Author:
TONY ADKINS
Publication:
John Wiley & Sons, Inc. 2006
PREFACE:
It has always fascinated me how energetic, passionate, and in some cases fanatical people get over a topic like performance management and cost management. Over the years I have seen discussions that could have doubled as death matches over whether you should use a verb/noun description of an activity in an ABC model.
I have always tried to boil it down to something simple. To me, performance management is optimizing your organization’s performance. If you are successful at using activity-based costing to understand your cost management, you are probably surfacing that information in a way that it can be used to make decisions. Many organizations use a scorecard for that. It could be a true “Balanced Scorecard,” as Robert S. Kaplan and David P. Norton describe in their book, The Balanced Scorecard: Translating Strategy into Action or a simple metrics report. Implementations that end in success typically use their cost information, in some way, for planning and budgeting. They may not have matured to a completely integrated system that automates their capacity information and their budget execution, but at a minimum, they take a greater understanding of their costs into their budgeting process.
Recently the fanaticism has been over methodology and modeling approach, top-down versus bottom-up, consumption based versus driver based, time- or event-based versus traditional ABC. All of these approaches are valid; however, there is no one-size-fits-all. In the foreword of this book, Gary Cokins outlines some of these approaches. I have implemented ABC models with small and large companies in over 15 countries, and they have all used multiple approaches in their cost model. Some costs are driven with traditional drivers, some are driven with a rate-based driver, and some simply use traditional allocations. None of these methodologies is new; ABC implementations have been using all of them since the mid- to late 1980s. There is expertise out there to help companies decide on a best fit for them.
The key, which you will see in many of these cases, is to evaluate your needs with a pilot project and design the model around your own needs.
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This book is a collection of case studies taken from actual companies. The names of the companies have been changed in the interest of anonymity. This book is for anyone who wants to gain a better understanding of performance and cost management and how activity-based costing is the basis for understanding an organization’s cost structure.
Tony Adkins March 2006