with most technologies, the combination of interest among potential users and the
development of first generation methods encouraged commercial development of the ABC
market. Most of the large consulting firms built ABC practices in the late 80s and early 90s, and#p#分页标题#e#
the first commercially available software for ABC was introduced in 1990.
Underlying this enthusiasm was the recognition that ABC could yield important insights into
profitability. This was because ABC:
! eliminated the product cross subsidies inherent in cost accounting;
! revealed the sources of loss that were responsible for the decline in profitability; and
! acted as a catalyst for decisions affecting profitability.
For example, Figure 2 is for a manufacturing company that believed all of its products were
profitable. An ABC model revealed that over 25% of its products were unprofitable and another
40% were breakeven. ABC helped the company develop a new focus on profitable markets and
customers, prune unprofitable products, redesign products to remove cost, and eliminate nonvalue
added activities. This new focus transformed profitability from “worst in class” to “best in
class” 3.
-150
-100
-50
0
50
100
150
200
0 5 10 15 20 25 30 35 40 45 50 55 60 65
Products
Profit (%)
Figure 2: The ABC “S” Curve.
The lesson learned from this period was that the value of ABC was its ability to drive change.
Early versions of ABC were designed to improve the accuracy of product cost using high level
cost pools and cost drivers. These systems helped management see the profitability of products;
3 Common Cents, Second Edition, pp. 177-195.
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however, they had limited diagnostic capabilities. The inclusion of activity and customer costs
during this period increased the diagnostic power of ABC leading to activity-based management
(ABM).
Trough of Disillusionment (1991-1995)
The excesses involved in scaling the peak of inflated expectations led inevitably to the bursting of
the bubble. Media over-enthusiasm, confusion over the method itself, limits to the method and
supporting systems, difficulties of sustainability, and some well-publicized failures were
precursors to lowered expectations. ABC was also the victim of shifting attention to new
management methods.
Critics of ABC generally fell into two camps. Some argued that ABC was inconsistent with the
principles of continuous improvement and total quality management. They wrote that ABC
lacked customer focus, was not process oriented, did not enhance organizational learning, and
was top down in approach (i.e., did not involve employees). Others argued that ABC was
inconsistent with the theory of constraints. A common argument was that ABC could not reliably
measure the short-term impact of decisions on operating cost, inventory and throughput.
These criticisms reflected a misunderstanding of the purpose and nature of ABC. Early versions#p#分页标题#e#
of ABC were designed to reveal strategic insights into sources of profitability. The intention of
ABC was neither to provide day-to-day guidance on process quality nor to measure short-term
variable cost.
A contributing factor to lowered expectations was the relative immaturity of the ABC method
combined with lagging systems technology. In hindsight, it was ambitious to build ABC models
using non-enterprise software on PCs. It was inevitable, with rare exceptions, that ABC models
of this era were difficult to build, cumbersome to use, and lacked regular reporting and
integration with data sources.
The inevitable failures also took their toll. In some cases failure was attributable to poor change
management. For instance, in the case where ABC revealed that 80% of a company’s products
were unprofitable, management denial precluded meaningful change. In other cases failure was
留学生dissertation网the result of incorrect implementation. One company’s ABC model was so complex it was costly
to maintain and difficult to understand. Inevitably the information was not used for decision
making.
ABC’s gain from media exposure during the climb to the peak turned to loss when management
attention turned to other emerging methods. Interest in ABC declined after 1992 when attention
turned to business process reengineering, enterprise resource planning (ERP) systems and the
balanced scorecard.
The lesson from this period is that critical commentary, diminished user interest and failure are
inevitable byproducts of the development of an immature technology. The good news is that
ABC crossed the chasm of failure and continued its learning and development.
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Climbing the Slope of Enlightenment (1995-2000) Second Generation
Climbing the slope of enlightenment was characterized by increased market penetration and
continued technology development. This occurred in spite of the proliferation of ERP systems,
which were costly and time consuming initiatives, and the need to bring systems into compliance
with the new millennium (Y2K).
Early ABC implementations were focused on correcting the errors in overhead allocation to
products inherent in cost accounting systems. With continued development, however, it was clear
that ABC was applicable to areas outside the scope of cost accounting. These areas included
administration, sales, marketing, research and development, supply chain, and logistics. Figure 3
is an example of ABC analysis of cost-to-serve activities supporting customer profitability
analysis.
