1

Activity Based Costing: Success is in the Eye of the Beholder

By Kim SoinFirst draft: Please do not quote without the authors’ permission. All comments and suggestionsare welcome

Correspondence to:Dr Kim SoinThe Management CentreKings College,University of London,Franklin- Wilkins Building150 Stamford Street,London SE1 8WADirect Phone Line and Fax: 0207 848 4093E-mail: kim.soin@kcl.ac.uk

2

Activity Based Costing: Success is in the Eye of the Beholder

AbstractThe literature on Activity Based Costing (ABC) tends to define the ‘success’ of an ABC systemin relation to the decision-making and strategy formulating opportunities it provides based on the‘logic’ or technical attributes of ABC (Shields, 1995; Malmi, 1997). This paper argues that thereis a logic of ABC and tries to identify and illustrate how people relate to, misunderstand and still‘appropriate’ this logic and start “talking accounting”. This paper shows that the ABC systemimplemented in this organisation did indeed provide information for decision-making and did tosome extent support the logic of ABC. The paper also shows how this knowledge was emergent,the logic was articulated, but not fully understood and it was only when the system wasimplemented that many attributes of the system were recognised and, in some casesmisunderstood. The paper argues that the ‘success’ of this particular ABC system was dependenton the organisational context, and the changing context as well as the logic. This is reflected inthe change in attitudes, awareness and understanding of costs in the department where it wasimplemented.

Key words: Activity Based Costing, financial services, and organisational change.

3

IntroductionThis paper examines the introduction of an Activity Based Costing (ABC) system in a UKClearing Bank. The development and implementation of the ABC system is traced over a periodof two years in relation to the organisational context, and during a time of significantorganisational change. This paper argues that there is a ‘logic’ of ABC based on the perceivedtechnical attributes of the system and tries to identify and illustrate how people relate to,misunderstand and still appropriate this logic and start ‘talking accounting’. Much has beenwritten about the technical aspects of ABC (see Armstrong 1999 for a summary), but the focusof this paper highlights the way in which the technical cost related attributes of the system wereinterpreted, understood and misunderstood by those developing the ABC system. Furthermore,the paper shows how the understanding or the misappropriation of the logic of ABC evolved andemerged as the system evolved and emerged. The paper considers the meaning of ‘successful’ABC implementation and the factors that are attributed to it (Shields and Young, 1994; Shields,1995 and Malmi, 1997). It illustrates some form of ABC ‘success’, showing how the logic ofABC worked for the bank in that it provided information for decision-making and informationon costs that had not previously existed. This ‘success’ was dependent on the organisationalcontext, in particular, the patronage of powerful individuals. Furthermore, it is argued that muchof the research presented in the academic literature on ABC is decontextualised and that there isa lack of empirical content in most discussions of ABC ‘success’. By exploring the nuances anddevelopments of what constitutes ‘success’ the paper shows how the definition of ‘success’changes as what constitutes ‘success’ changes in the empirics. The paper argues that the reason itis difficult to define ABC ‘success’ is because what constitutes ‘success’ changes as you applyABC and that ABC changes and moves when what it changes, changes and moves.

The banking context is particularly significant because ABC is often portrayed as an elaborationof existing costing systems in a manufacturing environment. For example, Armstrong (1999)argues that direct cost areas in manufacturing have long been subject to the rigours of scientificmanagement. The introduction of ABC/ABM involves the extension of these techniques(particularly, standard costing) into the unexplored regions of indirect costs that, in amanufacturing context, implies staff areas such as purchasing. But what of a sector such asbanking where, at least in the UK, the use of management accounting was very limited (Cobb etal, 1995)? Cost centres and budgets were established but the notion of linking costs to productsor customers was unknown. In this context, the introduction of a costing system such as ABCrepresents a wholesale change in accountability rather than just an extension to the unexploredareas of indirect cost. Furthermore, the implementation of a genuine ABC system requiresanswers to a number of questions. Where will the new cost data come from? How are cost poolsto be determined? More generally, given that an authentic activity-based cost system mustinvolve an element of work measurement and process analysis, how can senior managers resistthe possibilities opened up by their new knowledge of the business?

The paper begins by reviewing the literature on ABC and describes the ‘logic’ or technicalattributes of the system as well as examining ABC ‘success’. Drawing on Shield’s (1995) andShields and Young (1989, 1994), ‘factors’ for ABC ‘success’ are identified. The second sectionprovides a discussion of the research method. This is followed by a discussion of the casecontext in relation to the ‘success’ factors identified by these authors. Section four discusses theresults of the ABC system illustrating how ABC ‘in action’ did support much of the ‘logic’ ofABC. This is further developed in section five which considers how the ‘logic’ has, to someextent, been misunderstood and how despite this the system is largely ‘successful’. Finally, thereare some conclusions.

4

The ‘logic’ of ABCMost published empirical studies of ABC have highlighted methodological and operationalissues in ABC implementation whilst also raising questions about ABC's technical effectivenessin the face of managerial information requirements (Cooper 1985, 1986, 1988a; Kaplan 1987b,c;Shank and Govindarajan 1988; Innes and Mitchell 1991). As an approach to cost information, ithas been argued that ABC provides accurate and relevant cost information as a guide for makingprofitable decisions about products or services and revenues and costs. It has been seen toprovide a way to organise the collection, processing and reporting of cost information thatsupports decision-making and strategy formulation. The early, espoused goal of ABC was toimprove the accuracy of a single base absorption system (Cooper and Kaplan, 1988; Armstrong,1999; Jones and Dugdale, 2000). Numerical examples were used to demonstrate the direconsequences of making output and pricing decisions based on the "wrong" cost figures. Thefocus of ABC was on the decision-making perspective rather than on the other possibilitiesarising out of changes in organisational design and management control (Simons, 1995; Malmi,1997).

The logic of ABC suggests that by analysing the activities performed for individual products andservices and attaching costs to the activities, efficiency and effectiveness in work practices canbe improved: Efficiency can be improved by eliminating duplication and unnecessary activities,improving work flows and training staff. Effectiveness is dependent on undertaking the rightactivities efficiently. Thus management can prioritise areas where effort should be focused andidentify areas where costs can be reduced or performance improved. In effect, ABC makes costsvisible and guides managerial attention to the cost source where action must be directed toexercise control effectively. Morrow and Ashworth (1994) suggest that is often a pressingbusiness issue that triggers an organisation's first exposure to, or interest in activity-basedapproaches.

