Abc Is It Still Relevant?
Activity-Based Costing: Is It Still Relevant?
BY WILLIAM O. STRATTON, PH.D., CMA; DENIS DESROCHES; RAEF A. L AW S O N , P H . D . , C M A , C PA , C FA ; A N D T O B Y H AT C H
THE
POPULARITY OF ACTIVITY BASED COSTING -
(ABC)
GREW RAPIDLY DURING THE
1990S, AND,
ABOUT
IN THE FOLLOWING DECADE, MANY SURVEYS REPORTED USAGE RATES OF PAST
50%. OVER THE
10 YEARS,
HOWEVER, THERE HAS BEEN DEBATE ABOUT THE
OVERALL RELEVANCE OF THIS COSTING METHOD. TO INVESTIGATE THE CURRENT IMPORTANCE OF WIDE.
ABC, WE OUR
SURVEYED
348
MANUFACTURING AND SERVICE COMPANIES WORLD-
RESULTS INDICATE THAT
ABC
CONTINUES TO OFFER ORGANIZATIONS
SIGNIFICANT VALUE FROM STRATEGIC AND OPERATIONAL PERSPECTIVES.
O
ver the past several years, consultants, practitioners, and academic investigators have noticed that activity-based costing (ABC) methods, developed to improve decision support and the accuracy of cost- and profit-measurement systems, too often have yielded less than the desired results. For example, Robert S. Kaplan and Steven R. Anderson state, “Many companies abandoned activity-based costing because it did not capture the complexity of their operations, took too long to implement, and was too expensive to build and maintain.”1 Further criticism of ABC appeared elsewhere. “Straightforward in theory, ABC proved notoriously difficult in practice. It involved defining ‘activities’ and trying to judge (often subjectively) how much overhead each used. And it had to be done regu-
larly. Companies got fed up, and many abandoned it. From 11th position in the 1995 annual survey of the most widely used management tools (Bain), it fell to 22nd place (in 2002).”2 Studies of ABC use have reflected this dissatisfaction with the technique. The Bain & Company annual tools surveys in 2003 and 2005 reported use of activity-based management (ABM) at 50% and 52%, respectively, with associated satisfaction scores below the average for all tools used.
BY WILLIAM O. STRATTON, PH.D., CMA; DENIS DESROCHES; RAEF A. L AW S O N , P H . D . , C M A , C PA , C FA ; A N D T O B Y H AT C H
THE
POPULARITY OF ACTIVITY BASED COSTING -
(ABC)
GREW RAPIDLY DURING THE
1990S, AND,
ABOUT
IN THE FOLLOWING DECADE, MANY SURVEYS REPORTED USAGE RATES OF PAST
50%. OVER THE
10 YEARS,
HOWEVER, THERE HAS BEEN DEBATE ABOUT THE
OVERALL RELEVANCE OF THIS COSTING METHOD. TO INVESTIGATE THE CURRENT IMPORTANCE OF WIDE.
ABC, WE OUR
SURVEYED
348
MANUFACTURING AND SERVICE COMPANIES WORLD-
RESULTS INDICATE THAT
ABC
CONTINUES TO OFFER ORGANIZATIONS
SIGNIFICANT VALUE FROM STRATEGIC AND OPERATIONAL PERSPECTIVES.
O
ver the past several years, consultants, practitioners, and academic investigators have noticed that activity-based costing (ABC) methods, developed to improve decision support and the accuracy of cost- and profit-measurement systems, too often have yielded less than the desired results. For example, Robert S. Kaplan and Steven R. Anderson state, “Many companies abandoned activity-based costing because it did not capture the complexity of their operations, took too long to implement, and was too expensive to build and maintain.”1 Further criticism of ABC appeared elsewhere. “Straightforward in theory, ABC proved notoriously difficult in practice. It involved defining ‘activities’ and trying to judge (often subjectively) how much overhead each used. And it had to be done regu-
larly. Companies got fed up, and many abandoned it. From 11th position in the 1995 annual survey of the most widely used management tools (Bain), it fell to 22nd place (in 2002).”2 Studies of ABC use have reflected this dissatisfaction with the technique. The Bain & Company annual tools surveys in 2003 and 2005 reported use of activity-based management (ABM) at 50% and 52%, respectively, with associated satisfaction scores below the average for all tools used.