Activity-Based Costing

Activity Based Costing (ABC) is a proven methodology that accurately measures the cost and performance of resources, activities and cost objects (outputs). Activity-based management is the application of ABC to help an organization maximize the value of its products, services and customers.

Activity-based management has been widely adopted today because it provides an accurate picture of the real cost of doing business. It measures how well the components of your business – products, services, processes and customers – contribute value to your organization.

Equipped with such quantitative insights, managers and executives can make informed decisions to manage resources, optimize processes and improve performance.

Despite its growing popularity, traditional activity-based management solutions, which are mainly focused on modeling, do not offer much-needed capabilities for systems integration, data management, data cleaning, and reporting and analysis to support ongoing business initiatives across the entire organization.

Key benefits

  • Manage costs and improve processes. ABC helps organizations identify opportunities to control cost and improve process efficiency by determining the true cost of a product, process or service.
  • Understand the profitability drivers within your organization. With costs captured at the activity and transaction levels, you can assign them and revenues to different dimensions, such as products, organizations and services, to evaluate the impact of those costs on your P&L and accurately measure their profitability.
  • Identify your most valuable customers. ABC models the cost to serve customers at the transaction level and delivers profitability modeling and analysis for each identified customer. The solution incorporates all cost-to-serve elements, including products, channels and services.
  • Predict resource and capacity needs. With the consumption-driven modeling methods in Activity Based Costing tools, you can accurately predict the resource implications of changes in output demand. The solution includes measurement of unused capacity, activity-based budgeting, what-if scenarios and simulation analysis to make this process more accurate.