The focus on technical effectiveness contrasts with research calls which have been made forgenerally better appreciating the rationales for accounting change (Burchell et al 1980) and, forexploring accounting action in different organisational contexts and understanding itsconsequences in a broader light (Hopwood 1985, 1987). Bhimani and Piggott (1992) explore thebehavioural and organisational consequences, which can arise in a company once it hasimplemented ABC and examine these effects within the perspective of pre-defined expectationsabout a change in accounting system. They found that the perceived role of the accountingfunction within the enterprise changed following the adoption of the new costing technique andthat the authority and organisational power base of different line managers also shifted.Additionally, the ABC system was adopted for reasons other than simply ensuring greateraccuracy in product costing. One significant objective included overcoming the barrier ofproduct costs being the domain of the accountants by involving all the factory management.Ezzamel et al (1995) observed that new systems like ABC were not only providing detailedmanagement and control system information, but were also measuring the value of middlemanagers and introducing new forms of accountability.

‘Success’ and ABCA number of papers in the accounting literature have focused on the factors that influence ABCsuccess or failure (Cobb et al., 1992; Anderson, 1995 and Shields 1995). Shields (1995) showsthe variation between the degrees of success that firms have with ABC and highlights theimportance of behavioural and organisational variables in explaining cross-sectional variation inrelation to ABC success. An interesting point to note is Shields’ comment on defining ABCsuccess.

5

“Providing a definition, however, was problematic as the literature is vague about whatconstitutes success, and discussions with ABC experts during construction of the survey did notresult in consensus about a tangible definition. For example success can include top managementnot rejecting it, an implementation of ABC per se, use of ABC information by non-accountants,gaining competitive advantage and providing additional profits” (p153).

Shields (drawing on Shields and Young, 1989) found that the following factors all positivelycorrelated with ABC success; top management support, linkage to competitive strategies, linkageto performance evaluation and compensation, sufficient internal resources, training in designing,implementing and using ABC, non-accounting ownership and consensus about and clarity of theobjectives of the cost management systems, highlighting that:

“…the fate of ABC depends on how well it matches the preferences, goals, strategies, agendas,skills and resources of dominant or powerful coalitions of employees, particularly topmanagement” (p149).

Overall, Shields depicts a framework in which certain variables determine what is important toemployees and how prepared they are to accept and work with innovations. He argues that‘success’ is increased when these variables are used as part of an integrated implementationstrategy. The model identifies ‘incentives’ which encourage employees to use ABC information;top management support for ABC is seen as vital; senior managers can focus resources onactivities they deem worthwhile and sideline innovations that they think are not. Furthermore,they have the ‘clout’ to overcome individuals who resist the innovation. Shield’s further arguesthat linkage to competitive strategy; performance and evaluation are important to motivate andreward employees and encourages them to focus on using ABC information to improve theirfirms’ competitive position and profits. Consensus about and clarity of the objectives of ABCamong ABC designers and users are necessary to ensure that ABC systems are ‘producedefficiently and are effectively used” (p 150). Shields highlights the importance of training indesigning, implementing and using ABC is an important for two reasons. Firstly, it is seen to bean important way to interrelate ABC among strategy, performance evaluation and compensation.Second, it provides an opportunity to achieve non-accounting ownership.

Malmi (1997) takes a different approach when considering ABC success and failure. He arguesthat one of the problems of the ‘factor’ models used by Cobb et al, (1992); Anderson, (1995) andShields, (1995) is that there is no limit to the number of possible factors affecting theimplementation outcome. Furthermore, the factor approach fails to address:

“both the completing and complementing ways of obtaining information and controllingactivities in organisations, and the existence of many stakeholders in the ABC implementationprocess”(p460).

He argues that in the context of strategic decision-making the success of ABC cannot depend onwhether its results require any actions or decisions to be taken, but on its ability to make acorrect diagnosis of the situation. His study highlights that resistance (and in this case, thesubsequent failure) may have several sources, some related to costs and benefits of ABC, someassociated with organisational power and politics and some associated with organisationalculture. Cobb et al (1992) suggest that major problems, or sources of ABC failure areattributable to a lack of adequate internal resources, (in particular staff time and computerresources) and employee resistance (Argyris and Kaplan 1994).

6

These studies have tended to emphasise the functional aspects of success as opposed to thecontextual features of organisational life within which ABC is enacted. The intention here is tofocus attention on the "theories-in-use" or "mental models" (Argyris and Schon, 1974) orattributions, which are basic to the conduct and understanding of the organisational actors. Evenaccountants are not acting as "objective evaluators of reality" but are constructing reality withbiases (Morgan 1988).

MethodologyThe empirical research was based on a two-year longitudinal study (April 1992-February 1994)1

when the author was invited into the bank to work with the ABC team on the development andimplementation of an ABC system. Acting as a participant observer, the author initially spentfour months in the organisation working with the ABC team and then returned periodically to theorganisation; these visits ranged from one day to one month. The author’s primary role was toassist with the theoretical issues of ABC. A case study method was adopted, one that was bothexploratory and explanatory (Scapens, 1990) and was used as a medium for striving aboutcomplex social processes within a single organisation (Munson, 1990).

The data collected included interviews with managers and senior managers responsible for theABC system. The interviews with the ABC team members were conducted on an on-going basiswhile the researcher was working with the team at the bank. This was followed up by a numberof face-to-face and telephone interviews after the researcher had left the research site, whichlasted up to one hour. Attending interviews was a valuable source of data as were minutes frommeetings, internal memos, reports and letters. The researchers’ own notes and interpretation ofevents were an important source of data collection. A detailed diary of events recorded theinformation. Much of this information was based on organisational “gossip” and informalconversations, and verified through triangulation; where possible, other subjects wereinterviewed and documentary evidence was obtained. Much of this ‘gossip’ was gathered fromlunchtime discussions in the staff restaurant, chance meetings in corridors and from individuals‘dropping’ into the ABC pod. In addition, the researcher made contact with, and gatheredinformation from, the Clearing Department by attending interviews with the ABC team members.The researcher sat in as an observer on most of the interviews that were conducted withindividuals on all shifts2 in credit clearing operations, debit clearing operations and sorteroperations. The purpose of these interviews was to gather activity analysis information for eachsection.

Although the participants in the Clearing Department knew they were being studied, most ofthese individuals saw the researcher as a ‘neutral’ whose main concern was her education.Indeed, the researcher often encouraged the ABC team (or rather did not discourage them) fromseeing her as an ‘academic’, who by (their) definition, was not in touch with the ‘real’ world oforganisations. The researcher adopted a naive persona and let the ABC team members instructher about organisational ‘realities’. This passive stance meant that the research method could notbe considered ‘action research’ (Eden and Huxham, 1996; Kaplan, 1999). An important featureof the data collection was the researcher’s own bias because the researcher was closely affiliatedto the ABC team and consequently built up close personal friendships. A limitation arose as aresult of confidentiality. Often it was difficult to check the validity of evidence because

1 The author acknowledges that the empirical data is 7-9 years old and that there may be problems in relating this tothe current literature. Reference has been made to both older and newer literature on ABC. On the other hand, theuse of current literature provides simply a richer basis for analysis.2 There were three shifts in the Clearing Department: the early shift, the late shift and the night shift.