0%
100%
200%
300%
400%
500%
600%
0% 20% 40% 60% 80% 100%#p#分页标题#e#
Segment 3 Customers
Cumulative Profits (% of Total Profits)
Most
Profitable
Least
Profitable
Figure 3: ABC Profit Cliff. Note: The first 20% of customers account for 500% of profits, and
the last 20% of customers destroy 400% of the profits from this market segment.
In this example, approx. 20% of the customer base takes profits to almost 500% of what gets
finally reported. This figure goes flat for the next 60% suggesting they merely breakeven on cost.
The final 20% destroy profit by 400% to arrive at the final figure reported in the income
statement. The other interesting observation is that a single customer accounts for 120% of
profit.
With this kind of insight, managers are better able to segment customers and adapt process and
pricing strategies to deliver more equitable returns – even if that means “firing” the final 20% by
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increasing price to a point where they churn. A key lesson from this analysis could be that your
best customer, based on revenue, could be your worst. Traditional accounting completely hides
this kind of information.
ABC implementations expanded into insurance, healthcare, packaged goods, energy, banking and
other industries. These industries faced increasing competition during the 90s and benefited from
information about the cost of services, customers and activities. Government agencies and the
military used ABC to help ameliorate budget pressures.
The addition of predictive modeling to ABC extended its use from historical costing to resource
and capacity planning and scenario analysis. Predictive ABC models served as factual bases for
budgetary cost estimation and scenario analysis for decision making.
Another development involved creating detailed models of business processes. The process
models revealed opportunities for cost reduction, helped prioritize opportunities based on cost,
time and quality, and allowed tracking of the impact of improvements on resource capacity. Cost
savings of the magnitude of 10-30% of analyzed cost were achieved routinely across industry
sectors4.
Plateau of Productivity (2000-2006) Third Generation
The plateau of productivity is where the adoption rate approaches mainstream use of the
technology – a market penetration exceeding 30%. It is the point at which the benefits of the
technology are recognized and believed to exceed the cost and effort required to implement.
Market penetration for ABC varies from industry to industry and country to country. However,
there is evidence that penetration rates for ABC have reached the threshold of 30%. The Gartner
Group estimated that between 20 and 50% of global 1000 firms have adopted ABC5. A survey by#p#分页标题#e#
Business Finance in 2004 indicated that 37% of companies with annual revenues in excess of $1
billion had established ABC programs6. Earlier surveys in the 90s showed increasing adoption
rates over time and are consistent with ABC entering the plateau phase in the 2000-2004
timeframe7.
Increasing interest in ABC was fueled by several factors. These included new evidence of
financial benefit, emergence of a new generation of enterprise ABC methods and software, and
the use of Internet and business intelligence (BI) systems to report current ABC information to
decision makers.
Another positive factor was the desire of many organizations to realize a positive return on their
systems investments. These systems met important goals but often did not improve financial
performance. For example, ERP systems effectively integrated transactions but were unable to
4 Common Cents, Second Edition, pp. 166-168.
5 “Hype Cycle for Corporate Performance Management,” Research Report G00120927, Gartner, Inc.,
2004.
6 T. Leahy, “Where are You on the ABC Learning Curve?” Business Finance, December 2004.
7 A Bhimani and M. Gosselin, “A Cross National Investigation of Factors Influencing Activity-Based Cost
Management in Seven Countries,” Working Paper, December 2002.
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guide management which products and services to sell, and which customers to serve. ABC
corrected these omissions and revealed opportunities to improve financial performance.
New methods emerged that reduced the cost of implementation and reduced the effort required to
maintain ABC systems. These methods included web-based surveys, time-based algorithms to
measure complexity, and the use of extract, transform, and load (ETL) technology to integrate
ABC with data sources. These methods addressed concerns that ABC was useful but overly
difficult to implement and maintain.
Improvements in systems technology were important to these developments. ERP systems and
BI tools made it easier to build and modify advanced ABC models and report the information to
management. Enterprise ABC solutions coupled with enterprise level reporting tools were easier
to sustain over an extended time frame.
New uses of ABC emerged to increase the value derived from the tool. These uses included
shared services pricing models for IT and other corporate functions to support service level
agreements (SLAs) with business units, target costing for product design, optimization of
logistics, supply chain and IT investments, minimization of the total cost of ownership of
equipment and other assets.
An important lesson from this period is the impact of technology development and cumulative
learning on the cost-benefit equation of ABC. Enhanced functionality and reduced cost opened#p#分页标题#e#
up entirely new applications for ABC, and encouraged early adopters to take another look at this
method.
Post Plateau (2006-present) Fourth Generation
The beginning of the post plateau phase coincides with the use of ABC as an integral component
of a new generation of business performance management solutions. These new solutions include
profitability management, performance measurement, financial management, sustainability and
human capital management.
