ABC has helped enterprises in answering the market need of better
quality products at competitive prices. Analyzing the product
profitability and customer profitability, the ABC method has contributed
effectively for the top managementís decision making process. With ABC,
enterprises are able to improve their efficiency and reduce the cost
without sacrificing the value for the customer. Many companies also use
ABC as a basis for a balanced
This has also
enabled enterprises to model the impact of cost reduction and subsequently
confirm the savings achieved. Overall, ABC is a dynamic method for
continuous improvement. With ABC any enterprise will
have a built in competitive cost advantage and can continuously add value
to both its stakeholders and customers.
The implementation of
Activity Based Costing is not easy - not an ABC. However special ABC software can be helpful.
Furthermore, Robert Kaplan and Steven
Anderson have suggested Time-Driven ABC. This is a
new approach to sidestep the difficulties associated with large-scale ABC
implementation (HBR November 2004). In this revised model, managers
estimate the resource demands imposed by each transaction, product, or
customer, rather than relying on time-consuming and costly employee surveys.
The Time-Driven ABC method is simpler since it requires,
for each group of resources, estimates of only two parameters: how much it
costs per time unit of capacity to supply resources to the business
activities (the total overhead expenditure of a department divided by the
total number of minutes of employee time available) and an estimation of
the unit times of activities -how much time it takes to carry out one
unit of each kind of activity - (as estimated or observed by the manager).
This Time-Driven ABC approach also overcomes a serious technical problem
associated with employee surveys: the fact that, when asked to estimate time
spent on activities, employees invariably report percentages that add up to
100. Managers should take into account time that is idle or unused. The
method also supports time equations, a feature that enables the Activity-Based Costing
model to reflect the complexity of real-world operations by showing how
specific order, customer, and activity characteristics cause processing
times to vary.
More financial methodologies
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