7

confidences had to be maintained. This was particularly difficult for the researcher because shehad to be seen to be loyal and sympathetic to the ABC team and was often ‘stonewalled’ in herefforts to gather information from other sources. Despite the researcher’s awareness of her ownbias and her efforts to avoid this much of her interpretations were influenced and shaped by herown sense of being an ABC ‘team member’.

The Organisational Context3

This section discusses the organisational context in relation to Shields (1995) factors for‘successful’ ABC implementation. The factors are identified and related to the case context andillustrate that it is difficult to neatly categorise the factors because they are dependent on thechanging dynamics of the context.

Take in Figure 3The Banking EnvironmentIncreased competition, (brought about by deregulation), in the Financial Services sector in the1980s and 1990s has forced the UK Clearing Banks to become more commercial and more costconscious. As Cobb et al (1995) highlight: The 1980s saw a dramatic change in the bankingworld, which resulted in,

“a reduction in margins and increase in costs, leading banks to report large losses for the first time in many years”(p. 158).

As a result of increased competition the emphasis has shifted to improving productivity andreducing costs. New people have been introduced to facilitate this and those who wereuncomfortable with the new ways of working have been removed by early redundancyprogrammes and organisational restructuring, Ezzamel et al (1995). Prior to the deregulation ofthe banking industry, the Clearing bank organisation could be conceptualised as a machinebureaucratic configuration (Mintzberg 1979), characterised by routine operating tasks,formalised procedures in the operating core and high specialisation. There was a proliferation ofrules, regulations and formalised communication throughout the organisation and power fordecision-making tended to be relatively centralised. The Clearing bank was an organisationcharacterised by inflexible administrative control with a sharp distinction between line and staff.Significantly, Mintzberg states that machine bureaucratic work is found in environments that aresimple and stable and cannot tolerate an environment that is dynamic or complex. The UKFinancial Services industry had existed in a comfortable and predictable environment, one whichwas dramatically overturned in the 1980s, following economic deregulation and political re-regulation through the Financial Services Act. Consequently both management accounting andActivity Based Costing have become more significant in the banks management control systems,Soin et al (2001).

The ABC project was located in the Clearing Department, a part of Sterling Operations whichitself was located within the Payment Services Division of Trafalgar Bank, a large multinationalUK-based bank. Three service Departments supported the Payment Services Division: theFinancial Control Department, the Human Resources Department and the Internal AuditDepartment (Figure 1). The Financial Control Department was responsible for costing and theHuman Resources Department was responsible for personnel matters. There were a number ofchanges taking place within Payment Services, and the climate was one of ‘fear’ with individualstalking about expecting a “brown envelope”. Management consultants were carrying out timeand motion studies and it was rumoured that they were looking to reduce the Clearing workforce

3 Figure 2 provides a list of the main characters

8

by almost fifty percent4. The ABC system was therefore introduced during a period ofuncertainty and turmoil in both the financial department that was developing it and theoperational department where it was being implemented.

Take in Figure 1

The Clearing ProcessThe Clearing process begins when cheques come into the Clearing Department from the bankbranches, or from bulk customers like Building societies. After going to the ‘make ready’ area,they are manually encoded. The cheques then pass through the single entry machines orautomatic reader sorters. The pressured manual nature of the work can lead to errors and hencereject cheques. Finally the cheques are despatched to the Clearing Houses.

Management Accounting and Control SystemsIt was difficult to identify the management control systems that existed prior to the start of theresearch. The researcher’s enquiries were met with a cynical laugh when she asked aboutmanagement control systems in the bank. The ABC accountant informed her that the managersin Sterling Operations were:“old school and traditional. Many of them have worked their way up through the branch system.They have very little belief in, and time for, non-financial information. They are not willing toembrace modern management techniques and are loath to deal with new technology and, whilethe ideas for changing the systems are there, resistance is often met very early on.”

The management control systems that existed were of an implicit nature based on the routinenature of tasks, bureaucracy and hierarchical control. In effect, they reflected the machinebureaucratic character of the organization. The nature of control and control systems were beingchanged from inflexible administrative controls and tight bureaucratic structures to systems thatrequired managers at all levels to present information of events in their area in a consistent andquantifiable form (Ezzamel et al 1995). Knowledge of these new systems was however emergentand those who were developing and implementing the systems were constantly learning from it.

The old costing system was a relatively ill-defined and unsophisticated management accountingsystem, one that essentially reflected the organisational structure of the Clearing Department,with staff and premises allocated by cost centre. The emphasis across the whole bank had beenlimited to conventional budgetary control by cost centre with full allocation of overheads.Responsibility for decision making in the Clearing department lay with the operational people,not the financial people who were viewed as “outsiders” (quote from Annie Eastern).

The Sterling Operations Divisional ManagersAs stated earlier, Shields (1995) cites top management support as an important feature of ABCsuccess. During the period of the research there were three different Divisional Managers forSterling Operations. These managers affected the ABC project in different ways, and it was thethird Divisional Manager who accelerated implementation of the system and in effect ‘forced’the Clearing department managers to accept the system.

The first divisional manager identified a need for detailed cost information for the Clearingdepartment. At the senior management level of Sterling Operations the issue of costs, inparticular identifying unit costs had become a dominant issue. The ABC accountant stated that:

4 In the end the workforce was reduced by approximately twenty percent but there had been voluntary redundanciesprior to this.

9

“Andrew Wright liked unit costs and was interested in using the notion of unit costs in the Clearing department”.

The second divisional manager was an‘operations’ man who was not particularly interested inABC. He did nothing to advance the project, nor did he do anything to hinder it. The ABCaccountant stated:“David Coles did not want to know about ABC at all. As far as he was concerned accountants were a complete wasteof space and an unnecessary overhead on the business. Which is why, during his ‘reign of power’, there were no costmanagers. There were no effective cost management measures at all really achieved.”

In fact, soon after becoming Divisional Manager, he shredded all the information he had beengiven on unit costs.

The third Divisional Manager was wholly supportive of the ABC system. It was a system that heliked, approved of and was familiar with, and he was a significant player in ensuring itssuccessful implementation. He understood all the different things that ABC could be used forand could see the advantages of this type of cost information, and its worth, in a competitiveenvironment. The third Divisional manager was an ABC devotee who prioritised implementationof the system and in effect forced the Clearing Department personnel to accept the system.