Profitability Management. As an example of change, SAS® Profitability Management
simultaneously offers increased analytic power and faster results from ABC. It is capable of
processing billions of transactions in minutes. This power allows ABC analysis of complex
business models with millions of customers. For example, a large telecom used SAS®
Profitability Management to create income statements for each of 21 million customers using
rates derived from SAS® Activity-Based Management. Data mining and statistical analysis on
this data yielded hidden insights into the drivers of profitability.
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Revolving Credit Products
Secured/Mortgages Unsecured Recurring Term Credit Cards
Total Interest Income 16,533 6,429 - - 3 ,513
Total Interest Expense - - 1 ,831 4,700 -
Net Interest Income 1 6,533 6,429 (1,831) (4,700) 3 ,513
Net Funds (197) (82) (74) (74) (68)
Total Non Interest Income 1 15 - 7 ,322 - 1 ,406
Provision for Losses 1 97 82 7 4 74 6 8
Direct Product - - 2 ,267 - -
Relationship Management 1 92 185 3 ,067 81 6 17
Sales and Marketing Effort 1 60 152 - - 6 4
Servicing Effort - - 2 ,800 - -
Net Contribution 1 5,902 5,927 (2,791) (4,929) 4 ,102
Credit Products Deposit Products
Contribution Summary for Customer KingPalmer
For Year 2006
Figure 4: Customer income statement.
Paradoxically, these new technologies offers fast results from ABC without the heavy lifting.
This is because cost rates from existing systems or analysts can be incorporated to support an
initial view of profitability. This allows quick results while creating a positive ROI that
encourages later more in-depth analysis using ABM. In some respects, this is “back to the future”
where tools such as SAS® Profitability Management are first used to “see” the profit
opportunities. A deeper drill down using ABM may be postponed to a second follow-on phase
when an organization desires to better manage and improve how they act based on the compelling
figures surfaced during the first phase.
From a change perspective, this two phased approach helps improve commitment and the longterm
success of ABM. As changes are made to the business model, these new technologies allow#p#分页标题#e#
faster more focused reporting of the impact.
Performance Measurement. Performance management plays an important role in strategy
execution. It is used to measure goal accomplishment, provide feedback on performance, predict
future performance, and trigger analysis and corrective action. These benefits will only occur,
however, if relevant and accurate performance measures are available for inclusion in
performance management.
In organizations that integrate ABC with performance management, ABC is an important source
of performance measures. These measures are typically found in the process dimension of a
scorecard where activity costs provide the focal point for target setting and scoring of goals
around process performance. In the case of the South Dakota Department of Transportation, for
example, as many as 25% of performance measures in SAS® Strategic Performance Management
are sourced from their ABC model.
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ABC derived measures are also found in the customer dimensions of the scorecard where goals
relating to customer profitability are set. It would be difficult, if not impossible, to include these
goals in the absence of an ABC model. It helps communicate the insights of the profit cliff and
drive action by a wider audience of responsible managers.
Financial Planning. ABC supports the preparation of budgets and long-term plans that are
logically derived from strategic goals and consistent with the relationship between goal
achievement and resource intensity. ABC models with predictive capability combine with
forecasting and other analytic techniques to support fact-based scenario development.
In an insurance company example, ABC cost was used to optimize process performance. Based
on new levels of productivity, forecasting derived the volume of transactions for the process for
the coming budget period. Once the forecast was complete, the planner used SAS® Activity-
Based Management to predict the quantity of each type of resource required to handle the forecast
volume of transactions. The predicted resource costs were then automatically input into SAS®
Financial Management to create the budget. This type of analytic support in budget preparation is
a far cry from the “let’s add 10% to last year’s budget”.
Human Capital Management. ABC today plays an important role in human capital management
(HCM). Many organizations, in both the government and commercial sectors, are working to be
more efficient by using fewer people but at the same time struggling to keep internal knowledge
and acquire the right level of skills. It is difficult to predict the number of people that will be
needed with certain skills and capabilities. It is more difficult to justify the need for additional#p#分页标题#e#
hiring in difficult economic times.
While solutions such as SAS® Human Capital Management can pull all the information together
and predict skills, capability and employee churn effects, ABC provides three important insights.
First, ABC analysis can be used to analyze high cost processes and improvement action taken to
free up resources. The freed capacity may be redeployed, using cross-training, to meet critical
needs. Second, ABC can be used to forecast the transaction level of activities, which are then
used to forecast the amount of resources used to perform the new level of activities. Finally,
ABC input can be used to perform statistical forecasting to accurately determine the number of
people required to support targeted products, channels, markets, customers, etc.
