Activity-based Costing in Financial Institutions

A book by Julie Mabberley

As one CEO said "If you don't know the value of your business, you will find yourself in the hands of someone that does." In this book, it suggests that Activity Based Costing is a tool to help understand the relative values of various parts of the business.

There have been many management theories and techniques developed over recent years which aim to provide specific ways in which managers can gain a greater understanding of how to manage the organisation to maintain and enhance value. Traditional financial information is no longer enough. Financial accounting provides some external information to shareholders, regulatory authorities, creditors and other stakeholders, but it is unsuitable for understanding how value can be created or enhanced within the organisation. Measuring and enhancing shareholder value is becoming a primary focus for many senior managers throughout the world.

Within the organisation, Value-based Management is becoming a common way of relating shareholder value to day-to-day operations and traditional management information is not sufficient to support this. Activity-based Costing is a tool that can be used to focus management attention on the costs within any organisation in a new way, creating opportunities to review the value enhancement at a detailed level. It uses traditional costing techniques and links them to the factors that drive the expenditure in ways that enable managers to analyse the value created or diluted within the company.

Activity-based Costing is a technique that can be used to bring about significant changes in management behaviour by focusing attention on expenditure patterns, operational processes, supporting activities and responsibilities throughout the organisation. It provides a common base of data which can be used to provide consistent management information across the various dimensions of the organisation.

As shareholder value gains in popularity and the balanced scorecard becomes a more common form of performance management, the use of activity-based techniques becomes more justifiable. Courses and workshops covering activity based costing are increasingly attended by managers from the financial sector. The technique can be adapted to a variety of uses and methods of application and managers require reassurance that their ideas are practical and applicable, as well as assistance in the use of activity based costing in practice.

Hence although the basic tenets of the first edition (concentrating purely on cost management) remain sound, it required update to incorporate the links to shareholder value analysis and performance management and to reflect our more recent experience in the process of developing activity-based information in practice.

Activity-based Costing in Financial Institutions - How to support Value-based Management and Manage Your Resources Effectively (Second Edition)
Copyright 1998 Julie Mabberley. ISBN 0 273 63753 3, published by Pearson Professional Publishing. All rights reserved.

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