There were further problems at the level of middle managers with resulted in fragmentation inrelation to the ABC development and implementation. The Financial Control department wasrestructured in March 1992 and resulted in a situation where the managers of this departmentbecame locked in a ‘power struggle’. Their new areas of responsibility were poorly defined andfour senior managers were left vying for three positions. This situation had ramifications for theABC project. Roger Unwin was responsible for the ABC project and it had initially been his idea.Matthew Price was given responsibility for “projects” a general ambiguous term, but one of hisresponsibilities was a Human Resource Engineering project that started shortly after the ABCproject. Throughout the early stages of the ABC development however it was rumoured that hewould be taking over the ABC project. The ABC team was caught in the crossfire of theserumours and conflict and this had a profound impact on their motivation. In addition, the ABCteam perceived that Roger Unwin spent a lot of time fighting his own political corner and wasnot providing much support for his team.

Drawing on Shields (1995), it seemed that there was very little clarity about or consensus ofobjectives in relation to the introduction of ABC. The development and implementation of ABCwas very ad-hoc. At the outset the project did not have the support of key managers like theHead of the Clearing department. The lack of on-going support and the organisational politicsmeant that the system and team were constantly fighting for legitimacy, and the ABC team wasconstantly in fear that the project would be terminated. The management accountant in charge ofABC was flitting between other projects. Added to this, it seemed that there were two reasons forintroducing ABC into the Clearing department. The first reason relates to the ‘logic’ of thesystem. The reasons for introducing ABC broadly concur with the ‘logic’ or technical attributesof ABC as it is defined in the literature (see Berliner and Brimson, 1988; Cooper and Kaplan,1988; Johnson, 1988; Roth and Borthick, 1989; Shank and Govindarajan, 1989; Brimson, 1991;Innes and Mitchell, 1991 and Yoshikawa et al, 1993).Howard Eldridge stated that ABC was introduced:“in order to identify the costs of the Clearing process in the Bank and to use this information togive us a competitive advantage in our Clearing operations. Clearing Departments across themajor Clearing banks have large amounts of spare capacity due to the introduction of newtechnology and because paper has become a dwindling market. In addition, the competitiveenvironment for cheque Clearing has, and is changing, and new opportunities are emerging.”

10

As a consequence of deregulation other organisations like the Building Societies, were nowproviding cheque facilities and needed to have the cheques cleared. These companies were usingthe Clearing Departments that already existed within the Clearing banks and it thereforeprovided an opportunity for the Clearing Banks to utilise their ‘spare capacity’. The banks hadto tender for these contracts and needed information relating to the cost of cheque clearingactivities.

ABC was also introduced as part of a broader strategy within Payment Services which wascentred around cost reduction, cost recovery and the concept of unit costs. It was a cost reductionand minimisation exercise. An extract from the 1993 Group Objectives illustrate this strategy:"-Ensure consistent support in terms of financial information and productivity measurement forall Payment Services cost centres-Establish unit cost measures within routine operational reporting-Achieve full cost recovery for all Payment Services Activities"

The Management Accountant in charge of the ABC project described the ‘logic’ of ABC asfollows:

“It’s intended that ABC will provide an understanding how costs are increasing and /ordecreasing and an appreciation of how resources are consumed and used. We expect it will aid inestablishing exactly what is the process behind the products/ services and how have they changed.It will provide a means by which to identify value-added and non-value-added activities in thecheque Clearing process, and also it will provide more accurate costing measures. It will provideus with the facility to model "what if" scenarios more effectively. Finally it is being introduced inorder to determine the effect of changing volumes through the cheque Clearing system becauseincreased volumes mean decreased costs and wider margins. It also means that the Bank will beable to offer the lowest possible tender price for outside clearing contracts.”

Adding, that the specific aim of the project was:

“to be able to offer a complete breakdown of exactly what the costs and services in the Clearingdepartment are, in order to identify the cost drivers of the activities in the value chain for thecheque clearing process. We all know there is a lot of slack5 in Clearing.”

Figure 3 shows the ABC team responsibilities.Take in Figure 3

The second reason for introducing ABC relates to the social and behavioural aspects oforganisation life. There was a general perception that ABC was simply a fad; a fashionablemanagement tool touted by consultants and heavily praised in the professional accountingjournals.The ABC accountant stated:"The main reason people wanted it put into our organisation was because the relevant seniormanagers at that time had read about this wonderful thing in the various management journalsand thought wouldn't it be nice to have this in our organisation. Quite often there is someone inan organisation who hears about a new concept or technique and thinks wouldn't that be nice butthey don't really know."

5 This point was made by a number of managers and assistant mangers that were either working in the Clearingdepartment or had left to work on clearing related projects.

11

Other motives were attributable to personal ambitions. The General Manager of PaymentServices regarded cost effectiveness as strategically important for the group. ABC was seen as ameans of developing a power base and initiating new ideas was looked upon very favourably,particularly when they involved cost saving identification devices. Individuals, who advocatedthese systems and initiated these projects, were not necessarily interested in the final outcomesbut were merely using these as a stepping-stone to promotion. As the ABC accountantcommented:"a lot of people do not believe in ABC, that is, what it could do for the business, they areinterested in what it could do for them".

The aims, objectives and purpose of the system were not formally communicated to the ClearingDepartment members from the outset and there were no training programs that discussed thelogic, design, implementation and use of ABC. Consequently, apart from being the observedsubjects, there was very little input from the Clearing Department managers. It was viewed bythe Clearing Department as “just another system” (quoted from a Clearing departmentsupervisor) that did not really have any weight behind it and at first many individuals chose toignore and / or resist it. The ABC team found it difficult to get co-operation from the linemanagers and supervisors and consequently found that:"we were using the system ourselves to get information, though really we should be providing itto them for their use." (Annie Eastern).

The response to ABC was characterised by Howard Eldridge as falling into three categories:

"You seem to up against a middle-management that don't want to see change ...until it is forcedupon them. (There are) those who are dead against what you are trying to do just because they donot like change and they will block you at every opportunity and you just have to 'kick them outof the way' because you are never going to bring them round. There are those who pay lip serviceto what you are doing because they think their superiors expect them to do something and finally,there are those who are really interested in what you are doing and want to use it. Unfortunately,in organisations such as ours, the last category, the merchants of change are quite limited."

The ABC team stated that they used ‘underhand’ and coercive methods to ensure acceptance ofthe system. Howard Eldridge stated:“First, we got the clearing department to agree overall with what was being done. Then wewould ‘light the fuse above them’ by going to the Head of the Division (Thomas Strines) andshow him what the ABC system was highlighting, and suggest that something should be doneabout it. As a result, the Clearing department began to understand what ABC was doing andmany of the Managers in the Clearing department inadvertently 'bought into ABC’”.