Many firms are beginning to use HCM solutions to bring all employee information into a single
platform. Analysis includes retirement planning, capacity planning, dissection of employee base
using stratification and forecasting of areas of skills shortage. ABC can be a useful complement
to these systems by providing the necessary intelligence at the process level to drive such
analysis.
Sustainability. Many organizations today have goals to improve sustainability, reflecting market
realities, pressures from stakeholders, and increasing government regulation in this area.
Improving sustainability requires measurement of carbon dioxide and other greenhouses gases,
optimization of business decisions around profit and sustainability, compliance and transparency
of reporting. ABC can help in all of these areas.
For example, SAS® for Sustainability Management uses the power of SAS® Activity-Based
Management to measure, model and report the use of carbon dioxide alongside traditional costs
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and profitability. An ABM carbon model can track sources of carbon (e.g., air travel) to the
resources that consume the carbon. The ABM model can track the amount of carbon used by
each activity (similar to the consumption of resource cost in a cost-based ABC model), and flow
carbon use from activities to the benefiting products, services and customers. In this way, ABM
facilitates the measurement, management and improvement of the use of carbon dioxide. It helps
suppliers communicate to their customers how much carbon is embedded in the products and
services received, and, more importantly, it provides a quantification of the benefits to the
customer of supplier programs to reduce their carbon footprint.
Financial Planning
Sustainability
Profitability Management
Performance Measurement
Human Capital Management
Process oriented metrics not
available with
traditional costing#p#分页标题#e#
methods
Greater cost information
accuracy
Improved
resource planning
and allocation. Greater
accuracy of budget planning
Provides a
means of linking
sustainability initiatives with
cost and finance information
Provides costs of
employees performing
activities
ABC
Information
Figure 5: ABC - the foundation of performance management.
This latest iteration in the ABC Hype Cycle is where the full potential of ABC is finally realized.
Viewed correctly over 20 years ago as a tool of value, it has taken continuous development,
learning and improvements in ABM software and enhancements in systems to solidify ABC’s
place at the center of performance management.
CONCLUSION
Like most technologies, ABC’s life cycle is marked by changing attitudes and increasing
diffusion into the marketplace over time. Intense interest at the beginning of its life gave way to
criticism and lowered visibility, followed by a longer, unpublicized period of steady growth in
adoption rates and functionality. It has now reached maturity and acceptance in the marketplace
for management ideas and methods.
ABC evolved greatly over more than two decades. Evolving from early experiments in costing,
ABC emerged as a tool for profit improvement and ABM was adapted for use in the extended
value chain and multiple industries, and enhanced for resource and capacity planning. In its most
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recent iteration, ABC is a multi-faceted algorithm and database of financial and organizational
information. It supports performance management systems where business users can access
ABC-derived decision relevant information from their desk top. These are the four generations of
ABC.
Accurate costing systems, cost and profit drivers, activity-based
management
1987 1990 2000
Multi-industry and extended value chain
application; predictive models; process analysis
Sustainable enterprise systems
Integrated performance
management solutions;
mega models, analytics
2010
Generation 1
Generation 2
Generation 3
Generation 4
Value
Figure 6: The four generations of activity-based costing.
Understanding this journey provides important lessons as organizations continue to adopt and use
ABC to create value. One lesson is that ABC is an integrated family of analytic costing methods.
A single ABC model can support historical cost measurement, predictive cost measurement,
resource planning, capacity planning, performance measurement and other analyses.
Another lesson is that the developments of ABC are sometimes misunderstood, and this may lead
to confusion and rejection. For example, assessing the value of ABC in lean accounting will#p#分页标题#e#
result in one answer if the assessment focuses on the first generation ABC costing method. It will
result in a different answer if the focus is on ABC as a process-based resource and capacity
planning tool.
As is true with any method or technology, ABC has gained impressive functionality over its life
cycle (Figure 5). ABC is at the heart of integrated performance management systems supporting
measurement and analytic applications in multiple settings. Concurrently, cumulative experience
and new methods have lowered the cost of implementing and maintaining ABC systems.
Understanding the cost-effectiveness of today’s ABC is important to assessing its value as a
strategic tool in today’s hyper competitive and volatile global economy. Assessing yesterday’s
http://www.ukthesis.org/Thesis_Writing/ABC against today’s requirements is akin to assessing the power, comfort, handling,
environmental impact, safety and fuel consumption of today’s automobile based on a study of the
Model T Ford. It is time to take another look at ABC.