Activity Based Costing - ABC
At Considium we have worked with ABC analysis since the early 90's. Our focus related to ABC has been on smaller and medium sized companies using ABC as a tool to increase profitability. Combining Activity Based Costing (ABC) and Result Assurance have proved to be a very strong concept, bringing analysis and action together. ABC analysis bring forward facts related to customers, market channels, products and suppliers as well as information about the efficiency of internal processes. Result Assurance focuses on completing the agreed tasks at the agreed time, with clear responsibilities. The two concepts give strong support to sales, marketing and purchasing units of the company.
We do not believe in implementing complex ABC models, because the project easily ends up as an EDP project and not an ABC project. Findings in Swedish research also show that companies using fairly simple models have been most successful.
What does it mean in practical terms to work with fairly simple ABC models:
For some businesses ABC can be an effective tool, for others we do not recommend using the concept. Even if your business as such should be suitable for ABC, the company culture or business model can make it very difficult to benefit from ABC. In such situations ABC should not be used.
Project businesses, as an example, have other tools to ensure good management control (Result Assurance⁄ Project Assurance).
At Scandinavian business schools the responsibility for ABC analysis will typically be found in the "Department of Accounting and Auditing". We feel that this have created some limitation on the development of the ABC concept.
For Considium the work by Oliver E. Williamson (2009 Nobel Price in Economics) on "Transaction cost economics" has been a key element in our approach and use of ABC. This gave us a broader view, bringing the application of ABC into areas such as strategy, business modeling, environmental issues, marketing and data driven marketing.
For questions or comments please contact Frode Pedersen
Telephone: +47–66 85 24 80