Shields (1995) cites communication and training as key features of successful ABCimplementation. In the initial stages of ABC development there was very little informationcommunicated to the Clearing department about the purpose and aims of ABC. Much of theresistance to the accounting system can be attributed to this lack of communication. In manyinstances the only reliable channels of communication were of an informal nature and dependenton organisational ‘gossip’.

Results of the ABC Implementation

The ABC system was successful in a number of ways and the ABC accountant summed thesystem up as follows:

12

“The system has flagged up key elements of what is driving costs in the Clearing Department -as opposed to simply highlighting a large cost base that needs to be reduced. It has highlightedthe fact that although, in theory, the Bank knows what the Clearing Department costs, it doesn’tknow what influences costs. The ABC system is affecting the management decision-makingprocess because it’s providing information for the senior managers in the Clearing Department tomake a considered choice about whether or not to keep certain activities or whether to modifythem.”

An example of how the ABC information provided a new cost visibility is given by the case ofreject cheque analysis. The ABC system provided information which showed that a normalcheque would be 3p to clear, but if it is rejected due to bad processing or encoding, the cost goesup to 16p. It was highlighted that a reject cheque may not just be the fault of the processors i.e.through the Clearing Department. Reject cheques might come from the branch end, or someonemay simply have had a cheque screwed up in their pocket. This is an example of non-value-added and highlights the way in which costs were made visible. Furthermore, the issue of thecost of the reject cheque result illustrated that the ABC analysis is about the process of chequeClearing and not just the functions in the Clearing Department.

The ABC results also showed that there are many cost incurring activities that are not takenaccount of. Annie Eastern observed:"There are some activities where they get 'loose items' that are just 'rubbishy' bits of paper, thatthey have to ring up and find out where they have come from. They are not actually credits orcheques, but they are sent up, (to the Clearing Department), anyway. It's a cost. So we suggestedthat they didn't do anything, (with the loose items) because of the cost it is incurring. Anotherexample is for the Leeds tender; in this instance there were two people going down to thebasement to pick up the work and we costed that on one person. They were doing things twiceand once we'd stripped out those costs we cut costs by a considerable amount."

In relation to the issue of value-added and non-value-added, one of the ABC team memberscommented:"Also with ABC we can identify activities like those which are value-added and non-value-added and we are hoping to introduce that soon. With the ABC information, we can say to theClearing Department managers 'do you really want to / still want to do (certain) activities, this ishow much it is costing you'. But they have then got that information and they can make thechoice and decide whether to scrap or keep certain activities".

One of the elements that emerged from the introduction of the new system was the issue of non-conformance costs. By highlighting non-conformance costs, the ABC system identified costs thatwere customer driven (Johnson and Kaplan 1987, Bellis-Jones 1989, Jeans and Morrow 1989and Morrow 1990). As the ABC management accountant stated:“This has proved to a big issue in the paper Clearings area. The Clearing Department takes inputfrom a customer and completes the cheque Clearing process in order to provide an output. TheABC system has highlighted that individuals in the Clearing Department spend between 20%-40% of their time or resource or process putting right what they have received to process. As aresult, they have started to look at how they could organise their customers and encourage andmotivate them into presenting their work to the Clearing Department at a much higher level ofquality in terms of the standard of presentation they require”.

The ABC information provided a facility to carry out "what if" scenarios of business caseanalysis in a more sophisticated manner than before. The information provided by the ABC

13

system provided opportunities for business process re-engineering. An example here was theClearing Departments’ processing work for Building Societies. The activity-based informationenabled a very detailed cost breakdown to be provided. As Howard Eldridge explained: “When a tender comes in, we break down the cost down into even lower levels of detail andconsider how the process can be re-engineered and changed to get the cost down, to make thingscheaper, better and establish what the customer sees as their value-added. This gives a clearpicture of what we are doing for the customer and as a result, by changing the process in a subtleway, it was possible to "cream off" 30% of the cost of a particular process. The customer was notaware of it and it did not detract from their perceived value-added”.

Activity based analysis was used here to improve the efficiency and effectiveness of the processby analysing the activities performed. The ABC information enabled a reduction in the cost ofthe process but was still providing the same service to customers.

As a result of the ABC information transfer-pricing issues emerged. Trafalgar Bank had theClearing contract with the Leeds Permanent Building society, who would on occasion re-offerthe tender out to all the banks competitors. Annie Eastern illustrated how the ABC system hadbeen used:

"...what we've done is to use the ABC system to break down all these costs and we supplied thatinformation to prove how much it costs to clear the cheques. Then Corporate Banking (who areresponsible for communicating and negotiating the tender) came back and said OK, but a lot ofthis work you are doing is for your own use. You are doing things twice to help thereconciliation, and there was a lot of audit control. So they said we want to strip out a lot ofactivities. I mean that is good because you've then got the costs. So we took out all those costsand then they had quite a cheap cost for doing the service. We were still being undercut byNapoleon bank and Western bank who were offering really low prices, and it has now got to thestage where Corporate Banking are worried about losing this business. But if we go in at a lowcost we won't recover all our fixed costs."

This information did however cause problems. Corporate Banking6 had seen tenders that theClearing Department has given them with the very lowest unit cost to clear a cheque. Thesetenders were based on increased volumes going through the system in the event that the contractis won. As a result, Corporate banking wanted transfer pricing at the lowest cost because theyhad seen the figures: Annie Eastern stated "We are currently having wars with CorporateBanking at the moment over that." In this respect, the ABC information had shifted the balanceof power in favour of Corporate Banking.

Issues like the cost of reject cheques, the cost of non-conformance and the cost of value and non-value were the results of information being extracted from an ABC system and using thatinformation to manage the business through activity based management methods. There was alsoan element of strategic management accounting because by using activity based management tomanage the Clearing process, the Financial Control Department were providing information thatallowed the Clearing Department to competitively position themselves in the market place.Furthermore as a result of the ABC information, the Clearing Department was identified ashaving high cost activities and high staff content that targeted it for further IT investment.

6The Clearing Department provide the tender information to Corporate Banking.

14

Despite its partial success in identifying the costs of the Clearing Department the ABC system, itwas perceived that the system was a long way off from being used to its optimum. HowardEldridge commented:"What actually happens is; you create an ABC system, instead of using it for all the things thatABC can ever be used for to create an ABM environment. You get a situation where you thenget dragged off into the more sort of standard accounting type routines. We probably spend thirtyor forty per cent of our time doing stuff that you don't need ABC for, but that ABC provides avery neat theme to. Thirty per cent of my time is probably spent on things that I don't need ABCfor, I just need elements that can come out of ABC that were coming out of other systems before.The only way to get round that is to have an ABC team, project, system, whatever you want tocall it that is totally independent from the mainstream finance function. What you are doing iseffectively creating this new potentially powerful system, but to a degree you are 'manacling' thehands of the people running that by keeping them tied into what was there anyway."

DiscussionIn this paper the ABC system is viewed as being successful both in terms of the application of its‘logic’ (that is cost and activity identification), and because it was instrumental in changing, orshaping attitudes towards an understanding of costs. The empirical findings accord with someaspects of the ABC literature but also highlight some issues, which have not been raised. Thetechnical rationale for introducing ABC accords with aspects of the literature: ABC wasintroduced as a response to increased competition (Cooper and Turney 1990) and was linkedwith strategic management accounting (Bromwich and Bhimani, 1989). The reject chequeexample showed that ABC provided cost information, which was perceived to be more relevantthan that of the old system, and was seen to provide a basis for better on-going cost management.The empirical evidence showed that ABC was providing more relevant information for decisionmaking (Cooper and Kaplan, 1988; Malmi, 1997).

It is possible that much of this ‘success’ was serendipitous because there was very little costinformation available in the Clearing department. The ABC implementers did not anticipate theresults ABC would provide. They were aware of the ‘logic’ of ABC i.e. the technical merits, butthey could not see the way in which the ‘logic’ was wrapped up in the organisational context andhow it would be shaped by individuals and events within the organisation. So, while the systemwas ‘successful’, the study reflects a partial appreciation by the ABC accountants of the uses towhich the system is put in practice. The second aspect relates to the organisational politics andthe role of the different stakeholders that existed. When the project started, it did not have thesupport of the senior managers. The levels of support changed as the Sterling OperationsDivisional Managers changed and the project gained and lost credibility depending on whetherthe Divisional Manager leant towards finance or operations. In the final act the system wasimplemented because the Divisional Manager at the time was an accountant who ‘liked’ ABC.The supervisors and line managers in the Clearing Department perceived the ABC system as ameans of promoting control. In the past, they went along “merrily spending what they wanted”(quoted from Annie Eastern). They felt that the emphasis on identifying activities made theclerical staff in the Clearing Department feel like they were being monitored all the time7 and ina way that had never happened before. It is worth noting though they felt antipathy to any newsystem, not just ABC. This feeling stemmed from the general climate of organisational change (aperiod of lay-offs and redundancies mentioned earlier) as well as the fact that both Managementconsultants and ABC analysts were in the Clearing Department at roughly the same time. By

7 This feeling was expressed by Clearing department managers and supervisors on a number of occasions – both ininformal conversations and also in interviews where the ABC team were trying to gather activity information.

15

making costs visible, ABC had generated information, which was a means of making individualsaccountable for their actions and the costs that were created via activities.

On another level however, despite being able to articulate the ‘logic’, understanding of thesystem and the decision-making opportunities it provided was very limited and emerged onlyonce the system was implemented. Furthermore, the usefulness of cost information was onlypartially recognised because the ABC team were trying to reify costs. The senior managers whowanted to identify the costs of the Clearing Department were not completely sure of the type ofinformation they wanted at the early stages of ABC development, and the reasons why thisinformation was going to be produced. They did not know enough about the Clearing departmentoperations in order to determine their information requirements and hence the type ofmanagement accounting system that might be useful.

There were indications that the ABC team accountant did not really understand some of thetechnical attributes or uses of ABC. In the early stages of ABC development and implementationit was perceived that the system would provide information on exact costs as opposed toinformation for decision - making. The notion of wanting to know exact costs was going fromthe extreme of not knowing anything about the cost of the Clearing Department, to knowing theexact cost down to the ‘penny’.

There was a perception that costs could be objectively determined. The ABC team membersassumed that because the information was accounting information, it must be correct.Furthermore in the developmental stages of the ABC project, the ABC accountants were viewingthe activities in the Clearing Department on a functional basis. Hence, ABC was just about theClearing Department and was not initially seen as part of the organisation process. Once ABChad been implemented however, managers (both operational and financial) were able to view thebusiness of the Clearing department horizontally through the organisation as opposed to justprocess-by-process. In the case of the reject cheque, the business process re-engineering thatresulted from the ABC information went back to the branches that were initially receiving thecheques to be cleared. But, these results only emerged once the system was up and running.

Further confusion about the ‘logic’ of the system relates to the issue of ABC and competitiveadvantage. In the early stages of its development the system was perceived as an accounting(weapon) or device that would provide the Clearing Department with some sort of competitiveadvantage. In fact, once they had the breakdown of the costs of the Clearing Department theirreaction was the exact opposite. The ABC team perceived that the information did not providethem with any competitive advantage (although they still acknowledged that it should do). TheABC accountant stated:"quite clearly it (ABC) gives you a handle on your costs and what drives your costs. You shouldthen be able to influence and manage your costs in a more effective way. But counter balancingthat is an argument that the aspects of not knowing your Clearing costs, whereby if 'you're allbatting off the same wicket and all playing with the same ball, then clearly all you've got is theadvantage. But if you are not, you can as we have, ended up in some cases, at a disadvantage".

The ABC team argued that the Bank was actually better off not knowing what the costs ofClearing are because of the large amounts of spare capacity that existed in the cheque Clearingindustry. As the ABC accountant put it:“Everyone is going out and trying to take business from their competitors to further utilise theirgrowing spare capacity. We’ve got quite a firm handle on our costs, which means that when wego out into a tender situation we provide incremental costs for the tender. One or two of ourcompetitors come up with similar numbers and then, organisations like Napoleon Bank for

16

example, who are meant to have virtually non-existent management accounting systems undercutus because they don't know what their costs are".

The ABC system provided information on the lowest tender price in order to recover their fixedcosts8. Howard Eldridge put it as follows:"Because the other Banks do not know their costs of Clearing, they can under quote Trafalgar ona continuous basis. By doing this, the other Banks continue to poach Trafalgar business or takenew business that comes onto the market place. Eventually, Trafalgar will be so under-capacitythat their costs will go up and up. As far as Clearing is concerned all the Banks are largely in afixed cost type base. As the other banks win more and more tenders their costs come down andby the time they do discover what their costs are, their costs are half of Trafalgar are becausethey've better utilisation of their capacity."

This illustrates a misappropriation of cost accounting (not just ABC) ‘logic’. The accountantshad only considered one perspective when looking at their costs. Other perspectives, which theycould have considered included taking the decision to loss lead, or they could have consideredtarget costing. They could have simply defined a more “intelligent” overhead allocation systemwithout an extensive analysis of work processes. It seemed that the Clearing Department werelooking at costs but were not looking at the market. In addition, they did not seem to recognisethat costs can provide useful information for the decision-making process. Furthermore, byignoring capacity costs they were assuming a short-run decision-making perspective.

These points illustrate the dysfunctional nature of the accounting information. The perceptionwas that because accounting information was being produced, it had to be right and they had touse it. They could not use the information in a flexible manner, or understand that the accountinginformation gave them a choice. They felt that because they had the costs, they had to use a cost-plus pricing mechanism. By reifying the costs their behaviour was determined by costs, asopposed to the costs being used as information for decision-making. As a result, the costinformation became an objective or real structure and created a space through which action andthought became determined.

A further example of misappropriation of the ‘logic’ of ABC arose in relation to the issue ofvolumes. The ABC system enabled identification of the volume of cost drivers and was seen asbeing essential for a volume strategy because volumes were changing so much in the ClearingDepartment. In terms of output however, it could be argued that ABC is recognised as a non-volume costing system, and is in fact a move away from volumes. The paper illustrates that there was some evidence of Shields’ (1995) success factors but theycould be seen as ‘unintentional’. Furthermore, ABC was ‘successfully’ implemented withoutmany of these factors. The ‘success’ of the system was wrapped up in the richness and fabric oforganisational life and specifically, how well it matched the preferences, goals, strategies andagendas of powerful coalitions within the organisation. It was the support of the third Divisionalmanager that eventually ‘forced’ acceptance of ABC. As the paper shows however this was a‘messy’ issue and the three divisional managers had an impact (both positive and negative) onthe implementation. There was very little consensus about, or clarity of objectives. Consequently,the individuals in the Clearing Department saw it as ‘just another system’ that did not really haveany weight behind it and, at first, many individuals chose to ignore it. The development of the 8In a situation of excess capacity (i.e. the slack in the Clearing Department), one does not count fixed costs. ABC isnot a full cost system because when a company has excess capacity it tends to use variable cost. There is nothingpreventing a company using a marginal costing system, target costing or a loss-leading approach. But this concernover fixed cost came when much, (but not all) of the slack had been taken out of the Clearing Department as a resultof re-organisation of shifts and the introduction of new technology.

17

ABC system was very ad-hoc and the researcher did not feel that she ended up with a clearunderstanding of the ABC system at all. This relates back to lack of consensus or clarity andobjectives and the fact there was very little (overt) support from top management. When theproject was initiated, there was very little understanding of how the results of ABC could belinked to competitive strategy. This only emerged once the system was up-and-running. Therewas very little communication about, and training in relation to the ABC system – yet someaccounting ownership did seem to take place.

ConclusionBy illustrating ABC ‘in action’, this paper has shown how the ‘logic’ of ABC can bemisunderstood. The paper has shown that from the outset of the project the ‘logic’ of ABC isbeing contradicted, defied and misunderstood and yet once implemented, the system was‘successful’. Despite this ‘success’ the paper illustrates the potentially dysfunctional effects ofthe accounting information. Rather than use it as a decision-making tool, the information wasperceived as being definitive. This paper has shown that ‘successful’ ABC is dependent on thecontext into which it is introduced and the agenda of the individuals in the organisation. The‘logic’ is open to interpretation and ‘success’ can be attributed to factors other than thosedescribed by Shields (1995). Much of this ‘success’ was unintended, or at the very least,unexpected and related to results that emerged once ABC had been implemented. The researchhas extended the understanding of ABC and has stretched beyond the technical issuessurrounding ABC into the domain of the social and behavioural elements. It has shown that ABCis a naturally discursive subject which, like all accounting, is contestable (Jeans and Morrow1989, Cooper 1990, Piper and Walley 1990, 1991) and that here is no right or wrong, correct orincorrect.

18

BibliographyAnderson, S. W., (1995), A Framework for Assessing Cost management Changes: the case ofactivity based costing implementation at general motors, 1986 –1993, Journal of managementAccounting Research, Vol. 7, Fall.

Argyris, C. and Schon, D. (1974), Theory in Practice. San Francisco.

Argyris, C and Kaplan, R.S. (1994), Implementing New Knowledge: The Case of Activity BasedCosting, Accounting Horizons, September, pp. 83 –105.

Armstrong, P., (1999), The costs of Activity Based Management, Unpublished Working paper,Department of Management, University of Keele.

Bellis-Jones (1989), 'Customer Profitability Analysis', Management Accounting UK, February,pp. 26-28

Berliner, C. and Brimson, J., (1988), Cost Accounting in Todays Advanced Manufacturing: TheCAM-1 Conceptual Design, Boston MA, Harvard Business School press

Bhimani, A. and Piggott, D., (1992), ‘Implementing ABC: A Case Study of Organisational andBehavioural Consequences’. Management Accounting Research, 3, 119-132

Brimson, J., (1991), Activity Accounting, New York, John Wiley

Bromwich, M. (1990), 'The Case for Strategic Management Accounting. The Role ofAccounting Information for Strategy in Competitive Markets', Accounting, Organisations andSociety, Vol.1.

Bromwich, M. and Bhimani, A., (1989), Management Accounting: Evolution not Revolution,London, CIMA

Burchell, S., Clubb, C and Hopwood, A.G. (1985), 'Accounting in its Social Context: Towards AHistory of Value Added in the United Kingdom', Accounting, Organisations and Society, pp.381-413.

Cobb, I., Helliar, C and Innes, J. (1995) ‘Management Accounting Change in a Bank’,Management Accounting Research, 6 pp155-175

Cobb, I., Mitchell, F., and Innes, J., (1992), Activity Based Costing,: Problems in Practice,London, CIMA

Cooper, R., (1985), Schrader-Bellows, Harvard Business School, Case No 1-186-050,51,52,53,278,054,055

Cooper, R., (1986), Mueller-Lehmkuhl GmbH, Harvard Business School, Case No 9-189-032

Cooper, R., (1988a), ‘The Rise of ABC – Part 1: What is an ABC System? Journal of CostManagement, Fall, pp 41-48.

19

Cooper, R., (1990), 'Explicating The Logic of ABC', Management Accounting, (UK) November

Cooper, R., and Kaplan, R.S. (1988), 'Measure Costs Right: Make the Right Decisions', HarvardBusiness Review, Sept/ Oct, pp 96-103

Cooper, R. and Turney, P.B., (1990), 'Internally Focused Activity Based Cost Systems', in R.S.Kaplan (Ed.) Measures for Manufacturing Excellence, Cambridge, Mass.: Harvard BusinessSchool Press

Eden, C. and C.Huxham (1996), ‘Action Research for Management Research’. British Journal ofManagement, 7, pp.75-86.

Ezzamel et al (1995)

Hopwood, A.G. (1985), 'The Role of a Committee that Never Reported: Disagreements onIntertwining Accounting with the Social', Accounting Organisations and Society, pp 361-77

Hopwood, A.G. (1987) 'The Archaeology of Accounting Systems', Accounting, Organisationsand Society, pp. 207-34

Innes, J. and Mitchell, F. (1991), Activity Based Cost Management: A Case Study ofDevelopment and Implementation, CIMA

Jeans, M., and Morrow, M (1989), 'The Practicalities of Using Activity-Based Costing',Management Accounting (UK), November

Johnson, H.T.(1988), Activity Based Information : A Blue Print For World Class ManagementAccounting, Management Accounting, June, 23-30

Johnson, H.T and Kaplan, R.S., (1987), Relevance Lost - The Rise And Fall Of ManagementAccounting, Harvard Business School Press.

Jones, C. and Dugdale, D., (2000). The ABC Bandwagon and the Juggernaut of Modernity,Unpublished Working Paper, University of the West of England.

Kaplan, R.S., (1987b) American Bank, Harvard Business School, Case No 9-187-194.

Kaplan, R. S., (1987c) John Deere Component Works, Harvard Business School, Case No 9-1187-107, 108.

Kaplan, R.S (1999). ‘Innovation Action Research: Creating New Management Theory andPractice’. Journal of Management Accounting Research, Forthcoming.

Malmi, T., 1997. Towards explaining activity-based costing failure: accounting and control in adecentralised organisation, Management Accounting Research, 8 (4), 459-480.

Mintzberg, H., (1979) The Structuring of Organisations, Prentice Hall

20

Morgan, G. (1988): Accounting as Reality Construction: Towards a New Epistemology forAccounting Practice. In: Accounting, Organizations and Society, 13, pp. 477-485.

Morrow, M. (1990),'ABC', Presentation to the Management Accounting Research Conference,Aston University, June

Morrow, M. and Ashworth, G. (1994),`An Evolving Framework For Activity Based Approaches',Management Accounting, February 1994

Munson, P., (1990), ‘ The Social Construction of MIS in a Hospital’ Unpublished PhD Thesis,Nottingham Polytechnic, 1990

Piper, J.A., and Walley, P., (1990) 'Testing ABC Logic', Management Accounting (UK)September

Piper, J.A., and Walley, P., (1991) ' ABC Relevance Not Found', Management Accounting (UK),March

Roth, H.P. and Borthick, A.F., (1989) Getting Closer to Real product CostsManagement Accounting, May, pp. 28-33

Scapens, R.W., (1990) 'Researching Management Accounting Practice: The Role Of Case StudyMethods', British Accounting Review, 22, pp.259-281

Shank, J.K. and Govindarajan, V.,(1988), The Ajax manufacturing Company. The perils of costallocation based on production volumes, Accounting Horizons, 2, 71 – 79.

Shank, J.K. and Govindarajan, V.,(1989), Strategic Cost Analysis, Dun Mills, Ontario, Irwin

Shields, M., (1995), An Empirical Analysis of Firms’ Implementation Experiences With ActivityBased Costing Journal of Management Accounting Research, Volume 7, Fall.

Shields, M and Young, S.M., (1989) A Behavioural Model For Implementing Cost ManageemntSystems, Journal of Cost management (Winter): 17-27.

Shields, M and Young, S.M., (1994). Behavioural and Organisational Issues. In Handbook ofCost Management, edited by R.Brinker. New York: Warren Gorham Lamont

Simons, R., (1995) Levers of Control: How Managers use Innovative Control Systems to DriveStrategic Renewal, Boston, Massachusetts, Harvard Business School Press.

Soin. K; Seal, W and Cullen, J (2001) ABC and the Articulation of Business Processes inBanking, Under Review, Management Accounting Research.

Spicer. B. (1990), New Directions In Management Accounting practice and ResearchManagement Accounting Research, 1, 139-154

Yoshikawa, T., Innes, J., Mitchell, F. and Tanaka, M. (1993) Contemporary Cost Management,London, Chapman and Hall

21

Figure 2List of Characters

STERLING OPERATIONS DIVISIONAL MANAGERSAndrew Wright: April 1992 – February 1993Initiated cost review for the Clearing DepartmentDavid Coles: February 1993 – January 1994An 'operations’ man who was not particularly interested in identifying cost informationThomas Strines: January 1994 –Supported the ABC project

FINANCIAL CONTROL DEPARTMENT SENIOR MANAGERSFINANCIAL CONTROL DEPARTMENT MANAGERSRoger UnwinThe senior manager in charge of the ABC project.Matthew PriceIn charge of the Human Resources Engineering project, but it was rumoured that he was takingover the ABC project.

THE ABC TEAMHoward Eldridge was a manager in the Financial Control Department who was responsible forthe ABC project in Sterling Operations. He had joined the Bank from the retail sector.Annie Eastern was an assistant manager working on the ABC project. She had been secondedfrom the Clearing Department (where she had worked for twelve years) to work on the ABCproject. She was chosen to work on ABC because of her detailed and expansive knowledge ofthe processes and procedures in the Clearing Department.

Figure 3 ABC Team - ResponsibilitiesTo design, develop, implement and maintain an activity based costing system.To develop and maintain a product costing systemProduce-

Product Cost ReportsActivity Cost ReportsProduct Profitability ReportsCosting Information for Transfer Pricing

Ratio and Variance AnalysisSet Recovery RatesAnalytical modelling and decision-making support as follows

Pricing and tendering analysisFinancial sensitivity analysis subject to capacity, cost and resource considerations

Adhoc CostingGeneral costing advice and guidance

Maintain close working relationship with non-financial Department managementand teams

Complete Easy ABC presentationsKeeping up-to-date with current and proposed developmentsProvide on-going support and advice to operational areas

Figure 1. Payment Services Division

GENERAL MANAGER

ASSISTANTGENERAL MANAGER

MARKETING+

SALES

ASSISTANTGENERAL MANAGER

FINANCIALCONTROL

HUMANRESOURCES

INTERNALAUDIT

CARDSERVICES

UKINVESTMENTOPERATIONSCASHPOINT

MANAGEMENT

SYSTEMS,STRATEGY

AND MAJORPROJECTS

MORTGAGEUNIT

STERLINGOPERATIONS

MONEYTRANSMISSIONOPERATIONS

CLEARINGDEPARTMENT

OPERATIONSCENTRE

CASHMANAGEMENTDEPARTMENT